|
The Bell Curve and Hubbert’s Peak In his new book “The End of the Age of Oil” Goodstein argues that the production volumes of any natural resource follows a bell curve - increasing rapidly at first, then more slowly, eventually peaking and beginning to decline. Copper production from Upper Michigan a century ago followed this pattern, as did anthracite coal production in the Eastern states. The bell curve also applies to crude oil production. Oil production in the United States was still rising in the mid-1950’s, and the country was a net exporter of oil, when M. King Hubbert, a geophysicist with the Shell Oil Company, predicted that oil production in the United States would peak sometime around 1970. Hubbert’s prediction was widely ridiculed. Agencies like the Texas Railroad Commission were issuing regulatory measures in the 1950’s to limit domestic production to stabilize prices. U.S. Crude Oil Production But in 1971 the Railroad Commission found itself in an unusual situation – production for the first time was not restricted by allowables that were set to meet market demand. Production in the U.S., and in the largest producing state, had peaked that year at a little over nine million barrels per day. Today we produce slightly less than six million barrels of oil per day in the U.S. Demand has increased substantially. Production in the U.S. followed a bell curve upward, and more recently downward. Power shifted in the early 1970’s from the Texas Railroad Commission and domestic producers to overseas producers whose excess supply met increasing demand. OPEC utilized the pricing powers that came with this positioning to increase the real price of energy several fold. Today’s Oil Problem Much More Serious Goodstein argues the current oil production supply and demand relationship is much more serious than the supply issues of the 1970’s – this time world oil production is peaking. In the 1970’s only the U.S. production – the largest producer in the world at the time – was peaking. Lots of crude oil reserves still exist in the world, but when around one-half of the total reserves have been produced Goodstein claims incremental production rates tend to flatten. Then decline. We have no third party alternatives from which to obtain the marginal oil supplies needed for our economy. With demand increasing, and supplies failing to grow and in fact leveling off, the need oil supplies will be allocated by higher prices - or by natural resource wars. As the age of oil ends, and prices for crude oil increase, our oil-based economy will face a number of crisis – not the least of which will be economic. Few Short Term Solutions The technological fixes are few in the short term according to Goodstein. We have coal and nuclear alternatives, but both have drawbacks. Both have serious environmental and health drawbacks. Drilling in the arctic or deep sea will only bring temporary relief. Wind farms or sunlight generation are expensive and impractical. In the best-case scenario Goodstein claims we can muddle through a transition to a natural-gas economy while nuclear power and coal powered plants are built to get us past the crisis. While theoretically true, natural gas production from North America has been surprisingly flat the last few years even with robust drilling efforts – although lots of natural gas exists worldwide that can be moved to markets by pipeline or LNG carriers. In the worst case Goodstein claims that "runaway inflation and worldwide depression leave many billions of people with no alternative but to burn coal in vast quantities for warmth, cooking and primitive industry." Politically he notes that leaders hardly acknowledge a problem, much less discuss meaningful ways we might deal with the issues. Policy regarding the Middle East, and eventually China due to its’ explosive growth in crude oil imports, will surely play a big role on how the problem is addressed – and the impact it will have on the economy and our lifestyle. But past a concern for “weapons of mass destruction” a clear Middle East policy regarding energy is difficult to ascertain. Energy Markets and the Economy The book is very readable and is well organized. For individuals who are aware of the current Hubbert peak and related energy debates the text might not be as detailed or factual as other resources. But Goodstein lays out the problem, the impact, and the solutions – or lack of short term solutions – relatively well in an interesting format. Individuals interested in the economy or energy markets will find the book worth the money.
Web Note: Also see the article/review on MSNBC.com "Crude Awakening" Contact
Information Email l Website l 5-Month Trial Subscription l Joe's Diner l Book Reviews Outperforming the major market indexes, Joseph Dancy’s LSGI Market Letter has beaten the major market averages by purchasing firms that are profitable, undervalued, and growing. Five month trial subscriptions are available. Click here. |
Crude
oil is the largest source of energy for the global economy. Our
lifestyle and economic wellbeing are dependent on reasonably priced oil.
But the laws of physics and thermodynamics indicate that worldwide crude
oil production may soon peak according to David Goodstein, author and 
