Peak Oil Ponderings, Part I

Peak oil

is one of the main reasons Cycle 9 exists.

How could peak oil create a bike shop, one might wonder? And for that matter, what is peak oil?

Let’s start with what peak oil is not. Some media use hyperbole to make it sound like peak oil claims “we are running out of oil.” We are not running out of oil, there is still a lot of oil left.

What peak oil claims is that we will run out of

easy to get

oil, which implies we will run out of

cheap oil

.

Sounds like no big deal, we just pay a bit more and drive a bit less?

The problem comes from the structural dependency of our economy on

cheap oil

. Our food is transported mostly by truck, not by train. Our food is produced using large amounts of oil. Our cities are configured for automobile use, with far-flung suburbs and exurbs. Our cities are not structured for rail, biking, and walking (some of them used to be, but more recent extensions don’t take these into account). For example, in our “progressive” town of Carrboro, North Carolina, there are many places with no sidewalk whatsoever - just road. To walk means either walking in the roadway, or walking on the uneven lawn/gutter next to the road. The city is designed for cars, not for people. As are most american cities.

So, some people say, big deal, soon we’ll all drive electric cars. Well, that’s great, but there are hundreds of millions of cars right now that burn fossil fuel. Producing hundreds of millions of cars and getting them into people’s hands is no small task, especially as energy prices soar. Harder still is the question of where the energy in the electric grid will come from. The US car and truck fleet uses over 1 billion kilowatt hours per day (e.g. see

here

). That is the equivalent of 80 new 1 GW power plants, dumping power into an already strained grid (see stories about

power outages

and

this article

). This is a massive build-out of plants that usually take 10-15 years once regulatory hurdles are cleared. And if we’re talking nuclear, there will be major political hurdles. As for coal, too, because of greenhouse gas concerns. This is not making a political judgement, just saying that getting these kinds of projects approved will not be easy or quick, unless we are in an emergency situation, and then it is already very late in the game.

Lately we’ve heard a lot about the idea that oil is a “bubble” or that it is all due to “speculation”. While it is nice to blame the nameless/evil speculators, there is little evidence for that. On the contrary, there is one single chart that explains very simply why oil prices have gone so high:

This chart is all about oil

exports

from exporting countries. So, even though oil production has inched up a tiny bit over the last few years,

exports are down.

Why? Very simply, the big producing countries are using more and more of that oil themselves. In fact, Mexico, a major oil exporter to the US, is on track to reach

zero

exports to us as soon as 2010

. Many other countries, including oil-rich Saudi Arabia, are consuming an ever greater fraction of the oil they produce, meaning less is available for export.

This at a time that India and China are growing rapidly and importing more.

Less supply, more demand - a simple equation that, in the absence of government intervention, leads to higher prices. And, what if government intervenes?

I’ll address that in Part II next week.