Despite today’s news that the price of oil dropped below $126 a barrel, summer vacationers are undoubtedly still worried that they’ll be paying $4 for a gallon of gas before the season is over—if they aren’t already. Even if speculation that the current oil market “may have peaked” is correct, however, there is a more ominous peak looming. Increasingly, energy experts and journalists are starting to talk about what will happen when the rate of petroleum production tops out and begins to slide toward zero. It is uncertain when that apex will come and how quickly the ensuing decline would play out. CJR contributor Katherine Bagley invited two journalists who have covered the “peak oil” question to debate how the press should approach this contentious issue. This is the first of a four-question series that will be posted this week.
Lisa Margonelli is an Irvine fellow at the New America Foundation and writes about the global culture and economy of energy. Her book about the oil supply chain, Oil On the Brain: Petroleum’s Long Strange Trip to Your Tank, was published by Nan Talese/Doubleday in 2007. Recognized as one of the 25 Notable Books of 2007 by the American Library Association, Oil On the Brain also won a 2008 Northern California Book Award for general nonfiction. Margonelli’s work has appeared in The Atlantic, The New York Times online, The Washington Post, the Los Angeles Times, Wired, and Discover, among other publications.
Ed Wallace holds a Gerald R. Loeb Award for business journalism, bestowed by the Anderson School of Business at UCLA. His column heads the Sunday Drive section of the Fort Worth Star-Telegram, and he is a member of the American Historical Society. The automotive expert for KDFW Fox 4 in Dallas, Wallace hosts the top-rated talk show Wheels, Saturdays from 8 a.m. to 1 p.m. on 570 KLIF AM in Dallas.
Katherine Bagley: Should peak oil influence the energy-related decisions of politicians, businesspeople, and consumers today — why or why not?
LM: NO. If you buy the argument that the world’s production of conventional oil is at or very near peak, then the most sensible immediate response is to push unconventional supplies—like oil from tar sands or liquid fuels produced from coal or even corn ethanol (which is really an inefficient way to convert natural gas to an inferior gasoline substitute—turn natural gas into fertilizer, mix with diesel fuel, water, and soil to grow corn, and then treat with more natural gas to make ethanol; sprinkle money liberally on corn belt). All of these options are ridiculously expensive economically and even more expensive environmentally and they buy mainly time, rather than solutions to problems with greenhouse gases, energy infrastructure, or economic competitiveness.
And what about Peak Oil? According to BP, the Middle East had 61.5 percent of the world’s oil reserves in 2006. The U.S. has about 3 percent. We long ago passed our peak, and more recently so have the North Sea and many of the non-OPEC oil fields that stepped into the lurch in the 1980s to flood the market with cheap oil, diminishing OPEC’s power. So what about fields in the Middle East, Russia, and Africa, are they near their peaks? That information is jealously guarded by the governments that own the fields, if they know it themselves. We just don’t know. When oil producing countries let the price run up into the super stratosphere and don’t care whether demand slacks off—then we’ll know. We may be one year from the peak or ten or twenty-five years from the peak. That’s serious—but it’s only one factor among many obvious gnarly oil issues that we need to plan for.
We should base policies on the idea of “Difficult Oil.” The times when supplies of easy, cheap, relatively politically stable oil are ending, and the era of difficult oil—expensive (both in terms of price and volatility), geologically and technologically challenging, environmentally unsustainable oil is upon us. Leaving aside the morality of using oil that’s involved in cycles of poverty, civil war, corruption, and human rights violations in the states where it comes from, the stuff just isn’t that easy to get anymore because developing countries are competing for it too. The market’s perception of this difficulty is part of the reason—not all—for today’s amazingly high oil prices. Even if we could get our hands on more cheap oil, our fuel delivery infrastructure was built in our grandparent’s time, and it’s straining to hold our increasing demand. What’s more, our global competitiveness is severely limited by the fact that our energy productivity (ability to turn fuel into GDP) is the lowest in the developed world [according to a report by consulting giant McKinsey & Company].
Meanwhile, today Americans are shelling out $800 million more for gasoline per day than we were five years ago. Inattention to the realities of difficult oil has left us in a bad spot. On a personal and national level we need to remodel our lives and economy to use less energy, and in particular less oil, while making things (or at least ideas) that the world wants to buy.
EW: Let’s dismiss the McKinsey study on U.S. oil usage against expanded GDP. Much is made of America’s use of 25 percent of the world’s oil output, but always in contrast to our population’s percentage of the world’s: the direct comparison is that the U.S. uses 25 percent of the world’s oil and creates 25 percent of the world’s GDP. Further, by improving energy efficiency America has doubled its GDP per barrel of oil since the seventies.
We would be wise to start thinking of oil as what it really is, a replacement for other forms of labor. Consider this: a single trucker can load 50,000 pounds of goods in Los Angeles and drive it 1,400 miles to Dallas using approximately 289 gallons of diesel, or one gallon for every 173 pounds of goods delivered. Without oil, how many drivers, horses, and wagons would it take to deliver those goods? How many humans would it take, carrying the goods on their backs? It is the extremely concentrated energy stored in oil that makes it so valuable. As consumers, we focus only on how much per gallon gas costs, not on how much in costly labor it saves.
The search for alternative fuels and energy should be considered key to long-term growth. But we have been searching since the dawn of the Oil Century, and yet even at today’s prices no substitute has been found with an equally low cost of production and equally high-energy output. Until that cost/benefit line can be crossed, oil it is.
LM: Dismiss the issue of American competitiveness? Give a gallon of oil to Japan and they’ll turn it into twice as much GDP as we do, even though we’re all paying the same price for the oil on the international market—that puts us at a disadvantage. (If we were as productive as Japan we’d be producing well more than 25 percent of the world’s GDP.) I don’t have the figures for your hypothetical trucker, but let’s say we’ve got a hard-working organ donation institute employee who needs to drive coolers around in a car. Her European counterpart will use 37 percent less oil to go the same number of miles, which means she can deliver a third more organs, and generate more GDP.
Oil may be “it” at the moment, but our overwhelming dependence on it for transportation—while other economies make more use of railroads or water—and our relatively poor productivity are hurting us. Independent truckers are feeling the pain already. And the rest of us are paying more for everything on those trucks—from baby lettuce to FedEx to deck chairs from China. Precisely because oil is “it” at the moment we need to use it more efficiently, and look for substitutes. Natural gas, in Utah at least, is already a far cheaper auto and truck fuel than oil. It’s also much cleaner. Biogas, made from manure, could also fit that niche profitably because its flow is steady and its cost fixed—both advantages when prices of natural gas are volatile.
Katherine Bagley: Does the media hype, underreport, or adequately cover peak oil?
EW: Just prior to the Great War, Charles Kettering, inventor of the electric starter for automobiles and General Motors’ in-house genius, ran into the office of company founder Billy Durant. Kettering carried bad news: experts had told him that the world had only enough oil to last until around 1940. Unless GM could find a suitable substitute for gasoline, Kettering explained, the car company would simply go out of business within two decades. Durant contemplated Kettering’s comments and then replied, “Charles, the experts are always wrong. They’ll find more oil before you’ll find an alternate fuel source.”
It wasn’t known as Peak Oil then, but the concept was the same. At the time world demand for oil was surging, owing to the increasing popularity of automobiles and the military’s oil needs for the war. But Kettering’s experts weren’t the first to fear that the world’s oil was vanishing. Our own government discussed it in 1911; only a decade earlier, the Spindletop gusher, outside Beaumont, Texas, had finally convinced America that we had large deposits of oil in places other than western Pennsylvania.
Much is made of Dr. King Hubbert’s 1956 theory of Peak Oil, which posits that, once “half of the world’s oil” has been extracted from the ground, a terminal phase will begin in which oil production becomes problematical, in turn creating price instability. Moreover, because Dr. Hubbert predicted that American oil production would “peak” in the early seventies, and it seemed to, no one questions his theory of oil production at or after the peak. Too bad: if today’s deep-water oil extraction technology had existed in the sixties, or if political actions hadn’t mostly closed our east and west coasts to oil production — or if the North Slope or ANWR reserves had been known and producing in 1970 — then “American Peak Oil” might not have happened when Dr. Hubbert predicted it would. Overlooked is that Dr. Hubbert readily admitted that better technology or new reserves discovered would alter his predictions for the actual date of Peak Oil. Cambridge Energy now says that Dr. Hubbert’s “oil curve” for American production was off by 66 percent in 2005.
Undoubtedly Peak Oil will happen, someday. However, three times in the last thirty-five years, the media has confused it with the historic cycle of oil production: prices rise when tight supplies meet rising demand; those additional profits are reinvested in new oil fields or delivery infrastructure; and then come lower prices and little new investment — which inevitably creates supply shortages and higher prices.
Is media hysteria overselling Peak Oil? Could be. In my lifetime the media has warned us of many “end of the world as we know it” scenarios: Communist takeover of America, nuclear Armageddon, running out of drinking water, global cooling, global warming, three Peak Oils, an errant asteroid wiping out humanity, killer bees, Y2K, and a worldwide pandemic. Any of those disasters could befall the world one day, but not one has happened yet. Neither has Peak Oil.
LM: The media does as bad a job of covering Peak Oil as it does covering oil in general. Covering Peak Oil well—without being alarmist, referring to conspiracies, or dismissing it entirely—is difficult. The best article I’ve read was Peter Maass’s article on Saudi Arabia for The New York Times Magazine. Another issue with Peak Oil is that oil’s availability in reservoirs does not determine the course of history—politics, economics, and environmental factors also determine how things move forward. I think Sheik Yamani said, “The Stone Age did not end for lack of stone.”
However, the media have done a lousy job of reporting on the end of cheap oil, of fully explaining to people why current high oil prices are neither the result of a conspiracy nor a sign that oil is about to “run out.” Part of the reason is that reporters are usually assigned to cover oil at the beginning of their careers and when they succeed they get promoted to another beat, so they don’t develop deep wells of knowledge and skepticism that could help them put “news” in context.
I’d like to make an appeal to cover oil the way we cover sports—as a personal, nutty opera with huge consequences for daily lives—as much for us as for those who live at the other end of the pipeline in places like Nigeria and Siberia. If you read the oil trade publications you get that scintillating play-by-play action, but the daily papers are not as ambitious.
Returning to Ed’s response, though the press has appeared to “cry wolf” about oil supplies several times over the last century, in fact it was reacting to current perceptions—declining U.S. oil discoveries in the 1920s and late 1930s, declining output in the 1970s and now. The alarm it generated elicited a reaction and new government and industry strategies that relieved the problem. Roosevelt’s cabinet saw that U.S. oil production would fall off and struck a deal with the Saudis that included policies that discriminated against U.S. oil producers and favored companies doing business abroad. That flood of imported oil intentionally delayed a decline in U.S. production. In the 1970s, another plan encouraging conservation and drilling in non-OPEC countries took shape, ultimately causing prices to fall and lulling Americans into a sense of security. This time around, reducing the impact of high oil prices on the U.S. economy while lowering greenhouse gas emissions will require gutsy political and economic leadership.
EW: Recently Goldman Sachs issued a note to investors suggesting that oil could hit $200 a barrel within two years. That same day, Tim Evans, an analyst with Citi, stated that oil prices could fall to $40 — because current supplies are “comfortable.” On April 24 the British Telegram reported Lehman Brothers’ statement that oil supplies are “growing faster than demand.” Further, we put 5.7 million more barrels of oil into reserves, up 32 million barrels since January 1, 2008.
Only Goldman Sachs’ frightening prediction made the headlines.
Also underreported is that Brazil’s Petrobras will be hiring 14,000 new geologists and oil-rig workers as part of their $112 billion expansion, which many believe will make Brazil the world’s second largest oil supplier. Totally ignored is Iraq: experts claim at least 115 billion “easily recoverable” barrels exist there and maybe much, much more.
Yes, the theory of Peak Oil is accurate; what’s under debate is how much oil the world started with. Cambridge Energy puts it at almost 5 trillion barrels; the United States Geological Survey estimates more than 4 trillion barrels — and since the start of the Oil Age, the world has extracted barely more than 1 trillion barrels. Peak Oil is years, maybe decades, from happening.
On the issue of long-term oil prices returning to $10 a barrel, we can all agree that that’s not likely to happen. However, media and public alike confuse Peak Oil with normal supply and demand problems; they always have and apparently always will.
Katherine Bagley: What types of articles necessitate a mention of peak oil and which do not, and how do reporters tell the difference?
LM: It’s the responsibility of the reporter and the editor to educate themselves and then to apply a practical, oily version of Occam’s razor to developing stories. “Oily” because Occam’s razor requires the simplest explanation, while with oil sometimes the answers are complex, but generally the conspiracy theory is wrong.
Here are a few cases where I think Peak, or Difficult, oil could be mentioned:
• Where it’s the topic.• Where a subject mentions it. (Present the basis for the subject’s expertise and do a bit of digging to see whether the subject has anything financial or otherwise to gain from one position or another.)
• Where “peak,” “changing balance of power in the oil market,” or “the National Petroleum Council Report” are mentioned as drivers of either market or corporate behavior. When talking with oil company executives, say Chevron, we should be asking why executives have said things like, “We’re going to need every molecule and every electron going forward.” It’s also important to ask them if this is mainly a slogan or is it something they’re really applying, and what it would mean in terms of risks and potential benefits for shareholders.
• When discussing strategies for alternative fuels in which either rising oil prices or scarcity are seen as the primary drivers.
• When discussing the dismal lack of a forward-looking national energy policy in the U.S.
• When discussing the impact of Internet groups on market behavior and legislative agendas. (As a cultural trend, the peak oil Internet discussion groups are fascinating. Why and how did it become a popular issue, after more than a century of leaving oil policy to political, industry, and geological “experts”?)
But peak oil is not the only topic. To name a few more: greenhouse gas policies, infrastructure issues, air quality, and the role of stolen and smuggled oil in funding violence in Iraq, Nigeria, Chechnya, Colombia, and the Straits of Malacca, which in turn sends futures prices higher.
EW: When a person brings up peak oil with the media, there should be only one question: What’s their motivation? For years, oilman T. Boone Pickens has discussed peak oil as a fait accompli, but he is heavily invested in oil futures and therefore has a strong interest in the future price of oil. If one assumes that exceptional reporting is the art of bringing “accurate testimony” to the public on important issues, one should ask whether that sentence also explains why so many people invested in oil futures love to talk peak oil with the media. This quote certainly does:
“There’s a few hedge fund managers out there who are masters at knowing how to exploit the peak [oil] theories and hot buttons of supply and demand and by making bold predictions of shocking price advancements to come, they only add more fuel to the bullish fire in a sort of self-fulfilling prophecy.” —U.S. Senate Permanent Subcommittee on Investigations’ report, “The Role of Market Speculation in Rising Oil and Gas Prices,” June 27, 2006.
Others who regularly bring up peak oil include environmentalists, city planners, and entities pushing alternative fuels. But they, too, have ulterior motives—either trying to force people from their automobiles or using the media to push the government for more tax breaks and grants to break our oil addiction.
The only valid reporting on peak oil would be to determine on what date it might actually happen. That important story we haven’t yet seen.
LM: I think we share a skepticism of the extremist peak oil position that world oil production will peak on a certain day or month and everything will be downhill from there. I also share your questions about the motives of some proponents of the idea.
However, to me it’s a certainty that oil from here on out is a more difficult, economically and environmentally expensive game than it has been in the past. The task for journalists is how to cover this evolving new reality, whatever it is, while it’s taking shape, without latching onto the easiest idea that comes along. For example, it’s become common to complain that China’s growing oil demand is a financial, ecological, and diplomatic catastrophe that will lead to a confrontation between the U.S. and China, more mayhem in Sudan, and higher oil prices even if U.S. consumers reduce consumption. All of that may come to pass. But it’s also true that the U.S. currently imports a million barrels of oil a day through China, in the form of finished goods, which means we’re not competing with China so much as collaborating with and benefiting from their policies while underestimating our own oil dependence. The complexities of the global oil market demand more initiative from reporters.
Katherine Bagley: Has the press effectively described the science and scientific uncertainty behind charting a peak oil supply?
EW: While it uses and allows the term often, the media have done a poor job of describing the theory and potential impact of peak oil. Some may have been put on impossible story deadlines; others have uncovered a lively debate among petroleum geologists concerning whether or not we have “reached the world’s limits for oil production.” It should be noted that, in the scientific community, peak oil is regarded much as are other “end-of-the-world” disasters — such as global warming or an asteroid striking the planet.
This may be because those who most want (and get) the media’s attention are not often properly neutral scientists or engineers; after all, they can be boring and dry about complex subjects. No, instead we are most often treated to activists or speculators with a vested interest in having only their side of the story heard. Stories “covering” peak oil, global warming, or whatever the disaster du jour always seem to be heavily weighted toward “the end of our economic society” rather than the much more likely outcome, “the evolution of our economic society.”
That’s a big problem: when the only debate being publicized in the media is about the end of our oil world as we know it, that draws our attention away from urgent, near-term realities. Peak oil is still a long way off — but the most critical period for oil may be just four to seven years away. For it’s an open secret in the oil industry that, even if they do everything right, from this date forward the oil supply and demand equation is going to reverse: many analysts and oil insiders suggest that the new baseline for crude will exceed $250 a barrel and foresee Americans paying $8 to $10 for a gallon of gasoline. And at that point, the peak oil question will be almost moot. The average American family will have to divert another $3,500 of its income away from other needs to gasoline; and, since wages for the middle class have declined in this decade against real inflation, that’s a serious financial crisis. Therefore, the inability to get enough oil to world markets in the period of 2012 to 2015 will have the same impact as peak oil. The difference is that few doubt or question that it’s coming our way, and soon.
The media’s oil discussion should be focusing on real, solvable problems: Why doesn’t America have a real energy policy? How will this coming supply reality affect wage earners — and might it be the final nail in the coffin of the American automobile industry? How will small business owners that cater to motorists survive?
When you understand the oil industry’s limitations, it seems a bit foolish — even irrelevant — to debate whether we’ll hit peak oil in 2030 or 2050. The real crisis in oil is coming much sooner. Most everyone in the industry understands that; they’re just not making it public knowledge.
LM: I’m tempted to pull a Bart Simpson with my last 250 words and write, “We need a new energy policy” forty-nine times and let it go at that. Really, if there’s one thing we need it’s a plan for the way we use energy and deal with high prices and greenhouse gases. For too long, we’ve hoped that “the market” would provide a policy, but that was really an abdication of government and popular responsibility. As late as 2006, the president’s council of economic advisers said that market forces would lead people to more efficient cars if necessary. But at car lots, consumers weren’t making a spreadsheet of potential costs; they were buying what seemed comfortable. (And everything about the politics and culture of oil in the U.S. urges complacency.) And now, far from letting market forces play out, we have the yucky spectacle of the president begging Saudi Arabia to put more oil on the market. Beyond screaming “we need an energy policy” from the rooftops, we also need to start cleaning up here—retime traffic lights to save gas, reduce the speed limit some days, help people tune their cars and drive to use less fuel, get insurance companies to reward those who drive less, use tax incentives to reward companies who help their employees carpool, retrofit long-haul trucks, etc.
Peak oil was for many years not a mainstream media issue, but one that thrived through books and Internet discussion groups. In addition to studying the science, the movement saw itself as against complacency. As the topic moved into the mainstream, the debate focused around the science and the date of peak oil (much as global warming debates focus not on the overall consensus but on whether scientists disagree), and the message the public got is that we can be complacent until there’s agreement on peak oil. Instead, we should have ditched the complacency. Repeat: we need an energy policy.
EW:The only disagreement with my colleague’s last position is that it is Lisa Simpson, not Bart, that when armed with the truth tries to show her fellow citizens of Springfield the light.
That being said, there can be no disagreement that this nation is without an energy policy and what is claimed to be a solid energy plan is little more than political cynicism for votes or campaign contributions. While it would be disagreeable to the average American, the gasoline wasted by driving at eighty miles an hour with one’s fellow motorists is one of the greater wastes of petroleum products known. It is not unusual to find that the fuel efficiency of any vehicle, SUV or compact, declines by four to five miles per gallon or greater once one crosses the seventy-five-mile-per-hour barrier. Considering that we have over 200 million vehicles in this country, we find that millions of barrels of oil are wasted for no other reason than to insure we arrive at our destinations six minutes early. Instead, we are told that ethanol is going to be our salvation, but so far prices for oil and gasoline have skyrocketed (also grain commodity prices), during a period when one would think this additional alternative fuel would be helping to relieve demand for oil based products.
Faced with similar problems thirty-three years ago, we passed meaningful legislation and everyone pitched in to resolve our energy issues. That took real leadership. Today, that’s something that is in shorter supply than $3.50 gasoline.
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