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Wednesday, July 4, 2012

Peak Oil

National Photo Co. Fossil Fuel 1920
Washington, D.C. "Penn Oil and truck."

Nicole Foss (Stoneleigh) over at "The Automatic Earth" blog posted Unconventional Oil is NOT a Game Changer. She does a great job of exposing many of the myths surrounding the Peak Oil denial being spouted these days.  Though the price of crude oil has fallen very recently, she discusses how the near $100 per barrel price has inflated a speculative bubble in "fracking" and other unconventional methods of extracting oil from the oil shale in the Bakken formation in North Dakota and Montana, as well as the Eagle Ford formation in Texas.

At the same time, in the case of oil, we are seeing a sharp reversal of perception - from one of scarcity to one of glut - as pundits discuss how technological innovations, including horizontal drilling and hydraulic fracturing, will increase global supply dramatically. De-conventionalization of oil supply is touted as the solution to peak oil for the foreseeable future.

She explains to us cost of producing oil from those formations in terms of money and energy resources is a speculative bubble that is bound to burst..., and that the recovery rate and sustainability of available oil is being extremely exaggerated.

You really should read the whole piece if you want to understand Peak Oil and what it means for your future.  Nicole sums up the piece thus:

Humans are prone to grasp at straws and believe in fantasies rather than face unpleasant realities. Believing that unconventional fossil fuels can maintain business as usual is a fantasy. We cannot run our current complex society on low EROEI energy sources.

We are still facing peak oil, and, on the downslope of Hubberts Curve, we will be running faster and faster on our accelerating treadmill just to slow the decline in supply. Unconventional supplies with lower and lower EROEI are not going to change that picture, and the crash of prices that will happen thanks to economic depression will aggravate the situation considerably in the short term. We can expect prices to fall faster than the cost of production, and many corporate casualties to emerge as boom turns to bust, as it always does.

The next few years will be remembered for financial crisis, where it will be money in short supply rather than energy. As economic contraction proceeds, and purchasing power falls substantially due to the collapse of the money supply, demand for energy will - temporarily - fall a long way. Beyond that, as the deleverging comes to an end and the economy begins to stabilize somewhat (probably between five and ten years down the line), we are likely to see a supply crunch develop.

With that we are likely to see a major price spike, and the potential for resource wars will grow dramatically. Oil is liquid hegemonic power, and conflict can be expected to develop when it is perceived to be scarce. Thats not where we find ourselves today, but it is where the future is taking us.

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