Roger Baker :
America: You’ve got three more years to
drive normally!

Three more years? That’s pretty scary! Surely there must be a mistake in that headline.

zombies and cars

Take me for a ride in your car-car. Image from Luxury4Play.

By Roger Baker | The Rag Blog | September 10, 2014

First in a series

Is it possible that average Americans could have a hard time driving only three years from now? Preposterous, to say the very least! Three more years to drive would be awful scary if it were true. Fortunately, it can’t be true because the USA has been racing ahead, drilling like crazy, with the result that we are now the world’s third biggest oil producer, just behind Russia and Saudi Arabia.

As everyone who follows the news has heard by now, an innovative drilling technology called “fracking” has added about three million barrels a day of new “tight oil” production, from areas of the U.S. like the Bakken in North Dakota, and the Eagle Ford shale in Texas. Obama used to tell us how we need to break our petroleum addiction, but now he can’t bless new drilling enough.  As a result, Americans are feeling better and driving more.

Case closed, right? Actually no.

 
The problem in a nutshell

This article will review the major problem the USA faces and the basic reasons why average American middle class folks can’t keep driving the way they have been accustomed to thinking is their birthright for almost the past century.

This first part begins a series that is partly concerned with geology, partly with the economics of energy, and partly with how the powers of self-interest and denial have blinded Americans to the precarious future of our national fossil fuel addiction.

The economic and geological evidence strongly suggests that the widely acclaimed new “fracking” technology may have bought us a few more years of grace in being able to keep on driving, but that this is about to end. With the end of cheap energy, and cheap oil in particular, the whole world is now facing an end to several centuries of rapid growth based on burning fossil fuels, as we progressed from burning wood to coal, and finally to oil and natural gas. The end of cheap oil means that the USA must now learn to accept a painful new transportation reality.

It all has to do with a peak in world oil production, about which I have written in the past.  Shell geologist M. King Hubbert famously predicted in 1956 that U.S. oil production would peak about 1970, which it did, and then globally about 2000. As it happened, he was only off by about five years. Production of conventional oil — meaning cheap traditional oil — peaked globally in 2005.

Now the world is only able to expand global liquid fuel production by producing various costlier unconventional fuels.

Now the world is only able to expand global liquid fuel production by producing various costlier unconventional fuels. We are still mostly able to drive largely because of a big increase in unconventional oil production from sources such as the Canadian tar sands, heavy oil production, and deep water drilling. Especially in the last five years, the widespread use of “fracking,” or the hydrofracturing of petroleum source rock, has been used to yield “tight oil,” as well as natural gas.

Fracking has already added U.S. production of about 3 million barrels per day of expensive, low quality tight “oil,” and this addition is still increasing. This  has been enough to allow most people to keep driving for now, although at a much higher fuel cost than people were used to paying a decade ago. In the last decade oil prices have roughly tripled. Only the recent tight oil from U.S. fracking has kept total world liquid fuel production rising.

 
New oil production already costs more than consumers can pay

The important new information to report is that we can now see the timing of a peak in global oil production much more clearly than even five years ago. Fracking has brought us a little slack in driving, but not much. As we can see, total U.S. driving has been in decline since about 2007, largely due to a rising fuel cost. A decline is total miles driven implies an even sharper decline in per capita driving, as indicated by the red line.

Roger - driving in fast decline

Chart from State Smart Transportation Initiative.
CLICK ON IMAGE TO ENLARGE.

Fracking production has temporarily held down driving costs, and has thus bought us a few more years of energy crisis denial; for now, driving is expensive but commonly affordable (our global warming denial can still go on for a little longer).

However, driving as usual will probably have to end with the end of the current fracking boom, as soon as its mounting profit losses kill new investment in production. The reason we can’t frack our way out of our oil addiction is that fracking really doesn’t pay off very well. The drilling costs are high compared to conventional oil production, since fracking involves a lot of lateral drilling, plus the great additional energy expense of breaking up a lot of underground rock using high pressure water.

You can produce oil at about $100 a barrel this way, but this tight oil commonly contains a lot of volatile but less valuable condensates like butane. Fracking wells also tend to mostly deplete in just a few years, much faster than old-fashioned conventional oil wells. Although the best fracking wells can still be profitable, the most profitable parts of the major U.S. fracking fields have already been drilled and produced since the low hanging fruit always gets picked first.

Today most energy companies are actually losing money on their oil and gas production.

Today most energy companies are actually losing money on their oil and gas production. This lack of profit, even at the current high price of $100 per barrel, is the way that the world of energy investment tells us that we are reaching peak oil. Peak oil is not exactly geological, although geology has a whole lot to do with it. Peak oil is actually reached when people can no longer afford what it costs to to produce it.

The official U.S. Energy Information Administration recently released a chart which shows that the top 127 oil and gas companies are currently losing money.

roger - energy profit

Chart from U.S. Dept. of Energy.
CLICK ON IMAGE TO ENLARGE.

The gap between the cost of producing oil and what our depressed global economy can bear is currently estimated to be about $10 a barrel in losses. This in itself is unsustainable but Gail Tverberg, a very perceptive non-governmental energy analyst, predicts that that this loss on new oil production will widen very rapidly to about $50 per barrel in only a few years, see Fig. 13 at this link.

When the profit on new oil production disappears, the slow depletion of the giant existing fields takes over. The world’s reserves of cheap conventional oil, largely still in the Middle East, are still profitable, but these massive reserves are in slow decline. Russia recently announced that its production has peaked and even the Saudis are suspected to have run out of spare production capacity.

Most people probably think that OPEC must be getting rich on its oil, but the reality is that “Oil prices are now too low for most OPEC countries to cover their spending needs.” Peak oil is sneaky because it has the hidden effect of slowly impoverishing oil customers by inhibiting economic growth in addition to directly raising fuel costs.

 
The bottom line

We have already reached the point that the average cost to drill for oil is more than our world of oil-starved and economically struggling customers can afford to pay. This is particularly the case when this increasingly costly fuel is used to power gas guzzlers that many people in the USA use to drive to work while earning minimum wage.

We have already seen the price of oil spike to $147 dollars a barrel in 2008, followed by a price collapse that brought the price back down to the low forties a barrel, at least briefly in 2009. This extreme price volatility is by itself enough to scare away a lot of new drilling investment. Once you drill and frack a tight oil well, you must find a market for this expensive oil, even though the price might go down because of a weak economy. Now that most oil companies are losing money, even at $100 a barrel (at this time, global benchmark Brent is trading below $100), we can’t expect this production to increase.

No matter how the relative value of the dollar fluctuates, the amount of oil-based fuel that it can buy will almost certainly have to decrease as a trend.

No matter how the relative value of the dollar fluctuates, the amount of oil-based fuel that it can buy will almost certainly have to decrease as a trend, or perhaps more abruptly due to economic pressure that can be attributed to costly fuel. We are in a real bind when the global economy can’t recover without cheap oil, when at the same time the oil that global trade relies on for its recovery is no longer profitable to produce.

Looking ahead, oil is much more valuable as a feedstock for making petrochemicals than it is for powering inefficient cars. This means that the petrochemical industry will still be bidding a high price for the world’s last oil, long after our gasoline-powered cars go the way of the horse and buggy.

In Part 2 of “Three More Years of driving” we will further explore these same energy resource constraints, and will look at the role of finance capital, the Koch brothers, etc, in perpetuating our denial, which denial inhibits energy reform until there is a full blown crisis.

Read more articles by Roger Baker on The Rag Blog.

[Roger Baker is a long time transportation-oriented environmental activist, an amateur energy-oriented economist, an amateur scientist and science writer, and a founding member of and an advisor to the Association for the Study of Peak Oil-USA. He is active in the Green Party and the ACLU, and is a director of the Save Our Springs Alliance and the Save Barton Creek Association in Austin. Mostly he enjoys being an irreverent policy wonk and writing irreverent wonkish articles for The Rag Blog. ]

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21 Responses to Roger Baker :
America: You’ve got three more years to
drive normally!

  1. Ken says:

    Oh, Roger, a cliffhanger!

    We have to wait for Part 2….or maybe even Part 4!….to find out why “three years”?

    Clever man.

  2. Charles Wukasch says:

    As usual, Roger is on the mark! I wish we had more Greens like Roger and fewer Republicrats. Very few members of either the Democratic or Republican wings of the Republicrat Party have any real interest in environmentalism.

  3. richard jehn says:

    Roger: Thank you so much for laying it out so clearly. Richard Heinberg did a good job with “The Party’s Over,” but what he wrote in 2003 needs some updating. You have kindly obliged with a clear explanation of what to expect.

  4. Janet Gilles says:

    When you say, “Looking ahead, oil is much more valuable as a feedstock for making petrochemicals than it is for powering inefficient cars,” are you assuming that we will continue to use this valuable resource as ammonium nitrate as fertilizer for industrial agriculture, which uses as many petrochemicals as the automobile industry? Advantages of organic and pastures are not only the need for almost no petrochemicals, but also far less water, and the creation of good local jobs.
    I hope to see attention to this massive waste of fossil fuels in a future post.

    • Roger Baker says:

      Little if any oil is used to make ammonium nitrate fertilizer; the fertilizer feedstock is almost entirely natural gas. There are few if any tractors that do not burn oil, and the same with the trucks that haul our crops to market. This means we should expect to see food prices rise and fall with the price of oil until there there is a major transition to more localized food production. Given the current corporate domination of our food industry, this probably won’t happen until high oil prices force a broad transition to a less oil-addictive agricultural economomy.

  5. joe manning says:

    The good news: peak oil may save us from environmental catastrophe. The bad news: when the pump does run dry what little is left of civil society might devolve into a fractious rabble.

  6. Great stuff Roger:

    A few notes: Driving behavior of the 16 year old plus population shows a more meaningful statistic on VMT. I wish the groups publishing these numbers would realize this. In total, per capita driving behavior of “the driving population” has declined about 30 percent more than of the “general population,” or about nine percent since the peak in 2004.
    Bureau of Labor Statistics, Population: http://www.bls.gov/webapps/legacy/cpsatab1.htm#a1.f.1
    FHWA VMT: https://www.fhwa.dot.gov/policyinformation/travel_monitoring/13dectvt/page2.cfm

    And the end of driving as we know it? I am still amazed every time I hit the pump and gas is over $1 a gallon! So, sure, the end as I knew it happened a decade or two ago. But the rest of the world has yet to move strongly into the fracking boom. Will that happen? And methane clathrates are on the horizon. Will clathrates be the next “unconventional” fossil fuel? Their quantity is staggering: two to three times all the known oil, coal and natural gas ever extracted and still in the ground.

    And what about the angel on our dark climate change horizon? Solar PV. Austin paid $0.16 per kWh in 2009 for the Webberville solar PV facility. This spring they paid $0.05 per kWh for a project that was so cheap they tripled its size to 150 Mw. Coal is $0.06 and wind and fracked gas are in the low $0.02 per kWh range. In literally just a few years solar PV will fall below any other energy source and keep on falling.

    But I think your three year time frame is a little tight to impact the driving world–Looking forward to the next installment.

  7. Extremist2TheDHS says:

    Doom and gloom. Our grandchildren will be driving their grandchildren to school 50 years from now. Maybe not on the same technology they are now. A more likely outcome is that new technologies will make driving even less expensive and promote greater suburban sprawl than we see today.

    Lets hope so. And by the way, God, Lots of guns, and Trucks ARE the birthright of tens of millions of “screw you and the hybrid your driving” bubbas around the country 🙂 Thank God for each one!

    – Proud to be an Extremist2TheDHS

    • stilgar wilcox says:

      “The good news: peak oil may save us from environmental catastrophe. The bad news: when the pump does run dry what little is left of civil society might devolve into a fractious rabble.”

      That’s just it, Joe Manning. People will hold on to their BAU with UHD curved big screen TV’s, pizza delivered, hand held electronic distracting gizmos, cheese whiz, NFL, UFC, NHL, NBA, SUV’s until the stuff they love, indicative of the vestiges of the oil age go silent and their tears and anger burst forth like a volcano.

      Then everybody and their grandchildren begin the trek through a bottleneck to see what minor % of the pop. makes it through to till the soil and entertain themselves by reading books and talking to each other.

      • Extremist2TheDHS says:

        Yes and those with the most trustworthy friends, the best skils in growing crops, building windmills, erecting solar cells, raising chickens, picking a guitar, hunting, fishing, self defense, fixing things. Those who have some land and water to live off of, Those who have done a little planning and preparing. Those who know first aid. Those who can play well with others. Those who can shoot and have weapons to shoot with. Those who can laugh with their friends, sing together, pray together and destroy those who would harm those they love … they will create a place for themselves and their children. Bubba’s will survive. I am not so sure about the rest of you.

        – Extremist2TheDHS

  8. anonymous says:

    I’m sorry but this is just plain nuts.

    No acknowledgment that the US is currently extracting more oil from native soil than any time in the last 33 years, and about to break the prior 1970 record.

    No acknowledgment that not only was there no “peak” in world production of oil in 2005, but we’ve kept continuously burning more.

    See: http://www.eia.gov/countries/data.cfm. Facts is facts. The Energy Information Agency, above, is the same source he uses for his specious oil company “profit” chart, so he can’t attack the source.

    His “peak” thesis relies on a tortured and arbitrary definition of “conventional” oil, changeable for whatever you want to prove, hence garbage.

    Technology is constantly changing the cost and availability of resources, and this “peak” bullshit appears to assume a totally static and unchanging technology. It’s really anyone’s guess what technology, prices, and availability will be 5, 10, 20, or 50 years from now.

    So, as an analyst, you would have missed the whole fracking story if you assume no changes in technology, as Roger and all the rest of the peak tweakers did.

    Admit it — you were wrong!!

    • anonymous says:

      Oh, b/t/w, listen to yesterday’s NPR report:

      With Turmoil Roiling Abroad, Why Aren’t Oil Prices Bubbling Up?
      by John Ydstie

      http://www.npr.org/programs/all-things-considered/2014/09/15/348763197

      The trends are completely counter to all that is claimed in this article.

      We will probably run out of atmosphere before we run out of oil. Fortunately or unfortunately, whichever you feel.

    • another anonymous says:

      I was certainly believing the peak oil theory in 2005, 2006, 2007, 2008, then prices were rising and no technology response (flat or declining production). But then technology did respond…but only operational at $90+ barrel. I understand these fields will have a steep decline. But maybe fracking technology can be used in other parts of the world to extend rising oil production a few more years. The author rightly points out that ‘in a few more years’ the super giant fields will be in decline. But maybe technology and efficiency gains will reduce our need for oil by then. Anonymous is right, anyone’s guess what will happen. But UNCERTAINTY is definitely high in my mental calculations. Definitely worth supporting local food system development and paying off the old mortgage to be risk adverse!

      • anonymous says:

        Continuing to flog the “peak” delusion is not just eccentric. It’s actually positively harmful :

        1- believing in a imminent peak undermines action on a REAL threat, namely global climate change. Why act against fossil fuels if you think they are imminently running out any way?

        2- Confounding a genuine climate crisis with a fake oil crisis tars and discredits ALL warnings. It’s the Chicken Little effect. People stop paying attention.

        3- the peak thesis defines depletion as a geological/ economic absolute, rather than constraining choices.

        This diverts attention from where we have to go in order to keep burning increasing amounts of oil — off-shore, the wilderness, and unstable Mid East countries. We can keep going, but is it desirable?

        That’s the REAL problem with depletion — not a ‘peak’ that recedes ever further into the indeterminate future.

        For an analogy, one can always keep spending more money, no matter what. The problem is the things you may have to do to get it — rob banks, etc.

        4- Emphasizing autonomous technical factors over human beings’ agency promotes passivity and anti-activism. We always have choices and the doom crying emphasizes a spurious absence of choice.

  9. anonymous says:

    Note all of the method and definition, not to mention empirical, problems with so-called “peak” oil thesis:

    http://en.wikipedia.org/wiki/Talk%3APeak_oil

    Quoting this source: “First, Hubbert did, in fact, at various times predict that world oil (see Predicting the timing of peak oil) would peak between 1991 and 2000 (erroneously, as it turned out). The (so far) repeated failures of Hubbert and his many followers in predicting peak world oil testify to the difficulty of translating his theory to accurate prediction. Second, Hubbert predicted not only the timing of peak US oil, but also the post-peak decline, following his logistic curve. His remarkable achievement in predicting the timing of peak US oil (a validation of that aspect of his theory) should not blind us to the deviation from his predicted post-peak logistic curve of US oil, which predicts that current US oil production should be only a fraction of what it actually is. Likewise, Hubbert fairly accurately predicted the timing of a peak in US natural gas, but its post-peak behavior was more of a plateau than a decline, and it has since risen to new peaks. Hubbert, and to a greater degree some of his followers, embraced a mathematical fatalism that once a decline set in, production would decline as rapidly as it rose, and the decline could not be reversed; this post-peak part of his theory is contrary to current observation. Regards. Plazak (talk) 13:41, 4 April 2014 (UTC) ”

    Even more harsh is this critique:
    http://peakoildebunked.blogspot.com/

    Imminent doom crying is silly. Depletion is real, but it is constantly being countered by new sources and new tech. We’ve been “running out” since the first well and the first barrel.

    ‘Peak oil’ is at best a sloppy, grossly imprecise metaphor for depletion, which gives us no guidance at all about the future.

  10. Looking forward to reading more. Capitalists are literally addicted to cars-first transportation, so you can expect increasing craziness ahead.

  11. stilgar wilcox says:

    Pretty hilarious that so many people have deluded themselves into thinking fracking infers no peak oil possible. Ha!

  12. Guest says:

    The weirdest thing is the sheer outrage at the merest mention of taking responsibility for how much gas one uses. Conservation of resources makes everyone’s blood pressure go up. Why? You run around the house yelling at your kids to turn lights off and not to waste stuff.
    The Californians with big expensive homes and expanses of lush grass lawn don’t like water rationing either. But they do it. Because they have to. Because there’s a reason for it. Because it makes sense. It’s not just because we’re envious of their lawns and don’t want them to have them. : )
    The really sad thing is that if they weren’t policed, they’d use water until there wasn’t any left, no matter what the truth of it is. And then bitch and cry and complain that someone somewhere needs to provide them with water.

  13. Dick Kallerman says:

    Good stuff , Roger. I look forward to the rest.

    I just returned from England where gasoline is $8.00 per gallon. Auto traffic is relatively light and there is lots of transit available. Transit is costly: a daily bus pass is $7.75. Capitol Metro’s is $2.00, but we’re paying a 1% sales tax subsidy. It may be the same in the end.

  14. richard jehn says:

    Notice how all the shills for opposing perspectives are “anonymous,” one way or another. Nice to know that the new politics is “not truth.” If people know it’s false, don’t worry, just keep repeating it ad infinitum, and you will win. Just ask Junior or Tom Cotton.

    • anonymous says:

      I’d rather not be criticized for who I am; look at what I had to say and criticize that.

      You had no substantive criticism for my facts, logic, or perspective. I named sources; many the same as Baker himself used; and none of them refuted.

      No one is saying fuels are infinite; merely that they have not “peaked” yet b/c we are burning ever more of them.

      And far from saying it is a good thing to be burning more and more, for the climate reason alone it is necessary we burn less and less.

      But the so-called “peak” won’t force it on us; we must CHOOSE to burn less.

      Is THAT an opinion an oil company would endorse??

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