C. J. Campbell is the leading advocate of the peak-oil catastrophe theory, and one of the few to recognize its most startling prediction. If the theory (actually more of a hunch) is correct, oil production will peak quite soon, or possibly on November 24, 2005 according to Deffeyes, the smartest of the bunch. Once oil production declines, there will be no adequate replacement, and we will be doing a lot less driving around. This will dramatically reduce CO2 emissions which are half from oil, and that will fix the global warming problem. These guys are geologists and ignore economics.
Here’s how Campbell puts it.
“A decline in the supply of cheap oil-based energy will have an unavoidable and far-reaching impact on the economic prosperity of the World. It may on the other hand have a positive impact on the environment generally. For example, climate change concerns might evaporate.” —C. J. Campbell, 2003.
Now don’t get me wrong. These guys are geologists, and I’m not; so for all I know, they could be exactly right about how much oil is in the ground. But one things puzzles me. Their analysis, as they claim, is pure geology. But their prediction is about “oil production,” and pumping oil is not a geological process. This is not just a matter of rock science. In fact they seem to have overlooked a rather important factor in oil production—money. Any theory of oil production that ignores money just could be off kilter.
The End of the World is Nigh (How Peak Oil Solves Global Warming)
Richard C. Duncan, the third most popular Peak-Oil prophet on the web, and an electrical engineer, has done a great service by providing a graphical representation of the peak-oil hunch, which he calls the “Olduvai Theory” of energy, population and industrial civilization. As shown in the illustration above, total energy per capita will drop sharply after 2008. According to the theory, “world population peaks at 6.9 billion circa 2015, and thereafter declines to 2.0 billion in 2050.” In the process 4.9 billion people die for lack of oil.
Now it should be admitted that these geologists actually do think about money, and this is their theory of economics: “There is no way spending money can make more oil appear underground.” Brilliant. But economists are still puzzled. They believe that those with the most money at stake make the best predictions and so they watch what those people do. Saudi Aramco, Exxon, BP, and the other big oil companies have plenty at stake and hire the worlds best experts. They are not acting like the world is coming to the end of oil.
In 2007 oil is worth about $65 per barrel, but Olduvai theory says ten years later people will be dying like flies due to an oil shortage. What will the price be then? Surely people would pay $10 a gallon for gasoline, and surely the oil companies would charge that much. That’s about $440 per barrel of oil, which is seven times more than now. So here’s the catch. By keeping the oil in the ground, they could earn an 83% rate of return on their oil for the next 10 years. That’s more than fabulous; that’s unheard of. No one would sell oil now, if they could make that much money by keeping it in the ground. But instead, all of them are producing as fast as they can. Economists conclude that those with their money on the table, who have hired the best teams of experts and have access to the most private data, don’t believe the peak-oil geologists.
But let’s assume the peak oil crowd is completely right about the “geology” of oil production. What then? Will we die like flies or will we fight back? People spend about a trillion dollars a year driving, and if you charged them three times the current price they would mostly pay it rather than stop driving. They would not be happy, but there would be three trillion dollars available to whoever found an oil substitute. After a few years that begins to add up.
But is technology up to the challenge? Can it make gasoline out of something besides oil, and is there enough of that something to power a billion automobiles? Sounds like a tall order. But the strangest part of the whole peak-oil nonsense is this. The answer was discovered 80 years ago and is well known to every one of the leading lights of peak oil. The answer is coal and the Fischer-Tropsch process of turning it into gasoline.
This is not a theory; this is what powered the German Luftwaffe during WWII, and much of South Africa when their oil was embargoed. In 1938 Germany consumed 44 million barrels of oil of which 10 million barrels was synfuel from coal. By 1943 their synfuel output had increased to 36 million barrels. That was their response to an oil shortage.
Of course, the process has been much refined, and today Montana could produce gasoline for the equivalent of about $55 per barrel of oil. This has not yet happened because investors are afraid the price of oil will fall back below $55 as soon as they build a coal-to-gasoline plant. Last time oil was this expensive, the price did drop back to $20/barrel for a decade, so their fears are justified. But if we start running out of oil, they would know the price would not drop back below $55, and would build synfuel plants just like the Germans did sixty years ago.
Making gasoline is possible, but is there enough coal? Deffeyes assures us that “Worldwide coal reserves are large enough to continue present rates of production for a few hundred years.” Since world coal production provides two thirds as much energy as world oil production, that’s enough to get by for quite some time. Deffeyes (the Princeton geologist) has now realized that this is what will happen if oil runs out. The last sentence in the coal chapter of his second peak-oil book reads as follows:
“I hate to say it, but we likely will be forced to choose either increased pollution from coal or doing without a significant portion of our present-day energy supply”. —Kenneth S. Deffeyes, Beyond Oil, 2005.
I congratulate him for being the first peak-oil expert to name the real dilemma. What he must also know is which option we would choose. The world will not seriously curtail its driving habits but will choose instead, without blinking an eye, “increased pollution from coal.” There is no energy shortage in this century, and we will not be saved from climate change by running out of oil. Coal will again be king, and its high ratio of carbon to energy will hasten global warming.