This is an important question. Basically peak oil arrives, not because oil has run out, but because the amounts of energy expended to obtain the oil, transport and refine the oil, is close to, or over, the amount of energy released by the oil.

When this happens, the “Energy Return on Energy Input” is small.

It would seem obvious that if you spend more energy to get the material which gives energy, than you get from the material itself, this is going to weaken your social and business processes.

Goehring & Rozencwajg, who are an investment firm, point out that:

  • Never before has oil supply growth been so geographically concentrated. Six counties in West Texas are now 100% responsible for all global production growth.
  • Conventional non-OPEC oil production peaked in 2007 at 46.2 mm b/d and now stands at 44.2 mm b/d – 4% below its peak.
  • Including OPEC, conventional global output peaked in 2016 at 84.5 mm b/d and now stands at 81.3 m b/d – 5% below its peak.

The argue that any growth in oil production has arisen from non-convetional oil. This is oil which requires much more energy to extract, and which can often result in ecological destruction. This includes the oil of fracking, shale oils, tar sands, or requires crop convesion.

  • [Between 2006 and 2015] US shales grew by 6.8 mm b/d (65% of all growth), bio-fuels grew by 1.9 mm b/d (19% of the growth), and Canadian oil sands increased 1.4 mm b/d (14% of the growth). Please note that out of this 10 mm b/d growth figure, the Permian represents only 1.4 mm b/d or 14%.

Between 2016 and 23

  • US shales accounted for 85% of the increase. However, whereas all the major shale basins grew from 2006 to 2015, only the Permian grew afterward. 

However, the decline in availability has not lowered the demand. More importantly, not lowering the demand shows that the world’s societies and businesses are not dealing with climate change prevention, adaptation or mitigation. More oil burning increases emissions, which increase climate change, which increases the danger of social collapse. Paradoxically, decline in energy availability, also means an increase in the possibility of social collapse.

Because of the demand:

  • Global demand in 1Q23 surpassed 102 mm barrels per day — three million barrels above the 1Q19 (pre-COVID) level and almost 2 mm b/d above the International Energy Agency’s (IEA) 1Q23 estimate. 
  • From here on out, just six counties in West Texas must meet all global demand growth [from the Permian shale].
  • [Their models suggest] The Permian is likely less than a year from peaking and starting its decline

The usual pattern for shale oil, is that once the decline starts, it declines very quickly.

Once oil decline, and resulting price increases, really start to bite, then air transport is likely over for the masses without major technological break throughs, which currently seem unlikely.

Because they are an investment company and not that bothered with the causes of climate change, they are ‘bullish’ about natural gas…. and

  • North American natural gas remains our highest conviction investment theme, and we have used the recent weakness to add to our holdings.

So the collapse continues….

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Addenda:

We know that when oil wells are abandoned they are rarely made safe and leak proof because that costs money. So there will be continuing pollution.

When a well is left unplugged, it can leak oil and other toxic chemicals, endanger water wells and other sources, contribute to air pollution and emit methane – a powerful greenhouse gas

Hundreds of thousands of wells across the country were not plugged by their operators and remain open to groundwater and nature, some for a century or more. These “orphan” wells have no solvent owner of record, so the cleanup liability falls on the states, federal agencies or Tribe. Unfortunately, only pennies on the dollar have been available to properly clean up these wells.

Texas could receive over $341M to plug the 6,489 currently documented orphan wells in the state.

EDF Mapping Orphan Wells in Texas

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I was asked why with peak oil coming do renewables need subsidy?

Renewables appear to get less subsidy from taxpayers than fossil fuels, throughout the world and in Australia.

  • I’ve argued before that its often hard to agree on what counts as a subsidy, and some people suggest tax concessions are not subsidies, and figures of subsidies differ. But see:
  • “New research shows fossil fuel subsidies over the forward estimates have increased to a record breaking $57.1b, up from the $55.3b forecast in 2022.”
  • “This report provides our first estimates for 2022, which show that global fossil fuel consumption subsidies doubled from the previous year to an all-time high of USD 1 trillion.”
  • “Trillions of dollars of subsidies for fossil fuels, farming and fishing are causing ‘environmental havoc’, according to the World Bank, severely harming people and the planet…. At $577bn, the explicit subsidies for coal, oil and gas in 2021 were twice as large as those for renewable energy, and almost six times higher than the climate finance promised by rich countries to developing nations.”

I suspect these weird levels of subsidy is partly about power and habit. We still expect oil to keep flowing freely, as it has done, to be the basis of our society as it has been, and it probably will be for another 10 to 20 years getting more expensive and more damaging all the time. Gas will replace some of that oil, which will keep the polluting system going longer as the investment company above celebrates.

But, even in the best cirumstances we probably need to replace the oil consumption within that 20 years or we may collapse. The Market will not do that replacement without help, because Markets are short sighted and inefficient for some things, this being one of them. The power of oil companies also warps the market and makes transition harder. They have been spewing anti-climate change crap for about 30 years and slowing the transition along with Murdoch.

So Renewables might need some subsidy to get going and build up enough energy to compensate for the energy loss that is likely to be coming.

Fossil fuels do not need subsidising, they are an established and wealthy industry which needs to go, and in the case of oil, is probably going anyway, but not without a struggle to continue its parth of destruction for as long as possible..