Peak Oil vs. Peak Oil Demand: Which Will Happen First? Does It Really Matter At This Point? Thoughts and Speculations about Resource Depletion

Peak Oil vs. Peak Oil Demand: Which Will Happen First? Does It Really Matter at This Point? Thoughts and Speculations about Resource Depletion 

Resource depletion has long been a major worry and a rallying cry for the technological search and development of renewable and more sustainable sources for energy and materials.

Julian Simon pointed out that the availability of a ‘finite’ natural resource is defined not merely by its quantity but also by the technologies and innovations used to retrieve it. Thus, human ingenuity is an inextricable part of a natural resource. Availability is also determined by market economics. Technology and innovation virtually always move toward greater resource availability (except possibly in cases where technology is regulated due to environmental and/or safety effects). Market economics fluctuate according to momentary and regional supply and demand. Thus we have the categories of: resource in-place, technically recoverable resources, and economically recoverable resources. Resource in-place changes with new discoveries. Technically recoverable resources change typically toward more availability. Economically recoverable resources fluctuate according to market conditions. One might also add “practically recoverable resources.” This would put off limits a certain amount of known reserves due to practical considerations: potential negative environmental and safety effects often being the big factor there. One current example of resources currently impractical to develop is the large natural gas reserves in the Marcellus Shale, the Utica Shale, and the Burket/Geneseo Shale under the city of Pittsburgh in Alleghany County, Pennsylvania – estimated at an impressive 15 TCF – more than many entire countries. While there may be some development of that resource in a few areas it is unlikely on a large scale due to environmental/safety considerations and multiple land/minerals ownership issues that would be nearly impossible to untangle and get agreement. There is also a drilling moratorium in the city that is unlikely to change.

Energy resources, particularly fossil energy resources, are burned and once burned are gone. One recent possible future exception to that may be current attempts to economically make ethanol from CO2 exhaust. Many material resources are recyclable so their usage may be extended and their depletion be delayed. Both exploration and new technologies can increase recoverable reserves of energy and materials.

Shell recently reported that they think that globally we might hit peak oil demand around 2022 – 5 years away. Other oil demand analyses don’t think it will happen that soon. Factors that affect peak oil demand include energy efficiency, CAFÉ fuel standards, ramping up of electric vehicle manufacture and usage, conversion of trucks, trains, ships, and other equipment from diesel to natural gas, increased use of biodiesel and ethanol, oil price, and oil price relative to natural gas prices and EV costs. U.S. biomass-based diesel production is up recently and is expected to continue rising modestly according EIA. Ethanol usage is higher than biomass-based diesel since it is blended up to 10% and typically present in all gasoline. Its forecasted use in the U.S. going forward is for just slight growth. If peak oil demand precedes (or at least coincides with) peak oil then the specter of oil depletion as a serious problem will be weakened. The fact that peak oil demand is even being predicted, and so soon by Shell, bodes well for oil demand dropping or at least stabilizing before peak oil becomes a serious issue.

 

Some energy commentators in the U.S. and in Europe have urged for peak oil planning. Most of them have ties to the renewables industry or renewables promotion. Those from Richard Heinberg at the Post Carbon Institute are aimed at post-carbon strategies, obviously. His analysis in a few books (Powering Down and The Oil Depletion Protocol) occurred before the shale revolution occurred with the new technologies of fracking and horizontal drilling. Technological, efficiency, and cost improvements have continued in the oil & gas sector with simultaneous and zipper fracking, multi-well pads, stacked pay zones, more stages per well, more proppant per stage, longer laterals, better targeting and geosteering, better definition and focus on core areas, better reservoir characterization, faster drilling, lower drilling and service company costs, and less rig down time. Other efficiency enhancements and production enhancements are possible. The fracking revolution has extinguished the “fire” of peak oil declarations, at least for now and at least in the U.S. In Europe this is less clear. Jeremy Leggett’s 2014 book, The Energy of Nations, also touts the importance and danger of peak oil, but happens just before the very beginning of the big oil price downturn beginning in the fall of 2014. Currently, both global oil as well as gas in many regions are glutted and rigs are way underutilized but demand is still high. The current high amount of drilled but uncompleted wells (DUCs) in the fracked oil plays indicates that domestic oil production can rise quickly if economic conditions warrant it due to higher demand. The bottom line is that primarily due to fracking and technology, peak oil is not an issue in the near term. 

Others have pointed out that peak oil demand may also be premature since the factors that favor it have some issues. For instance, EVs still have a ways to go toward widespread adoption. There are also logistics to work out with the potential effects of EVs on the electric grid, including preparing for peak demand, upgrading smart grid technology, and building more power generation to cover new demand. There are further issues regarding who will pay for such grid upgrades. There is also the potential issue down the line of how to replace tax revenue generated all along the cycle from oil production through gasoline and diesel consumption. Many oil analysts point out that globally, particularly in the developing world, the amount of cars being produced is still growing and some expect it to nearly double within the next 20 years. EVs currently only make up a tenth of 1% of the global vehicle market and even with massive deployment at the highest end of predictions there is still projected growth of gasoline and diesel vehicles.

References:

CERAWeek: Pumping the Brakes on Electric Vehicle Uptake – by Trent Jacobs, in Journal of Petroleum Technology, March 10, 2017

The Energy of Nations: Risk Blindness and the Road to Renaissance - by Jeremy Leggett (Routledge, 2014)

The Oil Depletion Protocol: A Plan to Avert Oil Wars, Terrorism, and Economic Collapse - by Richard Heinberg (New Society, 2006)

Hoodwinking the Nation: Fact and Fiction about Environment, Resources, and Population - by Julian Simon (Transaction Publishers, 1999)