When Oil Peaked by Kenneth Deffeyes (long)

When Oil Peaked 
by Kenneth Deffeyes

Published by: Hill and Wang; Farrar, Straus and Giroux
Copyright: 2010

Format: hardback
Pages: 152
Genre: Non-fiction, oil
Source: own book

From the front cover:
In two earlier books, Hubbert's Peak and Beyond Oil, geologist Kenneth S. Deffeyes laid out his rationale for concluding that world oil production would continue to follow a bell-shaped curve, with the smoothed-out peak somewhere in the middle of the first decade of this millennium—in keeping with the projections of his former colleague, pioneering petroleum geologist M. King Hubbert. Deffeyes sees no reason to deviate from that prediction, despite the ensuing global recession and the extreme volatility in oil prices associated with it. In his view, the continued depletion of existing oil fields, compounded by shortsighted cutbacks in many exploration-and-development projects, virtually assures that the mid-decade peak in global oil production will never be surpassed. In When Oil Peaked, Deffeyes revisits his original forecasts, examines the arguments that were made both for and against them, adds some new supporting material to his overall case, and applies the same mode of analysis to a number of other finite gifts from the Earth: mineral resources that may be also in shorter supply than "flat-Earth" prognosticators would have us believe.

I purchased this book when it came out because I was considering using it for a class, but never got around to reading it since the class went a different direction (water issues mostly). With the recent, dramatic drop in gasoline prices in confluence with my environmental case studies class, I decided to pick the book up to see what kind of a foundation it would lay on the topic of peak oil.  

First I probably should explain that yes, as a geologist, I do believe that there is such a thing as peak oil. In, fact there are finite limits to most of the natural resources that we use every day and take for granted - gold, silver, tantalum, nickel, oil - all of these resources will some day "run out."  What the idea of peak  brings to the table, and why it is important, is that the point at which a resource runs out isn't important. It is the downhill slope we find ourselves on when extracting and processing that resource becomes increasingly costly and more difficult - where prices get higher and higher as more people are fighting over a smaller and smaller supply. It doesn't really matter too much what the total amount on the Earth of oil, copper or uranium is, what matters is what happens when we run out of the east stuff - how much damage are we willing to do to get that resource out of the ground and how much energy are we willing to use to get it ?  We points where there is a negative return on investment long before we 'run out' of anything.

There is a fundamental disconnect between economic models that assume that as long as a demand exists, there is an infinite supply that can be brought to market, and the reality of our finite natural resource base. I will try to illustrate this with an admittedly lame example ...

(Bear with me - there is a book review here too.) 

Take an existing product, like a smart phone. As long as there is a demand for smart phones, even if Apple and Samsung were suddenly to disappear in a cloud of smoke and counter lawsuits, some company will rise to supply the market with smart phones. If those smart phones get too expensive or lack the functions the market wants, then other companies will rise to fill that gap. (Yes this is an oversimplification of the invisible hand idea, but it will serve for now.) So the idea is that as long as there is a demand, the market will respond with a supply that will dynamically respond to changes in demand.

But what happens if there suddenly is no more tantalum (Ta - atomic number 73) available? Tantalum is an element so, outside of some really expensive processes involving a cyclotron or something, there isn't a feasible way of making more of it - certainly not in amounts large enough to support current levels of industrial use. This limitation impacts all of those smart phone companies (as well as several other industries).

Traditional market theory states that someone will come up with a substitute, but it doesn't really work that way with elements. Instead - as the supply gets smaller and smaller, the things that it get used for will become prioritized by how much the market is willing to spend - cell phones verses medical implants for example. In some cases there might be other elements with similar properties that can substitute, in other cases, there won't be, so some products would become extremely expensive, have to change radically to something else, or simply disappear.

Following through with this example, you can see that it isn't the point at which the tantalum runs out that is economically important - it is the point at which the mines reach their peak. For a finite resource there is going to be a peak point of production - a point after which there won't be enough new discoveries to maintain production so there will be a decline in supply as the mines won't be able to provide enough to keep up with the demand. This causes the price to go up and up - and since we are talking about an element here, there wouldn't be an easy switch - you can't just substitute uranium or chlorine for tantalum.

Now what happens to our market ? Well, smart phones would start to get really expensive - like that $6,000 Lamborghini premium mobile phone, but the sticker price would apply to your iPhone or Android phone as well. Some companies will start making Ta-free, lower priced phones but they are going to be bigger, luggable models that don't fit in your pockets. Computers will also change and/or get more expensive (it might even drive us back to desktops and away from tablets). Hip implants will change. Etc. etc. 

The market response is much messier, but at least in this case there are ways for the market to adapt - though we might not like them. But what if we are talking about resources were there just are not any clear substitutes or substitutes that can be brought to market quickly enough - like oil (water also comes to mind) ? Things aren't messy then - they are downright ugly.

Which leads me in a very roundabout way back to the book. We currently have a situation where we are almost certainly beyond (or at) peak for conventional oil production but in the past couple months oil prices have plummeted - seemingly in defiance of the peak model I just described. 
What's up with that ? 

This is exactly the sort of question I want my students to be asking and why I pulled the book out. See, it was a geologist, M. King Hubbert, who originally came up with the whole concept of a peak in connection to the U.S. oil supply. Deffeyes, the author of When Oil Peaked actually worked with Hubbert at Shell and this is his third, and most recent book on the topic. 

Hubbert's 1956 graph entitled United States crude-oil production base on
assumed initial reserves of 150 and 200 billion barrels.

I read the book basically to see how well it would work as an exploration of the topic and determine if it would be suited for student use. Unfortunately my answer to both questions was "not very well." As an exploration the topic it is pretty weak. It reads more like a bull session with someone over beers rather than a cogent discussion. You would have to already have a pretty good handle on the topic for this discussion, I mean book, to make much sense to you. Ideas are tossed out rather randomly and the topical flow is very weird, plus the author has chosen to make one-line jokes a priority over clarity. 

On that note - the author's privilege pervades the text with jokes that have a tendency to punch down. Towards the second half of the book I have WTF scrawled on many pages in association with jokes that while not offensive (actually one did offend me) but, like I said, punch down or use stereotypes as lazy attempts at humor. I was not impressed. 

In terms of technical content, the book lacks any serious references and the author - with intent - uses just-so stories to make most of his points. That is fine as a starting point, but without more serious discussion or at least references to allow one to pursue a point with greater depth, this approach provides little value to students. 

Too much of the book is composed of the author just writing down stuff that interested him without bothering to do any sort of background research for context. Some random examples: 

From the Uranium chapter - the chapter starts with a series of disconnected statements that I can't tell if the author is agreeing with or arguing with or what. One of the statements is  "The nuclear waste disposal site at Yucca Mountain doesn't look effective or safe" [pg 71]. Um, huh ? This book was published in 2010 but back in 2009 the Obama administration 'officially' cancelled the project and stopped requesting money for it. Actually Obama and Harry Reid made closing Yucca Mountain a priority (both campaigned on it) and started dismantling it as soon as Obama took office in 2008. A quick look into the topic reveals that apparently they couldn't really do that and there have been court cases etc, but as things stood in 2010 Yucca Mountain was to outward appearances, cancelled. If the author wanted a one-off sentence it should have read Yucca Mountain has turned into a political and legal quagmire though that still doesn't help with the context issue.

Then the author makes an extremely unclear argument that there is plenty of uranium around to use based on his Gaussian model of uranium distribution in the Earth's crust (I actually had to look this up on-line to figure out - from the book I couldn't tell if he though there wasn't enough uranium or that there was plenty and the model he created was published in Scientific American - was it really that different of a magazine then? peer reviewed ? this just seems weird). Next, for reasons completely unclear to me, he mentions that he is nervous about uranium roll-front deposits (that there haven't been enough discovered in other countries, that the model of a roll-front sedimentary deposit is wrong, or something else - I have no idea) and then randomly starts talking about copper deposits. Why? I have no clue.  

Later in the chapter he makes the completely reality challenged statement "Yucca Mountain, in nobody's backyard" apparently completely unaware that around 75% of the residents of Nevada oppose housing nuclear waste there and have been fighting it tooth and nail for years. Plus, his take Radwaste storage is pretty ill-informed at best. 

And from the last paragraph of the chapter "One final way of sugarcoating the renewal of nuclear-power reactors would be burning up part, or all, of the inventory of military nuclear weapons. Nuclear weapon inventories are being reduced in Russia and the United States. Using the fissile ingredients from bombs to generate electric power is the modern equivalent of 'they shall beat their swords into plowshares.'"

The way that paragraph is written it sounds like he is tossing an idea out there for 'us' to use, right? Book published in 2010 and he says this 'would be' a way to sugarcoat nuclear use? 

I guess he never heard of the Megatons to Megawatts program? The 1993 agreement between the US and Russian governments under which Russia would convert 500 tonnes of highly enriched uranium (HEU) from warheads and military stockpiles (equivalent to around 20,000 bombs) to low-enriched uranium (LEU) and to be bought by the USA for use in civil nuclear reactors? Yeah - that program actually ran until 2013, when Russia competed their end of the deal, making around $17 billion. (U.S. weapons were also converted). A new deal wasn't negotiated since US/Russia relations haven't been that great lately. Here is a NPR report from 2013 on the program - "For the past two decades, 10 percent of all the electricity consumed in the United States has come from Russian nuclear warheads."

If he did know about those programs, the way he wrote that paragraph is disingenuous at best and if he didn't know about those programs - well that is worse. They weren't exactly a secret.

There are many examples like this from the book - the author makes some statement, or suggestion, or whatever it is meant to be, that seems to lie out there its own bubble, shunning context, in defiance of the rest of the world.

And the Climate Change chapter is better ignored completely. It is a hash of either brutal oversimplification or a haze of misunderstanding. I do have to point out that the Black Death - peaking in 1346/53 - caused a huge population crash that might have rather more to do with pushing "societies down into survival mode" than the onset of the Little Ice Age (starting around 1350.) And all I can say is that based on his collection of suggestions is that he doesn't appear to give a d*am about the other species on the planet. 

Mudstone is NOT the same thing as shale!  %#*$& geologist should know that!  Fracing shale typically works because shale is fissile. Mudstone has different implications. I know that some oil people tend to use the term "shale" for any tight, small grained rock but a geologist should be better about their terminology. Sorry - I have pages of notes here that I am trying to condense into something coherent and not just a list of issues/complaints but that one annoyed me.  

The mineral resources are in the book because wind and solar power development depend on access to trace and rare-earth elements, which in turn take energy to acquire and process. This needs to be kept in mind - wind turbines and solar panels can't be manufactured out of thing air - it is energy intensive and requires use of more of those finite resources. I just wish he had tied this together better.

There are lots of other things that I could mention, but in deference to anyone who hasn't given up reading in despair by this point, I will sum up ... It was with almost equal parts interest and annoyance that I completed this book. Some of the discussion was historically interesting or illuminating but way too much was disorganized and disengaged.

I think that the author does have some interesting things to say about oil, using stop-gaps and not wanting to get stuck in a dead-end with respect to energy policy and infrastructure, but I find it odd that he seems to be proposing a one-size fits all solution - i.e. there is one  solution that we should put all/the bulk of funding towards. I think different solutions need to be integrated together. I also found much of the discussion shallow or meandering. 

Mostly it felt like this book was composed out of a loose outline that never got fleshed out. Ultimately it was disappointing. I think that the only people who are going to get anything out of it are people who already are familiar with the topic. This definitely isn't the place to start if you are a student or want to learn about the concept. Sigh, which means that I am going to go back and read his first book Hubbert's Peak to see if it is any better suited as an introduction to the topic. I am just really, really hoping that it is better written as well. 


Oh - about oil prices ... take a look at this graph from the EIA (U.S. Energy Information Administration) 

See what happened last year?  Production (supply), the blue line, kept going up while consumption (demand) dropped. Classic oversupply causing a price drop. So does this mean "Yeah! we aren't really near peak oil at all" ? Nope. Sorry. This also isn't because of the tight-oil (shale-oil from the Bakken) making the US "energy independent" either.

These exceptionally low oil prices are actually bad for US oil production. See, it costs more per barrel to extract oil from the Bakken then from someplace like Saudi Arabia.  If you look at the graph below the breakeven point for oil from the Hess Bakken is around $60 a barrel, so if the price of oil drops below $60, you would be losing money for each barrel of oil you pull out of the ground and sell. At the $50/barrel line on the graph you can see that most of the US plays are on the wrong side of the break even point - i.e. bad news for US production.

Just FYI - the break even point for oil from Saudi Arabia is closer to $25/barrel. This means that some oil suppliers can survive low prices much better than others. There are oil-rich nations / oil companies that are hurting right now because their oil-fields are on the wrong side of the breakeven point at the current price of oil. However, many of them are going to keep pumping, at least for a while, for a variety of reasons - ex. making a little money off the oil and working at a net loss waiting for prices to rebound is better/less expensive in the long-run than shutting everything down and having to rebuild later. Prices are going to rebound at some point, the question is when.

We have almost certainly passed peak on conventional oil resources. The world is increasingly dependent on non-traditional oil sources. There is a lot of oil in non-traditional sources, but it takes more energy to get it out of the ground, refine it and move it to market so the energy return on investment (EROI) is much lower than for conventional oil - thus there might be more of it, but we have to use much more of it to get the same amount of energy out. This means that we are still looking at an oil peak, it is just a somewhat different when you include the non-traditional sources.

And this discussion of cost doesn't even consider the external costs associated with non-conventional oil sources - like environmental damage we do trying to get it out of the ground (see for example Athabasca tar sands and the Keystone Pipeline - part 2) and the extra CO₂ that gets put into the atmosphere from acquiring it and using it. 

Complicated stuff. Now I need better books to help explain it.