In the first of two articles, Simon Michaux, Senior Research Officer at the University of Liege outlines his argument that reaching ‘peak energy’ will require a fundamental re-think of the principles behind our global economic model.
Our current society is one based on whim. Whatever we want can be had if we have the money. Not only can we have what we want any time we want it, it’s the done thing to throw it away and buy something else when it breaks or the latest upgrade comes out. We are conditioned to believe there are no limits within the current framework, and growth is our reason to be. The ‘how’ we can have all this fantastic stuff is considered someone else’s problem. But with a growing middle class population, for how long will it be possible to utilise finite, non-renewable resources in this linear fashion?
To date, our civilisation has been built on non-renewable natural resources. What has facilitated all this is our sources of energy – the master resource. Oil, coal and gas has accounted for the vast amount of industrial development over the last 160 years.
Currently, we are a petroleum based society, where petroleum products and petrochemicals derived from oil provide goods and services for most of the vital requirements of our industrial civilisation. Everything from food production to plastics manufacture is dependent on oil in some form (there are some synthetic alternatives but they are costly and not as effective as natural crude oil as a raw feed product). World growth in GDP, energy consumption and oil consumption all correlate to demonstrate this basic concept. The world economy is dependant not just on oil but high quality and high net energy oil.
But all is not well with the oil sector. Between 2000 and 2012, $2.6 Trillion USD was invested in oil infrastructure CAPEX, with no gain in oil production (this data includes shale oil production in USA).¹ Global crude and condensate production has plateaued since approximately 2005. The problem with this is world population is 13.8% larger now than in 2005 (7.4 billion people 5/2/2016 vs 6.5 billion in 2005). Increasingly unconventional sources of oil are being used to meet demand, where these sources are expensive to extract and struggle to meet the desired quantities.
Increasingly, conventional sources of crude oil have been difficult to discover and exploit. The picture below shows the pattern of oil discovery, listing all of the major plays that have dominated oil production.
There will come a point where total oil production will peak and decline, the question is just when this will happen. Conventional crude oil production peaked in 2006, something now recognised by the International Energy Agency (Source: IEA World Energy Outlook 2010). Unconventional sources like tight oil (also known as shale oil) in the US have come on line to meet demand requirements, which have for some discredited previous predictions around peak oil.
However, The global combination of conventional crude oil production and unconventional oil production is predicted to peak and decline very soon, according to various studies. A sophisticated analysis on oil production has been conducted by retired actuary Gail Tverberg, where total oil production is predicted to have peaked in the year 2015. Others have suggested that we are in fact past peak, such as the report released by the Energy Watch Group (EWG), which claims that peak oil production (conventional and unconventional) happened around the year 2012.
Gas as a commodity is important to our industrialisation. As industrial sites require large quantities of power, a gas fired power station is often installed. Acquiring data for gas production has been difficult but it is believed that conventional production of natural gas peaked in the year 2011 (data is spotty). To meet industrial demand, unconventional sources of gas like fracking and Coal Seam Gas (CSG) have been developed. Unconventional gas supply was believed to replace conventional sources of gas, and is in the process of doing so.
Coal is another energy resource that our industrial grid depends on to generate its electricity requirements. It is also often the case that the domestic power grid that supplies electricity is dependent on coal. The EWG report has a peak in coal production at approximately the year 2020. Four years away. Even if this estimate is imprecise, as it now takes about five years to build an industrial power station, it would behove us all to consider a replacement energy source.
Each energy source often serves different purposes, so one resource cannot necessarily directly replace another. For the purposes of comparison though, all energy sources discussed have been put onto one graph:
(Another good estimate has been provided by G. Tverberg in “A Forecast of Our Energy Future; Why Common Solutions Don’t Work”)
Peak total energy is projected to be approximately in the year 2017. This means that industrialisation in a global context, based on the current rules of the game, will soon tip into contracting economies – the end of growth based economics. As this challenges would have taken 20 years to meet with an engineered alternative (once a viable one has been presented) (Hirsch 2005), the implications of the above charts are quite serious. Even if the projection was incorrect by 10 years, our industrial society would still be faced with an unprecedented challenge.
To examine the usefulness of a replacement energy source, the Energy Return On Energy Invested ratio (EROEI) is used, which is the ratio of the amount of usable energy acquired from a particular energy resource to the amount of energy expended to obtain that energy resource.
Oil when it was originally discovered was very good and returned about 100 units of energy for every one invested. Now it’s around 12-18:1. Most alternative energy sources are much lower than what oil currently delivers. To put this in perspective, the European medieval society EROEI was Approximately 1.5:1. For our industrial society to function, an EROEI ratio of 10:1 is required.
What this means is we have no replacement energy source that is as calorically dense as oil. It is simply not practical to replace oil as an energy source and maintain current energy demands. Colloquially, oil is butter-fried-steak wrapped in bacon and alternative energy is lettuce. This is why peak oil is so relevant and is the rate determining issue amongst the network of problems facing society at this time. With the possibility of peak energy on the horizon, the solution may lie in a fundamental upgrade to the operating system for our economy.
- Data collection stopped at 2012 because since then, there has been a non linear pattern unfolding in the form of global economic stagnation. Currently the Baltic Dry Index is at a historic low (currently 332), where it was about 600 during the worst of the global correction of 2008. This means global trade is at a historically low level. More time is required to determine the true nature what is happening now.