written 23 April 2023
published 30 April 2023
The carbon content of fossil fuels is driving the climate crisis, but that is not the only reason to rapidly shift to renewables.
For decades people have been concerned about the issue of peak oil, first mentioned by oil geologist Marion King Hubbard in 1956. He proposed that since oil was finite, any given reserve had a natural production cycle, which would eventually peak and then inexorably decline. He suggested the US domestic reserves would peak in the early 70's. While ridiculed at the time, US production did peak in 1972. He also predicted that global production would peak in the early 2000's.
Global production of conventional oil (everything other than deep water, shale oil, and tar sands) peaked in 2005. Oil prices spiked, helping contribute to the bank crash of 2009, causing a reduction in demand, and a lowering of prices. Oil production projects kept pumping despite lower demand. In addition, US shale oil production exploded, adding more to the global supply, making America the top exporter for the first time in decades. The resulting glut fueled belief in ‘Made in America’ cheap oil."
The recovery from the 2008 recession was slow, keeping oil demand low and prices affordable for almost a decade. Global oil production of all kinds peaked in 2018, but the 2019 COVID pandemic created another global recession, continuing to mask the precarious state of oil production. But that is about to change.
Shale oil wells are expensive to drill, and output rapidly declines within a few years. Over the last two decades, US shale oil has lost over $300B. The most economical fields are already depleted and investors are fleeing. "In recent months, industry leaders have announced that the US shale oil and gas revolution is over" (Financial Times). “The specter of peak oil is once again rearing its head”, (Bloomberg). US shale oil production will peak a few years from now. OPEC will not be able to fill the shortfall, because their capacity for production increase is less than half of current US shale output, so global oil production will start declining, with massive economic impacts.
The persistence of global inflation goes beyond the war in Ukraine. As climate change erodes agricultural productivity and damages infrastructure, food prices and goods and services become more expensive. Rising energy costs, as the global fossil fuel system changes, will make everything more expensive. OPEC will benefit in the short run, but their reserves are already in decline. As the overall supply declines, oil price fluctuations will become a ‘new normal’ until demand declines.
In resilience.org on March 29, 2023, Nafeez Ahmed writes: "New oil and gas investments would be a colossal mistake, like betting on horses after being told they are about to be overtaken by cars. The only viable pathway through this crisis will be to accelerate the clean energy transformation: solar, wind, geothermal, batteries, and e-fuels from green hydrogen. This transformation is already underway, and provides the opportunity to produce larger quantities of energy at a fraction of the costs of fossil fuels."
"The global oil industry is going to become economically unsustainable by around 2030, consuming a quarter of its own energy just to keep pumping oil. The collapse will accelerate and the industry will simply become impossible to sustain economically. Economic factors will inevitably drive incumbent industries to collapse by 2040 as they are replaced by new renewable systems. The window for action is extremely short. We need to act within this decade."
The industry knows all this. Exxon Mobile recently quite exploration in Brazil after finding no oil. Instead, they are buying back shares, enriching current investors. Shell no longer funds oil exploration, shifting to renewable investments. All conventional oil reserves are declining. Twenty years ago, Saudi Arabia was pumping seawater into their oil fields to boost production in remaining reserves.
Fossil fuels are finite, and subject to inevitable inflation over time. Renewable power installations are fixed costs, getting cheaper each year, and the energy collected is free. Remaining fossil fuel resources are mostly owned by national governments antithetical to the US. Renewable installations can be widely distributed, so individuals and communities can control their own power. Only the inertia of the status quo holds us back.
