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Contrary to misleading reports, Peak Oil is real

Peak oil is real and we have been feeling its effects since around 2007, just a year or two after the peak of global crude production, which was 2005 or 2006. Since then, conventional crude production has been bumping along the plateau of the peak of Hubbert's curve, and the developed world's largest economic slowdown since the Great Depression has coincided with this plateau.

Here are the four reasons that peak oil is real and significant:

1. Price - Anyone who says that peak oil is dead because of non-conventional oil exploitation needs to explain the price. From 1946-1971 the average REAL price in 2010 dollars was $23/barrel. From 1971-2005 it was $42/barrel. Notice the change in oil prices that perfectly coincides with the U.S. peak, which Hubbert also predicted in 1956, was also the year that Nixon took the U.S. off the remnants of the gold standard by exiting the Bretton Woods monetary system and ending US dollar redeemability for gold. This was also the birth of the petro-dollar: Nixon asked first Saudi Arabia and then the rest of OPEC to only trade oil in U.S. dollars.

From 2006-2012 the average price has been $75/barrel. Peak oil is already here. The first stages of peak oil (technically, of leveling off at the top of the curve) don't look like Mad Max. It looks like economic stagnation and high energy prices.

2. Falling EROI - Energy Return on (energy) Invested - in Saudi's Ghawar, the world's largest oilfield, we put one barrel of energy in for every 100 barrels we get out. For offshore deepwater drilling in the Gulf of Mexico we put 1 barrel in for every 20 we get out. For the Canadian Tar Sands we put 1 barrel in for every 5 we get out. The Bakken oil shales are about 6:1, meaning 1 barrel in for every 6 we get out. So, non-con oil is a reality, yes, and we are exploiting it, yes. But M. King Hubbert and other petroleum geologists knew about non-con oil in the 50's. It just wasn't worth extracting. The only reason it's worth extracting now is b/c conventional oil has become scarce and expensive (i.e. peak oil.) But non-con oil takes way more energy to extract and refine, leaving less surplus energy for us to run our economy. To paraphrase Chris Martenson, we now spend more energy to get energy, and this leaves less energy for us to use to do everything else.

3. Peak oil is about flow rates and not reserves. There are massive reserves of non-con oil, but flow rates are very slow because, well, the stuff doesn't really flow. The most important number in oil prodution is barrels per day, how much energy can we pipe into our economy each day. Now the world pumps about 70-odd million barrels per day of conventional petroleum and another 15 mbd of non-con syncrude, natural gas liquids, and other products that share some (but not all) similarities with conventional petroleum.

4. Our modern globalized capitalism depends on rapid economic growth. But growth in energy and economic growth are closely linked. Even a fall in the RATE of energy growth is already a problem for our fractional-reserve banking system because already existing loans will not be paid off. Loans are made based on a set of assumptions about future economic growth. But, our assumptions are based on the rapid growth of energy supplies from the 1950’s to the 2000’s (with the exception of the 70’s).

So, the fact that fast and easy conventional oil supplies are diminishing matters a lot for the rate and growth of energy supplies, and this in turn means that people will be less likely to pay off debts. Notice that dollar debasement was most acute in the 70’s – when the U.S. hit its domestic oil peak – and since 2008, just a few years after the world hit the global peak. That’s because, in the words of former IEA analyst Olivier Rech, “Many OECD nations are printing money to buy the oil that they cannot afford.”

In conclusion, the peak of conventional petroleum happened in 2005/2006 and since then we have seen very high oil prices and the largest global economic slowdown since the Great Depression, especially for the OECD-rich countries that benefited most from rapidly expanding oil production during the second half of the 20th century. We are already in a post-peak oil world, and exploiting non-conventional hydrocarbon reserves does not change that. The fact that we are scraping at the shales of North Dakota and the bitumen sands of Alberta just show that we are in the first stages of difficulty, since 35% of the energy that powers our global industrial civilization comes from oil and at least 80% comes from non-renewable fossil fuels of all types (it's roughly 30% of global energy use from oil, 25% from coal, and 25% from natural gas).

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