Monday, December 27, 2010

Krugman: Peak Oil has Arrived

His exact words are:
In particular, today, as in 2007-2008, the primary driving force behind rising commodity prices isn’t demand from the United States. It’s demand from China and other emerging economies. As more and more people in formerly poor nations are entering the global middle class, they’re beginning to drive cars and eat meat, placing growing pressure on world oil and food supplies.

And those supplies aren’t keeping pace. Conventional oil production has been flat for four years; in that sense, at least, peak oil has arrived. True, alternative sources, like oil from Canada’s tar sands, have continued to grow. But these alternative sources come at relatively high cost, both monetary and environmental.

Also, over the past year, extreme weather — especially severe heat and drought in some important agricultural regions — played an important role in driving up food prices. And, yes, there’s every reason to believe that climate change is making such weather episodes more common.

So what are the implications of the recent rise in commodity prices? It is, as I said, a sign that we’re living in a finite world, one in which resource constraints are becoming increasingly binding. This won’t bring an end to economic growth, let alone a descent into Mad Max-style collapse. It will require that we gradually change the way we live, adapting our economy and our lifestyles to the reality of more expensive resources.
Emphasis mine.  I would have worded it a bit differently: with a nuance here and a caveat there, but I think the broad thrust of what he's saying is helpful. It's good to see such a widely followed voice acknowledging these issues. I think the degree of political strain is going to be somewhat greater than he's yet acknowledging though.


Lars-Eric Bjerke said...


EIA have made an Early Release Overview of their Annual Energy Outlook 2011. As I read it, EIA do not foresee any major problems with the US energy supply or energy prices up to 2035. To a major extent this is due to domestic production of shale gas and oil, which also means less import. Are they in your opinion reasonably correct or totally wrong?

tubaplayer said...

EIA have for long been the über-optimists, second only to CERA who are bought and paid for by the oil industry and whose job it is to prevent rocking of the boat that might affect the oil major's share prices.

You only have to look at the increasingly pessimistic views in the EIA World Energy Outlook published over the last two or three years to see the change in their stance.

For a more realistic view read what the US military have reported and also the leaked review from the Bundeswehr (German military).

Oil from shale is a chimera - in 60 years no company has been able to make a profit from it. To some extent shale gas is too. High cost, high tech, high environmental impact and gas wells that produce for about eighteenh months then abruptly die.

I'll leave it with you.

KLR said...

Wow. Just wow. That'll count for some props, whatever you think of the Krug. Peak oil is "garbage," and it has arrived.

Incidentally I've wildcatted my own blog, Hydrocarbon Watch. More a glorified form of note taking than anything substantial. I notice that, according to the Wiki Megaprojects pages, we should be shortly Drowning in Oil again. Yayyyyy!

Also new Iraqi oil minister says they're at a 20 year production high, attaining levels not reached since Nov 2001 according to EIA data. Shut up, you.

The Arthurian said...

"I notice that, according to the Wiki Megaprojects pages, we should be shortly Drowning in Oil again." -- KLR

Oil seems to "peak" during severe economic downturns. Even Krugman's remark suggests that if profits were better, oil needn't have peaked.

Ancient Roman road-building no doubt "peaked" at some point during the Decline...


KLR said...

That's not what I'm talking about at all. These are projects entered in the database as supply additions, consumption is another issue entirely. For 2009-2011 the surplus after factoring in decline is 1289/1194.83/2635.28 kb/d. These numbers are substantially higher than what I got from the Wiki just a year ago; even 2009 seems to have been revised upward 662 kb/d. As I point out at my blog Skrebowski suggested a higher supply build in his own analysis, perhaps the Wiki people have caught up with his findings.

Alexander Ac said...

Will NOT bring an end to economic growth... hmm, that is based on what assumption? Since when is economic growth based NOT in increased energy consumption?

Gradually change the way we live? Oh, really? Since when exponencial decrease in oil availability and extreme price volatility a matter of *gradual* adaptation?

But I agree with Krugman, there is no point of panicking in sinking Titanic...

word verification - sproblem - :-)