Can economy bear what oil prices have in store?

Sat Jan 28 19:31:16 GMT 2012

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More warning flags for peak oil!

Earlier this we saw the publication of an article in Nature on peak oil. 
Murray and Kings basic premise is, "Stop wrangling over global warming and 
instead reduce fossil-fuel use for the sake of the global economy." The 
Nature article is behind a paywall, but UoW's the press release covers the 
content of the paper --
http://www.eurekalert.org/pub_releases/2012-01/uow-cin012612.php

Now that paper's been joined by another from the Univ. of California 
economist James Hamilton. His anaysis explores details behind the 
phenomenal increase in global crude oil production over the last century 
and a half, and the implications if that trend should be reversed. A key 
feature of the growth in production has been exploitation of new  
geographic areas rather than application of better technology to existing 
sources, and suggest that the end of that era could come soon. The economic 
dislocations that historically followed temporary oil supply disruptions 
are reviewed, and the possible implications of that experience for what the 
transition era could look like are explored.  

There seems to be some problems downloading James Hamilton's latest paper 
from the UC site, so I've mirrored my copy on FRAW -- 
http://www.fraw.org.uk/fwd?hamilton2012

The Washington Post's take on the paper is appended below -- and is also 
syndicated via The Economist -- 
http://www.economist.com/blogs/freeexchange/2012/01/oil-and-growth

P.

http://www.washingtonpost.com/blogs/ezra-klein/post/oil-production-is-
booming--but-for-how-long/2012/01/26/gIQApHGxSQ_blog.html

Oil production is booming — but for how long?

Brad Plumer, Washington Post, 26th January 2012

Lately, President Obama has been talking up the frenzy of domestic oil 
drilling under his watch. “Right now,” the president said in his State of 
the Union Address on Tuesday, “American oil production is the highest it’s 
been in eight years.” Technically, that’s true. But it’s worth taking a 
longer view. Since 1970, U.S. oil production has actually been in severe 
decline — and the recent boom is nowhere near enough to reverse it.

Economist James Hamilton offers some historical perspective in this new NBER 
paper. Thanks to new shale oil drilling in North Dakota and offshore 
production in Alaska and the Gulf of Mexico, U.S. production has picked up 
recently and is at about 6 million barrels of oil per day. But that’s still 
way down from 1970, when production peaked at 10 million barrels per day.

The United States has historically been able to increase oil production by 
finding new areas to drill. First there were Pennsylvania and New York in 
the 1850s and ’60s, then Ohio, then West Virginia, then big plays in Texas, 
the Gulf of Mexico and Alaska, and so on. Eventually, however, production 
from all those locations peaked and went into decline. Companies have now 
moved on to North Dakota and deepwater exploration.

Right now, North Dakota is the only state setting all-time records for 
production — in the wake of new fracking techniques for recovering oil from 
the Bakken shale formation. But while that development is hugely important 
for North Dakota, it’s modest in the larger scheme of things. “The 138 
million barrels produced in North Dakota and Montana in 2010,” Hamilton 
writes, “is about half of what the state of Oklahoma produced in 1927 and a 
ﬁfth of what the state of Alaska produced in 1988.”

Obama has also proposed opening up the Outer Continental Shelf in the 
Atlantic and Pacific oceans for further oil exploration, but, according to 
an Energy Information Administration analysis, that would boost oil 
production by just 182 million barrels in 2030 — again, less than Oklahoma 
produced in 1927.

That doesn’t mean the recent uptick in oil production has no benefit. As the 
EIA’s Energy Outlook 2012 noted, the recent boom is helping the United 
States curb its dependency on foreign crude. But that’s mainly because 
Americans are also reining in their oil use. The EIA projects gasoline 
consumption to be flat in the years ahead, thanks to new fuel-economy 
standards on cars and light trucks. The fact that Americans are using less 
oil is a key part of the dynamic here.

So what lies ahead? Hamilton’s paper is fairly gloomy about future domestic 
supplies. While most industry optimists expect that rising prices and new 
technology will help the United States — and the world — keep wringing out 
more oil from existing fields, history offers reasons for pessimism. Boosts 
in oil production has primarily been mainly by new discoveries rather than 
better technology. And while high prices can spur companies to boost 
production, they’re no guarantee that the decline can be halted or reversed 
— in 2010, oil was twice as costly as in 1990, yet U.S. production was 
still down 25 percent from 1990 levels. (Globally, meanwhile, production 
has plateaued since 2005.)

“Most economists view the economic growth of the last century and a half as 
being fueled by ongoing technological progress,” Hamilton concludes. 
“Without question, that progress has been most impressive. But there may 
also have been an important component of luck in terms of finding and 
exploiting a resource that was extremely valuable and useful but ultimately 
ﬁnite and exhaustible. It is not clear how easy it will be to adapt to the 
end of that era of good fortune.”

- -- 

.

"We are not for names, nor men, nor titles of Government,
nor are we for this party nor against the other but we are
for justice and mercy and truth and peace and true freedom,
that these may be exalted in our nation, and that goodness,
righteousness, meekness, temperance, peace and unity with
God, and with one another, that these things may abound."
(Edward Burrough, 1659 - from 'Quaker Faith and Practice')

Paul's book, "Energy Beyond Oil", is out now!
For details see http://www.fraw.org.uk/mei/ebo/

Read my 'essay' weblog, "Ecolonomics", at:
http://www.fraw.org.uk/mei/ecolonomics/

Paul Mobbs, Mobbs' Environmental Investigations
3 Grosvenor Road, Banbury OX16 5HN, England
tel./fax (+44/0)1295 261864
email - mobbsey at gn.apc.org
website - http://www.fraw.org.uk/mei/index.shtml
public key - http://www.fraw.org.uk/mei/mobbsey-2011.asc

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