Monday, September 26, 2011

Seeking the True Shape of Peak Oil

The most simplistic graphic description of peak oil is shown above. The curve moves smoothly upward to the peak, then drops quickly to negligible levels. This is how unsophisticated peak oil doomers typically see the "peak oil" phenomenon.
A more sophisticated observor of oil and liquid fuels production is likely to be aware of the economic "recruitment" of new oil supplies and substitute fuels, as the cheaper, low-hanging fruit is plucked and prices trend upward. Notice the unsophisticated peak oil curve in dotted orange, labeled "Peak oil--Campbell."
Sine / Cosine Graph Simulating Out of Phase Oil Price and GDP Curves

But that is not to say that all peak oilers and peak oil consultants are as unsophisticated as Hubbert, Campbell, or Simmons. A new breed of more economically informed peak oil consultant is beginning to describe "peak oil" as more of a cyclical phenomenon, driven by the interaction between oil prices and economic growth.
Peak Oil is, in fact, a complex but largely an economically driven phenomenon that is caused because the point is reached when: The cost of incremental supply exceeds the price economies can pay without destroying growth at a given point in time. While hard to definitively prove, there is considerable circumstantial evidence that there is an oil price economies cannot afford without severe negative impacts.

The corollary is that if oil prices fall back to and sustain levels that do not inhibit growth, then economic growth will resume, with both recoveries and downturns lagging oil price changes by 1-6 months. _ChrisSkrebowski

You can easily see in the above definition of "peak oil," the driving forces of a co-cyclical pattern involving oil prices and economic growth, simulated by the out of phase sine and cosine curves.
But for peak oil to mean anything at all, it must incorporate an element of doom, catastrophe, and collapse. The above graphic simulates a cyclic economic pattern with attenuation, damping to very low levels of economic activity. This graphic might best depict the new, more sophisticated economic / geologic synthesis of peak oil doom consultants, as described by Skrebowski, when economies do not have enough time enough to fully recover from the previous crash before the next oil price hike hits the system. Each successive cycle leads to a worsening economic picture, in this scenario -- since the economy is thrown too far off balance to develop substitute fuels or power sources in time to prevent collapse.

Now, contrast the "peak oil plateau" graphic that is the second image from the top, with the damped sine wave depiction of peak oil collapse in the lowest graphic. In the case of the "complex plateau," there would seem to be time for advanced societies to move to safe, clean, advanced nuclear sources for power and industrial heat. But in the case of the damped sine pattern, it is not clear that societies could recover from the downward spiral.

A thinking person might perceive that different nations possess different resources -- both natural resources and human resources. Logically, the response curves to "peak oil" for different nations and societies would not be identical to each other. Rather, the response to "peak oil" -- no matter how it is defined -- is likely to vary widely between different economies, depending upon the available resources and the competence of national leadership. In other words, collapse is more likely to be regional in all but the worst price-shock cycle scenarios.

A careful reading of the Skrebowski piece linked above, will reveal that government policies will have a great deal to do with how a society weathers high energy costs. If governments pursue policies of energy starvation -- such as the Obama government and certain European governments are doing -- economic hardship within the society will multiply.

More:

Two sides to peak oil
An interesting historical look at the evolution of viewpoints toward oil resources and peak oil.

How an excessively gloomy view of peak oil might distort markets and cause unnecessary disruption and hardship

Cross published at Al Fin Energy

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