Peak Oil Visualized
On a few occasions I have expounded on humans being visual creatures. We explore data through visualizations – from pie charts to complex residuals maps – and through this process of visualization we generate knowledge.
To give an example, I often exercise by walking or running up and down a long set of stairs near my home. In total, there are 272 stairs broken into two major sets which are separated by a local road. The bottom set is comprised of 9 flights of 20 stairs, and the top set is comprised of 4 flights of varying length.
Admittedly, running up and down the same set of stairs over and over sounds more than a bit mind numbing, but I find the opposite to be true. More often than not, I gain clarity and insight during this meditative exercise. Sometimes I think about complex statistical models, and other times I concentrate on less complicated matters.
Yesterday I did what is appropriately called a ‘pyramid’ workout. This involved running up and down one flight of stairs, then two, then three, and so on all the way up to the ninth set. On the tenth lap, I ran up eight flights, then seven, six, and so on back down to one.
I don’t often do this type of workout, preferring instead to go at a more steady and measured pace. So, while running the ‘pyramid’ I got to wondering how many flights of stairs I was going to do, and how this compared to my more usual workout. Rather than attempting to do the math in my head, I imagined how a simple data visualization could help me answer my question.
A column chart of flights per lap looks like a pyramid with the peak at 9 flights. Now my goal was to estimate the area under ‘the curve’- the total number of flights that I climbed. Rather than trying to calculate the area of two triangles (the orange and blue triangles on the right), I realized that a perfect square could be attained by flipping the ‘descending’ side of the pyramid over and placing it on the ‘ascending’ side of the pyramid.
Now the math is really easy. The pyramid workout is equivalent to the square of the number of flights (9 * 9 = 81). Graphically it is easy to see that this pyramid workout was equivalent to running 9 full laps.
So, what does this have to do with visualizing peak oil – the title of this post?
The key to the pyramid visualization is the realization that so long as I didn’t change the heights of any individual column, I could rearrange them to gain insight. Similarly, examining the area under oil discovery and production curves is really the most succinct way to approach peak oil. We know that oil which has not been discovered cannot be produced. Therefore, to create the production curve, we get to borrow from the discovery curve – an exercise which is analogous to what we did with the stair-climing pyramid.
There are a couple of messages to take from the graph below.
First, it is very unlikely that the decline in discoveries is going to reverse. This trend in declining discoveries is well established, and the reason for the decline is that it is easier to find a pitchfork than a needle in a haystack, and we’ve likely already found the vast majority of pitchforks.
Orthodox economic theory insists that as a commodity becomes more scarce and valuable, more will be produced. I actually have a copy of a textbook used in many introductory-level economic geography courses which takes this line of thought one step further, stating that, “when the price of oil rises, corporations find more oil” (The World Economy: Resources, Location, Trade, and Development, p. 77). Unfortunately, this statement about discoveries is patently false, and because we can’t produce what we’ve not yet found, so too is the orthodox statement about production.
Given that the price for crude (adjusted for inflation) was roughly 10 times higher in 2008 than 1965, we certainly had far greater financial incentive to explore for oil in 2008 than in 1965. In addition, exploration technologies have become far more sophisticated and far more effective. For instance we now have technologies that allow us to find oil fields using satellites with remote sensing capabilities, and we have 3-D immersion chambers that allow petroleum geologists to immerse themselves in a subterranean virtual reality.
Yet despite these technological advances and a favorable price landscape, for every 10 barrels of oil discovered in 1965 we only discovered 1 in 2008.
Furthermore, for every barrel that we discovered in 2008, we consumed five. This trend where production consistently outpaces discovery is only sustainable as long as the total area under the production curve is less than the area under the discovery curve.
The good news is that we discovered a lot of oil that we’ve not yet consumed. The bad news is that burning this oil will certainly cook the planet and acidify the oceans to the point that our food system collapses. The other bad news is that there is strong evidence that discoveries are deliberately misrepresented by OPEC (and probably others). Below is a graph of OPEC reserve estimates. You might ask what happened between 1985 and 1987 that caused reserves to jump. Was there a new technology that allowed Iran to discover in a single year (1986) 4 times more oil than they knew about in 1985?
Of course not. What happened was that non-OPEC production went up and demand went down (dramatically), and as a consequence the price for crude tanked. This left OPEC producers needing to increase production in order to maintain income. But as members of the cartel, production was governed by a quota system which was linked to reserves. The only way to increase production was to increase reserves… or at least increase stated reserves (i.e. deliberately overstate known reserves).
So here’s the rub. It is likely that the reserves that we see on the discovery curve are overstated. And as we continue to consume more oil than we produce, we continue to shift oil from the discovery curve to the production curve. Between 2005 and 2008 we began to realize that we simply couldn’t continue doing this at the rate the global economy demanded.
So now we are in a pickle. We can’t imagine life without oil (or even less oil), so we’re left hoping that the party can keep going. But we also know that if consumption is maintained, then we are going to suffer the economic, social, political, and environmental effects of ocean acidification and climate change.
And no amount of stair running has given me any insight as to how to resolve two opposing desires. I want a functioning economy but I realize that the economy can’t function in the face of ecological collapse (or even accelerated degradation), nor can it function well in the face of the impending liquid fuels constraints caused by peak oil.
My sense is that the best way to navigate this uncertain future is through voluntary conservation and conscientious consumption. And I do my personal best to live by my words.
Thanks for reading.