Wednesday, October 22, 2008

Book Review: Myth of the Oil Crisis

I was pretty skeptical when I received Robin Mills Myth of the Oil Crisis because Peak Oil makes intuitive sense. Oil is a finite resource, demand is skyrocketing and there is no doubt that, at some point, demand will outstrip supply. However, Mills, a geologist and economist, makes a convincing case that Peak Oil is not imminent. If true, this finding has important implications for the global economy and environment.

In brief, Mills argues:

  1. supply is greater than we think
  2. supply and demand responsive to prices
  3. current high prices result of underinvestment due to oil glut of 80s-90s
  4. gas, unconventional, and alternative fuels can make up balance
  5. peak oil reasoning will lead us into bad decisions
I agree with many of Mills' claims. Peak oil scenarios of economic chaos and the collapse of civilization are overly dramatic. There probably is more oil (conventional and unconventional) than peak oil proponents believe. Economics will drive the switch to alternative fuels and products, and make no mistake, alternatives are available. The transition will not occur overnight but rather over many decades.

If Mills is correct, then some of the assumptions regarding global climate change need to be reconsidered. Many carbon scenarios suggest that a major decline in hydrocarbon availability will force carbon reductions by default. Governments will not need to make painful choices now because "the invisible hand" will make those choices for them. If hydrocarbon supply is not at risk, then we will need government manipulations of oil supply and demand to alleviate human induced climate change.

Some of Mills' arguments, however, ring false. The contention that supply is underestimated because large unconventional reserves (off-limits oil, coal, oil sands, gas) will seamlessly replace conventional oil is demonstratively false. Some unconventional reserves will have a much greater negative environmental impact and should be taken "off the table". For example, a recent report by David Israelson of the University of Toronto claims that developing the Alberta Oil Sands will devastate the Great Lakes basin.

"Difficult to extract and dirty to process, tar sands oil is coming to the Great Lakes via a planned network of pipelines and refinery expansions. Currently disclosed project costs show that pipeline companies and U.S. refiners plan to invest more than U.S. $31 billion between now and 2015 to upgrade, export, and refine tar sands oil. This expansion promises to bring with it an exponential increase in pollution – discharges into waterways including the Great Lakes, destruction of wetlands, toxic air emissions, acid rain, and huge increases in greenhouse gas emissions. All of this comes before anyone even uses a drop of this oil in their cars and trucks and factories, before the oil is even processed in these expanded refineries. If the great challenge of the 21st century is to figure out how to wean society off oil, this is the diametric opposite of the way to go about it."

The one thing we must not do is sacrifice our ecological future for our present comfort. Mills does make some concessions to this need in his final chapter on "Green Oil". However his willingness to advocate environmentally disastrous sources of energy make me queasy. Ultimately, while I subscribe to much of what Mills says, I think Peak Oil is probably closer than Mills believes, not because oil is running out, but rather the consequences of oil use is making it unsustainable. Despite these failings, I thought Mills' book was eminently readable, thought provoking and a worthy contribution to the Energy Debate.

In research for this post, I came across this great poster.

4 comments:

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  2. Hi John, always an informative site. Here are my thoughts, and they are to the summary arguments you present, not to the book, which I haven't read.

    1. supply is greater than we think
    How does he know? Really, reserves are nationally protected trade secrets, and none of the recently announced discoveries (Brazil, Cuba, Khazakhstan) are large enough to replace current declines in places like North Sea, Mexico, and even Alaska. Most importantly, it isn't the total supply, but the supply of cheap/easy-to-drill oil that is limited. Offshore, non-conventional oil sources are much more expensive to develop (build the rigs) and operate (fossil fuels or Nuclear power needed to extract oil). Finally, a lack of decline in supply isn't the goal for continued pleasant fossil fuel dependence, because population growth and economic development increase demand annually. Economic development can be halted or reverse to reduce demand, but that's not a happy solution to limited energy.
    2. supply and demand responsive to prices
    Yes, we've seen demand decline in the US in the last year, but we've not seen supply increase in response to higher prices this decade. This suggests that either the oil isn't available, or that it's hard to develop, which means that the total supply may be irrelevant in the short term, if supply can't respond quickly enough.
    3. current high prices result of underinvestment due to oil glut of 80s-90s
    One obvious reply is yes, but we should have been investing in renewables, not oil.
    The drop in prices suggests to me that last summer's high prices were related to demand (which is down due to recession and high prices) and hedge-funds and other investors, who have been forced to sell because of other investment losses. Two important points; 1) the price of oil isn't so important (and clearly isn't predictable) because supply can be constrained at low prices if no one can afford current prices due to recession. 2) The current low oil price may be too low to support investment in new and unconventional oil development, so we'll see what the rebound looks like. What I've taken from this is that prices may not rise, but supplies may still be constrained.
    4. gas, unconventional, and alternative fuels can make up balance
    I think you deal with this well, I'd only add that unconventional sources are more expensive and return less energy on the energy invested.
    5. peak oil reasoning will lead us into bad decisions
    Well, sure, but we've been making bad decisions based on cheap oil reasoning, with very real climate and energy security consequences. I'd love to see any pres. candidate promise 1) to rebuild our rail system and build local mass transit to keep us connected if the airlines go under. and 2) to tax gasoline so that it starts at at least 3.50 on average now, and keeps increasing by 10 c a month until in two years it's steady at 6.00 a gallon, with the revenue allocated to renewable energy investment and low-income credits, so that we can all plan on and count on high energy prices and act under that assumption.


    I think the climate implications of oil and gas limits depend on how much we depend on coal as a substitute (coal produced electricity powering electric vehicles is slightly better than gasoline (http://www.slate.com/id/2179609/) but reducing GHG requires much more than slight improvement). Is there more than one climate model that explicitly deals with peak oil? The only one I know of is Kurecha and Hansen (Kharecha, P.A., and J.E. Hansen, 2008: Implications of "peak oil" for atmospheric CO2 and climate. Global Biogeochem. Cycles, 22, GB3012, doi:10.1029/2007GB003142), the others think fossil fuel use will decline because a miracle will occur.

    Thanks as always for a thoughtful post.

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  3. If we can't count on peak oil to solve global warming quickly, how about this related question: will "peak natural gas" solve pollution problems from nitrogen fertilizer? The economic value of fertilizer at moderate rates should make fertilizer production competitive with other uses for natural gas even with major decreases in natural gas supply. Crop yields show diminishing returns at high nitrogen rates, though, so higher prices could significantly decrease overuse of fertilizer.

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  4. Great points by both commentators. Let's hope governments see the wisdom in substituting renewable fuels for coal and unconventional oil.

    Nitrogen use is a problem too. I will point out a great article from the ever awesome Michael Pollan, Farmer in Chief: http://tinyurl.com/6nvaqt

    Pollan calls for a return to photosynthesis based farming!

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