M. King Hubbert should be spinning in his grave. In defiance of Hubbert's theory of "peak oil," the International Energy Agency recently predicted that the U.S. will have energy independence by 2020 and return to its former place as the world's biggest producer of oil. By 2030 or sooner, according to the IEA, North America will be a significant energy exporter.
This was a turnabout as severe as it was sudden. As recently as 2010, the IEA still agreed that U.S. oil production could never catch up with demand; indeed, it was speculating that the whole world had already passed its point of peak oil production—70 million barrels per day in 2006.
"The age of cheap oil is over," IEA Chief Economist Fatih Birol said then. He explained that it would take ever-increasing effort to find new reserves and produce from them, just to replenish the reserves that existed in 2006. By 2035, he said, the active oil fields of 2006 would produce only 20 million barrels of oil per day.
The IEA was channeling Hubbert, who died in 1989. Hubbert predicted back in 1956 that U.S. oil production would peak in 1970—which it did—and never return to its former glory—which it hasn't. Yet.
Back to the Stone Age
Extreme followers of Hubbert, a modern Malthus, know that the end of the Age of Oil is so near that it's too late to do anything but prepare to survive the transition, if we can.
Richard C. Duncan, a power-systems engineer and author, pointed the way in a classic 2000 essay, "The Peak of World Oil Production and the Road to the Olduvai Gorge." He said we need a new human civilization to replace the Age of Oil—and not in a good way. He envisioned energy consumption crashing and population crashing with it, to the "sustainable" levels of the Stone Age exemplified by the fossils of early humans found in the Olduvai Gorge in Tanzania.
Oil is the essential fuel for transportation, so Duncan expects that a decline in production of oil will also handicap the use of coal and other fuels, leading to a breakdown of the world's electrical grids.
As anyone who has suffered through a weeklong power interruption caused by a storm or blizzard knows, a comfortable 21st-century lifestyle cannot be maintained without reliable electricity. Duncan warns how much more disruptive large-scale blackouts would be, and suggests there might be a tipping point, after which power would never be restored. And then, electricity is created by burning other fuels, but the other fuels are produced using electricity.
Duncan's summary: "When the electricity goes out, you are back in the Dark Age. And the Stone Age is just around the corner."
Science-fiction writers have been playing with this idea for decades, but Duncan is trying to start a serious movement.
All of us must recognize with him that it would be well-nigh impossible to adapt smoothly from a 2030 economy to a 1930 economy. An 1830 economy would be the next way-station on a long journey into the past.
But our Thanksgiving message from the International Energy Agency is that this chilling doomsday vision is not just around the corner.
Demand Creates Supply
Like any commodity, the peak-oil theory swings from highs to lows in the marketplace. The value perceived in the theory usually follows the oil market, since high oil prices are associated with shortages.
In 2005, during the last surge of oil prices, some members of the U.S. House of Representatives formed a bipartisan Peak Oil Caucus. It proposed a resolution "that the United States, in collaboration with other international allies, should establish an energy project with the magnitude, creativity, and sense of urgency that was incorporated in the Man on the Moon project to address the inevitable challenges of peak oil."
Mercifully, the House did not act and shows no sign of acting on the resolution, or on the "investments" that would be necessary to create a NASA-style bureaucratic assault on the projected energy shortage. The Obama administration's ventures in solar-cell manufacturing and windmill technology are nothing compared with the visions of the Peak Oil Caucus.
Instead, the demands of the marketplace, expressed in high energy prices, have induced inventors and entrepreneurs to develop new technologies. While Hubbert's predictions about a peak in "conventional" oil production remain on track, our immediate energy future is "unconventional."
New technologies have unlocked reserves of natural gas that were known but inaccessible. Hydraulic fracturing of shale rock and collection of gas by horizontal drilling actually have produced a glut of gas. The price of gas has fallen to the equivalent of $20 per a barrel of oil, so low that drillers have turned to other opportunities. They are producing oil from similar rock formations, with similar welcome results.
Changing Prices, Changing Markets
The technological change in energy economics will have far-reaching consequences. More than half of the U.S. trade deficit is attributable to oil imports. And with a relatively free market in energy, U.S. prices are sensitive to changes in supply, downward as well as upward.
The price of natural gas is dragging down the price of other fuels. It has prompted real profit-seeking investments in chemicals. Cheaper energy heralds larger profits in manufacturing, services, and exports.
The new American production technologies won't merely improve the ability to find and produce oil in the U.S. Technology advances are more rapidly diffused around the world than ever before, and nowhere more than in energy production, long since a globalized industry. Other countries can find opportunities as great as those in the U.S. They can make their own contributions to the world's energy supplies.
Like the production of food by the Green Revolution, technology is on the way to making energy so abundant that only government policies restricting production can make it expensive.
Part II will address the government policies that restrict energy production.