Uncertainly Certain: The fossil fuel(less) future of human society

Today, I drove fifteen miles to work in my car, packed my lunch with plastic bags, used my plastic ID to get into my office, where I immediately sat down and turned on my (you guessed it) plastic-cased computer powered by an always-faithful supply of electricity. The common thread? Fossil fuels. Gasoline powers the internal combustion engine in my car, refined oil is used to create the omnipresent plastics on which we so rely, and the burning of fossil fuels is the dominant source of electricity for the world. Moreso than any other factor, it is this preponderance of fossil fuel applications that epitomizes the modern industrial era, an era that has—despite the invention of computers and the internet—remained fundamentally knotted to fossil fuels for over a century now.

My generation sits at an uncomfortable tipping point in this equation. Common sense dictates that the supply of fossil fuels is not limitless, and the extraction of fossil fuels—as the Deepwater Horizon event so (non)neatly demonstrates—is far from harmless. Legacies of environmental imperilment and callous mismanagement by drilling companies aside, there will come a time when the impetus to separate human society from fossil fuel use derives not from issues of sustainability, but from issues of necessity. The future of fossil fuels in human society is what I term “uncertainly certain”: certain in the sense that we will run out, uncertain in the sense of timing.

When will we run out? Well, there are quite a few different fossil fuels, and the answer is more suited to a book than a blog. But let’s focus on one in particular: oil. Oil is a vitally important substance used dominantly for transportation, industrial, residential, and utility applications. In 2008, nearly 71% of oil consumed in the United States—the world’s greatest consumer of oil, no less—went toward the transportation sector. If we were to run out of oil tomorrow, our transportation system would shut down, 8.1 million households in the US would freeze come winter, and a full 35% of the world's energy supply would disappear. The magnitude of such an event was not lost on the scientific community; the studies of oil reserves and expectations for future supply have existed for quite some time. Here I want to introduce the most widely circulated theory of our future oil supply—“peak oil”—analyze its validity in the face of strong criticisms, and perhaps provide some idea as to what we can expect for industry 50 years from now. If you can’t read any further, here’s a short summary: if the world is the same, we’re probably screwed.

Peak Oil

Marion King Hubbert was a research scientist at Shell Oil Company, professor at Columbia University, and vaguely looked like the late Burt Reynolds (at least to me). In 1956 he postulated what is now known as the “peak oil” theory: for any well, oil field, or even nation, the production of oil follows a bell-shaped curve. Great, who cares? No one did at the time, until Hubbert predicted that U.S. oil production would peak between 1965 and 1970…and he nailed it.

Source: S. Foucher

The important concept behind the “bell curve” shape for oil production is that there is a single point where oil production is at its maximum before it declines; this point is referred to as “peak oil”. This is significant due to issues of supply and demand. Demand for oil has almost constantly risen in modern times: Between 1965 and 2009, global oil consumption increased by 270% and shows no sign of slacking in the near future. As peak oil represents the time when the supply of oil is at its highest, it represents the timing of a fundamental shift between the supply and demand of oil. After peak oil is reached, oil supply can no longer grow to meet demand. As basic economics shows us, this means oil prices will skyrocket.

Show me the money

Peak oil theory has successfully predicted oil production from individual wells, oil fields, and nation-states, but has been criticized when applied at the regional or global level. One of the strongest counter-arguments states that peak oil theory is misleading because it is fundamentally insensitive to price. Quite simply, the amount of oil that a company can recover at a profit depends on the price at which they can sell the oil. Rising oil prices make the recovery of oil at more expensive/risky sites (hint hint Deepwater Horizon) economically viable, allowing for an increase in global production during higher prices.

Fortunately, whether oil price has any relation to oil production is easily testable. Figure 1 below plots inflation-adjusted crude oil price and total world oil production for the past few decades.

Figure 1

While both show generally increasing trends, especially after the early 1980s, they do not appear either very consistent or coherent. A scatter plot, Figure 2, reinforces this conclusion.

Figure 2

Remember I warned in a previous entry that correlation does not imply causation. Well, the opposite is not the case; a lack of correlation does indeed imply a lack of causation. If one variable forced another, we would expect them to show at the least a meaningful correlation (e.g. not an r-squared of 0.05). Therefore, because oil price and oil production do not correlate, oil production is in actuality price insensitive, at least between 1970 and present. This is an especially surprising result, as you would think oil companies would ramp up production during high oil prices to maximize profits. It is likely they are unable to; I dare say increasing oil production is not as simple as flicking a switch.

Have we reached peak oil?

Several more surprising results follow from this. First, looking back at Figure 1, it appears as if the rate of increase in oil production has slowed significantly in the last several years.

Uh oh:

The previous image shows the results of a compilation of oil production models (yellow path) indicating that we either have already reached peak oil or will reach it within the next couple years. Also noteworthy is that the International Energy Agency, or IEA, have significantly reduced their expectations for future oil production from 2006 to 2008, and now suggest that we will reach peak oil by around 2030. Note also that their forecast now underestimates the population model, which assumes that oil production is tied to the world population. Either way, it appears that in the coming decade, for the first time in recent history, population growth will outstrip global oil production.

There are other indications we may be approaching peak oil, as well. Figure 3 shows that, since 2000, both the average depth of “exploratory” wells drilled in search of untapped oil reserves and the cost of recovery of a barrel of oil have increased dramatically in the U.S.

Figure 3

Combined, these indicate that we are searching deeper than ever before for more oil, and at greater cost. Coincident with this greater cost is greater risk, as surely the Deepwater Horizon incident has awakened us to. In my last post, I argued that sealing off the Deepwater Horizon wellhead would be a nearly impossible feat due to the pressure at which the oil and gas mixture is escaping. Remember that this pressure relates in the first order to the depth at which the well was drilled. If we keep drilling deeper and deeper in search of more fossil fuels, we will be attempting to tap into fossil fuel deposits at higher and higher pressures, and as such we should expect greater risk and a greater chance for major, nearly uncontrollable environmental disasters like the Deepwater Horizon incident.

What about the future of fossil fuels in human society? It is safe, for now. Although oil production may be price insensitive, high oil prices have made other methods for extraction feasible (e.g. oil sands and oil shales), unlocking reservoirs that equal to or dwarf the largest current oil reserves. Further, even if we reach peak oil within the next decade, it will still be some time until oil reserves become depleted enough to consider an “oil-free future” as a reality.

Nevertheless, there is something we should be very concerned about: while oil supply may be close to leveling off, oil demand is far from level. Rising industrial nations like China and India will force a major rebalancing of world oil supplies; between 1995 and 2005, U.S. oil consumption increased 17%, while China’s more than doubled. Global energy consumption is projected to increase by nearly 50% by 2035, with oil use alone increasing by 22%. Such increases in demand without meaningful increases in oil supply will surely pressure oil prices upward. In closing, although we should not fear running out of oil, our society is so tied to oil that even the threat of a shortfall could wreak havoc. Although the environmental argument for an oil-free future is a strong one, there is a much better argument lurking beneath the surface: We’re going to have to face it someday, so we might as well start getting prepared now.

Agree? Disagree? Think I’m full of it? Post your comments below and I’ll try to answer them. Also, I’ve included some links I found very useful if this topic interests you:

The 2005 Hirsch Report: Peaking of World Oil Production- Impacts, Mitigation & Risk Management (U.S. Department of Energy).

BP’s 2010 Stastictical Review of World Energy (yeah, I know they f’ed up in the Gulf, but they’re still one of the most knowledgeable energy companies around).

Finally, I don’t endorse wikipedia much, but their section on peak oil is quite well-researched.