Skip navigation.
The Texas Blue
Advancing Progressive Ideas

Oil Crisis of Epic Proportion on Horizon

On December 26, 2004 the water off the coasts of Indonesia, Sri Lanka, India, and Thailand began receding. Some people recognized the receding sea as a warning and headed toward higher ground. Many others oblivious to the imminent danger ventured out on to the coast to investigate the rare sight. What followed was a deadly tsunami that swept up and killed close to a quarter million people. The warning signs were there, but few too many people understood what was about to happen.

There are presently visible warning signs that an economic tsunami is on the horizon pending the peak and decline of global oil production. We experienced significant economic recessions in the 1970s resulting from disruptions in oil supplies. The difference now is that we are not facing the 1970s’ correctable man-made production disruptions, but rather disruptions of a natural sort that are not easily mitigated.

Global demand for oil is climbing at the same time production is peaking and verging on decline. According to the International Energy Agency (IEA), global production for the first five months of 2008 averaged 86.82 million barrels per day. IEA forecasts 2008 daily global oil demand at 86.85 mb/d. And of the 48 largest oil-producing countries, 33 are experiencing irreversible declines in production (Bentley, Mannan, & Wheeler, 2007). This means supply and demand is extremely tight with no evidence of loosening. We find ourselves ignoring a very serious matter for which few are knowledgeable enough to recognize or fully appreciate.

Any serious authority on this subject would agree that peak oil is real, and when it occurs will be economically catastrophic if nothing is in place to offset production declines. Yet few are willing to come to terms with the prospect of peak oil arriving anytime soon. It’s as if the water is receding but no one seems sufficiently concerned about the imminent danger.

Flat-Earthers v. Natural Scientists

The peak oil debate stems from confusion between and reliance on two different data sets that fuel two conflicting viewpoints. One viewpoint is characterized as the Economic or Flat-Earth approach while the other is referred to as the Geological or Natural Science approach (Aleklett & Campbell, 2003; Bentley, Mannan, & Wheeler, 2007).

The Flat-Earthers typically rely on proved reserves (1P) data published by organizations like the IEA to calculate remaining discovered oil (Bentley, Mannan, & Wheeler, 2007). However, there are serious problems with 1P data due to producers significantly not reporting, underreporting, and over-reporting their reserves (2007). Widespread reliance on 1P data is the primary reason debate over peak oil continues (2007).

In addition to using deficient 1P data, Flat-Earthers also believe irrespective of oil’s finiteness that technology, price, and investment drive supply (Bentley, Mannan, & Wheeler, 2007). The problem is the facts and fundamentals of oil production don’t neatly fit within this economic model. Nevertheless, for the past 20 years the economic viewpoint has been the dominant perspective on the subject among oil companies and throughout the world’s halls of power (2007). Soon we will find that with no evidence of future decline in demand, the primary driver of supply is simply availability.

The Natural Scientists understand the significant flaws inherent in 1P data and instead rely on proved plus probable (2P) data to make calculations for projecting future production capacities. 2P data is considered among experts to be a scientifically achieved best estimate of a given oilfield’s size. A key distinction of 2P data aside from 1P’s under, over, and non-reporting of reserves, is its reporting methods used for calculating discovery trends.

Over time it is inevitable that discovered reserves’ size are revised either up or down depending on the initial size estimate and its production capacity through the years. 2P data record reserve revisions by backdating them to the original wildcat who discovered the field so that a more accurate discovery trend may be plotted (Aleklett & Campbell, 2003). 1P data on the other hand, record reserve revisions by attributing the revision to the day they are announced. This practice gives the impression that a new discovery was made when in fact it was merely a revision of a past discovery estimate. As a result, 1P data would leave one to believe substantial amounts of oil continues being discovered when it’s clearly not the case. Presently, no significant discoveries have been made since the 1970s (Meng & Bentley, 2008).

According to 2P data based discovery trends, and past and present demand forecasts, global peak oil is anticipated to occur around 2010 (Meng & Bentley, 2008). The only people clinging to the unfounded belief peak oil either will not occur or will occur twenty or more years from now are those with a vested interest in the status quo . For example, OPEC goes so far as to deny the existence of peak oil even in theory. The problem for peak oil deniers, however, is that the science simply is not on their side. Some of the most notable in the geological field forecast peak oil to have already occurred, is occurring, or will occur by 2012.

Now What?

Now that we have a scientifically based understanding that global peak oil is occurring or will occur very soon, we must quickly devise ways to mitigate its economic impact. Some of the proposals involve producing unconventional oil, offshore drilling, renewable energy, and conservation.

Unconventional oil production includes use of special technologies for oil/tar sands, converting natural gas to liquid fuel, shale oil from oil shale, coal liquefaction, and heavy oil refinement (Duncan & Youngquist, 1999). Despite the tremendous quantities of available unconventional reserves, they will have little impact on peak oil due to the economic and environmental cost associated with their being mainstreamed. For example, processing oil/tar sands for use costs approximately $32 a barrel. The greatest cost however, is not tied to production but the environmental impact from production. When compared to conventional extraction, oil/tar sands processing emit up to triple the amount more carbon dioxide per barrel produced. Such economic and environmental costs are consistent with all the other unconventional oil production methods listed.

Offshore drilling continues to be bandied about by Republicans as the solution to reducing high oil prices. Yet anyone who truly knows anything about our current state of affairs, and is serious about crafting real solutions knows offshore drilling is not the answer, and to claim otherwise is bunk. People in the know claim oil from offshore drilling would not begin flowing onto the market for about a decade, and even after it does there will not be enough production to significantly lower oil prices. Offshore drilling is not the solution it’s touted to be. Instead, it’s little more then a Republican sideshow that will make some oil producers money.

The solution to an unhealthy oil addiction is not to sit around talking about producing more oil that’s not there to produce. We are not going to drill our way out of this seemingly bottomless pit we find ourselves. The way out is to get innovative about climbing our way to the top of producing renewable technologies, and increasing conservation through greater efficiency. This crisis offers us the opportunity to do what we do best, be innovative. We can’t afford to run toward the receding water.


Aleklett, K., & Campbell, C. J. (2003). The peak and decline of world oil and gas

production. Minerals & Energy. 18, 5-20.

Bentley, R. W., Mannan, S. A., & Wheeler, S. J. (2007). Assessing the date of the global
oil peak: The need to use 2P reserves. Energy Policy. 35, 6364-6382.

Duncan, R. C., & Youngquist, W. (1999). Encircling the peak of world oil production.
Natural Resource Research. 8, 219-232.

Meng, Q. Y., & Bentley, R. W. (2008). Global oil peaking: Responding to the case for
‘abundant supplies of oil’. Energy. 33, 1179-1184.

Peak Oil and Those in Denial

Josh, thanks so much for the excellent post!

It is so very hard to get people to comprehend this problem and you do a great job of explaining why.

I would only add a few ideas for your consideration:

1. Wharton and all the other professional schools for business and economic leaders are teaching a world view based on cheap and plentiful energy. This world view is so deeply ingrained that it is impossible for our business and government leaders to comprehend the current change in paradigm. For one thing, they have no professional tools to solve problems that arise in this new paradigm of expensive and scarce energy. Knowing they have nothing to contribute in such a situation, they simply whistle as they tip-toe past the cemetery of broken dreams.

2. The America that arose after 1920 was built upon cheap energy. Wihout a foundation of cheap energy, the house of cards falls. The suburban boom of the 1950's was specifically a cheap energy phenomena. This means that our very life styles are based on a totally unsustainable situation. When our leaders turn their thoughts towards the image of their own suburb abandoned and their own suburban home turned into an abandoned crack house and refuge for criminals, they wake up in a cold sweat and try to convince themselves it was only a nightmare. But, it's not a nightmare. It's the future.

3. Our faith in innovation amounts to a secular religion. Ever since the space race of the 1950s to 1970s, when we came from behind to beat the Russians to the Moon, we have believed that innovation can save our bacon. But just as there is just one best basic optimal design for a subsonic airliner (swept wings just so), there is just one basic optimal means of producing oil from the ground. All other ways are more expensive. Innovation can't change the fact that secondary recovery techniques are more expensive than simply pumping light sweet crude under natural pressure straight out of the ground.

4. We have to run fast just to stay in place. True, as you say, there are other oil sources that can still be tapped. But, peak oil implies that oil production will level out for a substantial period of time before the finite reserves begin the decline (no one believes that oil reserves are infinite). In order to maintain a plateau in production, we must work very hard to produce all possible oil from various places at higher expense. All of our innovation will only assure that the plateau might last a little longer (while demand continues to skyrocket). But, in the end, the result of new production will be to use up the finite reserves sooner, leading to an even more precipitous drop in production a few decades hence.

5. Responsible leadership would warn Americans to get out of the suburbs while the "git'n is good." Even if substitutes can be found for electric generation feed stock, it is not the same as liquid fuel in the tank of an eighteen wheeler delivering tons of chinese merchandise off an oceanliner to the local Walmart store (ditto for hamburger and frozen pizza). It will soon be too expensive to maintain low population density areas outside the core city. This will result in a permanent decline of suburban property values and eventual abandonment of the suburbs. People should not be encouraged to invest their life savings in the suburbs as if this were the cheap energy decade of the 1950s.

6. You correctly point out that the Saudis refuse to acknowledge the concept of peak oil. Imagine their motive! If they are forced to admit that they cannot increase oil production enough to solve shortages, then their influence in world affairs is lost. An excellent study of the deceptions of the Saudis in this matter can be found in the book Twilight in the Desert" by Matthew Simmons (2006), where he accuses the Saudis of intentionally deceiving world leaders about Saudi ability to increase oil production by millions of barrels per day for the foreseeable future.

7. Republicans like to talk about the "Global Warming Industry." (Oklahoma Senator Imhof claims Global warming is a hoax designed to enrich the likes of Al Gore and his portfolio of green companies). But, there is a real hoax in progress by Republicans and their Saudi henchmen who seek to prevent Americans from understanding the future in time to avoid personal and collective ruin. Whether this hoax is based entirely upon head-in-the-sand denial, or whether they simply don't want to know the truth, the result is that elites can keep accumulating wealth while the suckers get left holding the bag. It is the residents of the suburbs who will be left holding the bag.

8. The Democratic Party must get out in front on this issue. Ten years from now, Americans must recall that they heard the truth first from us. At least our Democratic Party leaders must not aggravate the hoax by pretending that band-aids like proposed use of the strategic petroleum reserve will solve the problem. This problem is not caused by speculation. There is always speculation in any market. But for oil, out of the $140 per oil price, hardly more than 10% of the price trading range is based on speculation. Even if the price falls from time to time, the handwriting is still on the wall. The days of free and easy waste of energy are rapidly coming to an end.

9. When the Norsemen settled Greenland, archeologists discovered that their settlement failed to prosper and the settlers died, because they stubbornly refused to adopt the ways of the Eskimo, who was experienced living in those conditions. Like us, the Norsemen were in denial. They wanted to wear cloth and live in stone houses like their reference groups in Europe. They refused to adapt. If we also refuse to adapt to the new circumstances, we will also cease to exist. Adapt or Die!!

Living in times of crisis is

Living in times of crisis is not that easy. Thankfully there are still financial options like payday loan that can help in this time. Because of the economic crisis that we are facing today some companies are nopw turning to payday loan for help. Oops – another payday loan company has done it again. A payday loan company has been hit with a class action lawsuit in Washington State. Claimants have filed that the lender engaged in collection practices that are definitely a show of some serious cheek. The lender had reportedly contacted clients that were late in payments and threatened jail sentences, used profanity, and all manner of humiliating language in an attempt to intimidate clients. The authorities aren't exactly fond of these practices. The settlement was for about $2.5 million, so the clients probably aren't going to need a payday loan again for awhile.

Syndicate content