The global production of oil has remained relatively flat since 2005 and peaked in 2008, declining ever since even as demand has continued to increase. The result has been wild fluctuations in the price of oil as small changes in demand set off large shocks in the system.
In Wednesday’s issue of Nature, James Murray of University of Washington and David King of Oxford University argue this sort of volatility is what we can expect going forward, and we’re likely to face it with other fossil fuels as well.
The notion of peak oil is fairly simple: Oil is a finite resource and at some point we simply won’t be able to extract as much as we once did. There is no getting around that limit for any finite resource. The issue that has made peak oil contentious, however, is the debate over when we might actually hit it. Murray and King are not the first to conclude that we’ve already passed the peak. Even as prices have climbed by about 15 percent per year since 2005, production has remained largely flat.
“We are not running out of oil,” the authors argue, “but we are running out of oil that can be produced easily and cheaply.”
What are the consequences of being stuck at or near peak oil? The authors have produced a graph showing that, while supply is elastic enough to meet demand, prices stay stable. Once demand consistently exceeds supply, prices swing wildly. Murray and King term this a “phase transition” and suggest we’ll be in the volatile phase from here on out.
That has some significant consequences. Of the 11 recessions the United States has experienced since World War II, 10 have been preceded by a sudden change in oil prices. The United States isn’t alone, either. Italy’s entire trade deficit, which has contributed to its financial troubles, can be accounted for by the rise in imported oil. The world, it seems, has allowed its economies to become entirely dependent upon fossil fuels.
“If oil production can’t grow, the implication is that the economy can’t grow either,” the authors write. “This is such a frightening prospect that many have simply avoided considering it.”
The commentary concludes that we simply can’t rely on any fossil fuel to provide a stable and economic source of energy for more than a couple of decades. And, given the economic shocks that result from rapid changes in energy prices, that’s a serious problem.
“Economists and politicians continually debate policies that will lead to a return to economic growth,” the authors note. “But because they have failed to recognize that the high price of energy is a central problem, they haven’t identified the necessary solution: weaning society off fossil fuel.”