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The peak oil debate is over
by Dr. James Schlesinger
October 8, 2010

Dr. Schlesinger served as Chairman of the Atomic Energy Commission (1971-73), Secretary of Defense (1973-75), Director of the CIA and was the first Secretary of Energy (1977-79).

Dr. Schlesinger has a BA, MA, and Ph.D in Economics from Harvard (Phi Beta Kappa and Summa Cum Laude).

If something cannot be sustained, it will eventually not be sustained… ultimately it will shrink.

Secondly, you cannot produce oil unless you first discover it.

Third, a resource that is finite cannot continually have its production increased.

First, we remain heavily dependent on super-giant and giant oilfields discovered in the 50s and 60s.

Second, old super-giants like Burgan in Kuwait and [Cantarell] in Mexico have gone into decline earlier than had been anticipated… and going into decline have been Alaska, the North Sea, western Siberia and the like.

Third, while it is not yet “Twilight in the Desert” (as you may have read) still we are well into the afternoon, even in Saudi Arabia. Even the Ghawar oilfield is increasingly hard to sustain.

Fourth, in 2004 we experienced our first demand-driven price spike, as opposed to the previous price spikes driven by supply interruptions. We still operate at about the level of production capacity of 2004.

Next, given projected decline curves running from 4 to 6 percent, and the projected increase in demand during the next quarter century, we shall require the new capacity equivalence of five Saudi Arabias.

But clearly, large conventional oil production is increasingly no longer part of the future unless there is a technological breakthrough...raising the ultimate recovery rate from existing fields, which at this moment we cannot expect.

In general we must expect to get along without what has been our critical energy source in expanding the world’s economy for more than half a century.

Can the political order face up to the challenge? There is no reason for optimism.

We are likely to see pseudo-solutions, misleading alternatives and sheer sloganeering.

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PeakTrader:

In 1970, U.S. oil production was 9 1/2 million barrels a day and imports were less than 1 1/2 million barrels a day.

In 2005, U.S. oil production was 5 million barrels a day and imports were 10 million barrels a day.

http://en.wikipedia.org/wiki/File:US_Oil_Production_and_Imports_1920_to_2005.png

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PeakTrader said...

In 1970, the U.S. with a population of 203 million used 11 million barrels of oil a day.

In 2005, the U.S. with a population of 295 million used 15 million barrels of oil a day.

So, the U.S. population increased 45% and oil use increased 36%.

Yet, Americans live in bigger houses, have more appliances, drive bigger cars, etc. Per capita living standards improved substantially from 1970 to 2005.

On the production side, the U.S. offshored heavy goods and shifted production into lighter goods (many goods in the Information and Biotech revolutions, and service industries, weigh almost nothing).

Also, I may add, the U.S. imported offshored heavy goods at lower prices and at higher profits, and exported lighter goods (with market power) at higher prices and at higher profits.

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p said...

Peak Oil should not be confused with rising oil prices. There are many reasons why oil prices rise and fall over time.

With all respect to Dr. Schlesinger, he is merely stating an opinion based upon his personal experiences. Economics as a discipline does not support the notion of Peak Oil. Prices and Markets do not operate based upon the simple notion. Prices and Markets use far more information. Finally, if Dr. Schlesinger and other peak oilers are so certain please feel free to act with their own money instead with all of our money. They can use the huge win falls to support those of who were wrong (if they are not vindictive). The unfortunate fact is that Peak Oil is not a robust idea that can generate economic rents without the government intervening to make it so by creating scarcity.

Seriously, let's separate out the natural notion that there is a fixed amount of oil on the planet earth from the socio-economic notion that oil plays a material role in the economy at the moment. Peak oilers confuse there certainty with the former with the later. It is simply wrong. The two are distinct. Humanity and Markets will and is working on alternatives as it has done for a long time. Jaw boning upon impending doom is a cowards game. Humanity at this point needs people committed to real solutions that leverage innovative ideas not the totalitarian reasoning.

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PeakTrader said...

P,

The world will never run out of energy. The economics already show the way, e.g. higher oil prices, more alternative energy, fewer and smaller assets and goods, greater efficiency, more conservation, less globalization (to reduce transportation costs), and perhaps an actual decline in living standards.

When we get out of this recession (according to Buffett, we're still in recession), oil prices will skyrocket, high-cost extraction methods and alternative energy will become relatively cheaper. Supply will increase to meet increased demand.

https://www.blogger.com/comment.g?blogID=28997633&postID=1313273417170757948