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Peak oil is a big problem

I had another letter in the Taipei Times today. This one was on the subject of peak oil. Unfortunately the title the Taipei Times’ editors chose for the letter, “Planning for an oil-less future”, reflects a common misunderstanding. Peak oil doesn’t mean the world will run out of oil, but that the supply and availability of oil will begin to decline.

To better understand the issue of peak oil I suggest reading The Oil Drum, a website which contains a vast array of articles discussing peak oil and energy issues. I also suggest downloading the free e-book Searching for a Miracle from the Post Carbon Institute website. It clearly explains the limitations of all the major energy sources and the problems these pose for the future.

The Deepwater Horizon oil spill has forced the world to address the inherent danger of our dependency on oil. [I originally wrote: has woken up the world to the risks and dangers of our dependency on oil.]

Hopefully, this environmental disaster will provide sufficient impetus for societies to start reconsidering their use of oil and planning for a future after peak oil, which is imminent or might already have arrived.

The exact timing of peak oil may be uncertain, but it is clear that oil is already becoming more expensive and harder to extract.

There is obviously only limited capacity for any major increase in the global supply of oil. The age of cheap oil is over.

Oil importing countries will be more adversely affected by peak oil than oil producing countries.

As a country that is almost entirely dependent on imported energy, Taiwan is particularly vulnerable to changes in the price and availability of oil. Taiwan’s economy is largely based on manufacturing for export and this is dependent on the ready availability of energy and petroleum products.

Reconfiguring the economy and people’s lifestyles to be less energy intensive is not something that can be done overnight.

Up to now the energy policies of Taiwan’s governments have been weak and piecemeal.

There has been little investment in developing renewable energy and even if larger investments are made, it will still take a long time to scale up renewable energy. Even then, technical and economic constraints make it unlikely renewable energy will meet all of Taiwan’s present energy needs.

Similarly there have been no major investments in improving energy efficiency. Measures proposed by the government are often token and while they should not be dismissed out of hand, they just don’t match the scale of the problem. Nor do they address the fundamental issue of restructuring the economy.

People will have to adapt to life with less energy in the future.

This necessitates a fundamental shift in our economies and our lifestyles. The sooner action is taken to adapt, the smoother the transformation [I originally wrote: transition. Transition better describes an ongoing process while transformation suggests more sudden change.] will be.

Without appropriate action the future is likely to be dark.

Comments

Comment from posconvex
Time 4 July 2010 at 7:59 pm

Any discussion about oil prices over the next decade must include an attempt to quantify emerging economy demand as an important driver at the margin. Here is a simple thought experiment using Chinese demand to give some idea of the magnitude of the supply issues we face:
– China moves from 3 bbls/person/year to the South Korean per capita consumption level of 17 bbls/person/year
– Transition takes 30 years
– No peak in global production

In next 10 years we must find 44 million BOPD. If you superimpose peak production on top of this demand profile using the following parameters oil prices would increase approximately 250% in real terms over next 10 years:
– Oil demand elasticity of -0.3
– Current production 84 million BOPD, current price US$ 80
– Peak production 100 million BOPD
– Post peak decline rate of 3-4%

If you want to try the model for yourself using your own assumptions it can be found at: http://www.petrocapita.com/index.php?option=com_content&view=article&id=128&Itemid=86

Comment from David Reid
Time 5 July 2010 at 2:08 am

posconvex, I appreciate your analysis but I think you are missing some key points. The first is that when oil prices rise beyond a certain level economies go into recession suppressing demand. Even if developing countries can maintain economic growth there is still a limit to what they can afford to pay for oil. For these reasons I don’t think oil prices are going to go into the stratosphere.

Furthermore there is another important factor and this is the decreasing EROEI of the oil being extracted. It is this combination of both increasing economic and energetic cost to extract oil that is the real crisis. There are no easy solutions except to plan for a world with less available energy.