Book Review: Peter Tertzakian's
A Thousand Barrels a Second
by Dave Cohen
Peak Oil is a contentious issue and views of the theory are highly polarized. There are essentially only two main viewpoints and these can be summed up easily enough:
Viewpoint A: Imminent Threat
According to this viewpoint, Peak Oil is an imminent threat to cultural innovations which have characterized the Industrial Age. The easy to get "low hanging fruit" is gone now, oil will become increasingly scarce and expensive. If this process plays out quickly, the effects on present industrialized cultures will be disastrous. This will result in a unique crisis that will cause great suffering and perhaps "die offs" in the worst case scenarios.
Viewpoint B: Not a Problem
According to this viewpoint, PeaK Oil is a non-problem that can be solved by the human ability to innovate and create new technologies to solve the problem of producing ever harder to find and exploit new hydrocarbon resources. This will be accomplished by the invisible hand of Adam Smith if there is sufficient investment and the free markets are allowed to operate in an unfettered way.
The bias of this reviewer should be made clear at the beginning. I adhere mostly to position #1 and think the dire consequences of diminishing energy from fossil fuels is a clear and present danger to Industrial civilization. That said, Peter Terzakian's A Thousand Barrels A Second: The Coming Oil Break Point and the Challenges Facing an Energy Dependent World is well-researched and tries to take a balanced approach to the problem as he sees it. What he attempts to do is stake out a position between the two extreme views in the sparsely populated middle ground. You won't find any denial of the problem from him. Here are some "myths" he lays out in the media kit (a zip file) on the book's website.
The oil industry has always found more oil in times of need and they will continue to do going forward. In fact, Tertzakian seems to believe that production of the "best" oil, light, sweet crude, has probably peaked. It is now what he calls a disadvantaged fuel source. And, yes, he is aware of the Hubbert Linearization of future oil supplies.
New technology has always saved our society from high energy prices and our inventiveness will help us do so again. But as he points out in his book, developing technology to produce energy is not akin to the easy, rapid pace of innovation in consumer electronics like cell phones, PCs, ipods, etc.
We can have our cake and it eat to: more renewable energy can help mitigate the high price of oil and provide environmentally better solutions. Tertzakian realizes that alternative renewables (eg. wind, solar) can only make small contributions to our future energy supply and do not scale up to anything close to the enormous fossil fuels supply chain that underwrites industrial civilization.
Oil prices are artificially set in the marketplace by OPEC. Again, the author realizes the now diminished capacity of the OPEC cartel to act as an arbitrator of prices. There is little spare capacity among the OPEC producers and unlikely to be much more in the future.
Oil prices have reverted to the $20 average (per barrel) for a long time and will do so again. Tertzakian acknowledges that the oil is getting harder to find, more expensive to produce and it comes from geopolitically risker parts of the world. $20/barrel prices are ancient history.
Once China's economy cools down, oil prices will fall accordingly. Yes, China's phenomenal growth will eventually slow. But only its rate of demand will slow. But the statement is misleading. As long as the world's economies are growing, demand will rise.
Once the Iraqi situation is brought under control, enough oil will come on to the market to the cool the market down. The answer here is that the problems there need to be sorted out and even if they are, "capacity expansion [in Iraq leading to] higher out [production] levels will take time and a ton of money. Who is going to invest in Iraq?" Who indeed?
The US can wean itself off Middle Eastern oil. Tertzakian regards this as a "huge myth". Since the Middle Eastern producers are the lowest cost producers, he asks "since when does the low cost producer lose market share when demand is cut? Answer: never." It would cost the US to cut itself off from this low cost oil and probably tariffs would be required to do it.
Taken all together, it would appear from this list of myths Tertzakian dispels that he is a Peak Oil adherent reflecting position #1 outlined above, right? Well, not quite. He is not a "doom & gloom" Apocalypse Now kind of guy. He believes industrial civilization will muddle through, though not without a difficult transition period that could last a decade or more. What approach does he take to justify this middle ground position?
Tertzakian's Historical Analysis and the Energy Cycle
The basis of Tertzakian's analysis is his Energy Evolution Cycle (swf, flash). Historically, a new fuel source comes along accompanied by growth and dependency on that source. But inevitably the source becomes disadvantaged (scarce and expensive) due to various forces (environmental,geopolitical, social, policy, business). This in turn leads to a pressure buildup reflected in higher prices and finally leads to a break point. In this highly recommended audio interview with Tertzakian at Global Public Media, he defines the break point
... in some people's minds it implies some sort of cataclysm. I don't define it necessarily that way but it does definitely does mark a turning point, I would say an attitude. Bear in mind that over the course of the 300 years or so since the industrial revolution when mankind really started using energy there have been about a half a dozen episodes where energy, the use of energy, has gone into transition. I call these "break points". Often times they're catalyzed by government policy or in the case of the course of the last century, particularly in the 1970's they've been catalyzed by oil price shocks where a commodity like oil becomes too high priced, therefore we start to seek alternatives. That is the "break point", that is when where all of a sudden we start to think about different ways of harnessing energy and fuel.
The break point Tertzakian is now describing regards the peak of high-quality light sweet crude which can no longer meet the demand trends. Finally, in his Energy Evolution Cycle, the break point must necessarily lead to a rebalancing of energy usage, so-called "magic bullets", that use radical new technologies and substitutions to replace the now "disadvantaged" energy source.
Based on his Energy Evolution Cycle model, Tertzakian spends most of his time describing how historically one energy source reached a break point which led to new sources and substitutions. He uses a wonderful analogy regarding what I'll call "Peak Whale Oil". In the mid-18th century, the whaling industry went into radical decline due to the fact that whales (particularly Sperm Whales) had been driven to near extinction and were becoming very hard to find. The spermaceti and blubber from these whales was used for lighting and as lubricants. The resource was highly valued. However, with the decline there was a whaling break point and a substitution fuel was required. This turned out to be kerosene from "rock oil" which was first developed on a commercial scale in Western Pennsylvania. Still, the transistion was not seamless. It took decades for kerosene to replace whale products. But at the end, the energy cycle was complete. The demand for and consumption of kerosene increased and industrial society became dependent on it just as we have been dependent on light sweet crude for many decades now. The book is replete with more modern examples of the energy cycle. For example, Tertzakian analyzes the crisis caused by the oil shocks of the 1970's and early 1980's and proceeds to describe how the US used new technology (nuclear) and substitutes (coal & natural gas) to re-balance their energy usage. Numerous countries are analyzed with graphs showing how the "energy mix" for each country changed as it faced a now disadvantaged fuel shortage. For example, the shows how the UK changed their energy mix following the oil shocks (pg. 185), Japan (pg. 199) and more recently, Korea (pg. 214).
What does Tertzakian Think We Can Do? -- Rebalancing
In regarding how different countries will be able to meet and rebalance their energy economies now that the break point has arrived, Kertzakian defines an Oil Dependency Factor (pg. 108) which he describes as an indexed measure of how much new oil is required for a country to expand its econonmy ("fuel its economic growth"). It is a straightforward plot of oil consumption as a function of real GDP for the country in question. A horizontal line indicates that a country can grow its economy without any increase in oil consumption. A rising slope indicates the degree to which a country requires additional oil to sustain growth. By simple division, this turns out to be a number--the index of oil dependency. (See Figures 4.3 and 4.4.). As it turns out, the US has an index of 45 which is in the mid-range. Astonishingly, the "new" economic giants have very high indices. India's is 94 and China's is 90. Equally surprising, Japan, Germany, Russian, Italy and UK, according to Tertzakian's calculations, can grow their economies without any new oil demands due to the rebalancing of their energy usage in the past.
What does Tertzakian believe the world--and particular the US--must do to make the transition beyond the break point? Importantly, he does not believe there is a magic bullet that will save us (pg. 178). Focusing appropriately on the huge consumption of liquid fuels in the transportation sector, especially in the US, Tertzakian admits that solutions using hydrogen-based fuel cells are at least 10 to 20 years away from from being a viable substitution for gasoline. A large part of the problem involves replacing the immmense supply chain already in place for petroleum. Nor does he have much faith in the ability of biodiesel or ethanol solutions to replace conventional liquid fuels. The question that naturally arises is "What is the next great rebalancing act look like"?
First, he does not believe that free market forces are adequate to solve the problems. Government intervention in the various cases is necessary. New policies must be set to change life-styles and energy usage. I admire him for acknowledging this. Unlike the cornucopian Daniel Yergin, he does not believe the free market solves all problems. It is necessary to mandate changes because otherwise nothing useful can happen before the crisis is manifest. Secondly, he believes effficiency and conservation are essential, another admirable point. Tertzakian identifies 4 steps in the rebalancing that will take place to meet the light sweet crude break point (pg 183).
Step 1: Complaining and Paying Up
This is the stage where America is presently. Scapegoats like the international oil companies (IOCs like BP or ExxonMobil) are a natural target when gasoline prices rise at the pump just as these companies reap record profits because the value of their current assets has gone up dramatically.
Step 2: Conserving and Being More Efficient.
This is just starting to happen. A stigma is now starting to be attached to gas-guzzling SUVs symbolized by the Hummer. Industries are starting to do some fuel switching (eg. replacing natural gas with coal where feasible). The US is in the early stages of this process.
Step 3: Adopting Alternative Energy Sources
This is where things get sticky. Renewables are small-scale, coal-to-liquids projects are only in the early prototype stage. The tar sands production of Alberta is ramping up only very slowly and at great cost involving CO2 emissions, natural gas usage and water requirements for production and disposal. Similarly, imported liquified natural gas (LNG) involves large upfront investment and large lead times involving business contracts and implementation of the infrastructure.
Step 4: Making Societal, Business, and Lifestyle Changes
There is little evidence that this is happening at all except among the Peak Oil aware. This comprises a very small part of the population worldwide. Perhaps prices are not high enough yet. Here is where Tertzakian might recommend government intervention (eg. a fuel tax) to force people to modify their energy usage behaviour.
This summarizes Tertzakian's vision of the future rebalancing after the break point. He emphasizes that each country will have to carry out this process depending on its own peculiar energy production and consumption. But there is an implicit message that Tertzakian makes throughout the book--because the US is the world's largest energy consumer by far (about 25% of daily liquids consumption) and because most of this usage is in the transportation sector--it is apparent that he realizes that Americans have very serious, inevitable problems facing them in the next decade or so--if not beyond as I touch on just below.
A Critique of Tertzakian's Vision of the Future
Though he remains an optimist and anticipates painful rebalancing of mankind's energy usage, what Tertzakian fails to acknowledge is that we are now fast approaching the proverbial End Of The Line as far as fossil fuels go. I am not claiming that we are running out of oil in the near term. Rather, we are now running out of "best quality", easily recoverable and cheap oil. This is a serious problem. Whether that break point is now, takes another 5 years, 10 years or 20 years is irrelevant except as regards how hard the available supply & demand response crash will be. That is why the Hirsch Report exists. Hence, he talks about economic growth as a function of oil dependency but never seems to consider the ineluctable limits of exponential growth in population, energy usage and all the rest. At some point, his analysis describes a painful period of adjustment that may take a decade or a bit more and that's all. He does not follow his conclusions to their logical conclusion. There is no real discussion of powering down industrial economies and moving to smaller scale, more localized solutions to the coming energy crisis revolving around not only Peak Oil but also natural gas supply, especially in North America. Even the Energy Information Administration (EIA), not known for their realism on the subject of Peak Oil, presents us with this graph.
Somewhere around the year 2017 or shortly thereafter, Tertzakian's analysis just stops. This is not just a break point as he calls it, it is a tipping point where very fundamental changes must be made in the way people live on this planet. So, it would appear that his optimisim is predicated on an unwillingness to look at the longer term. In addition, he pays little attention to climate change. Beyond the essential efficiency and conservation societies must do--which involves major lifestyle changes-- his idea of rebalancing involves merely switching from one fossil fuel to another, exploiting unconventional sources like the tar sands or Venezuela's heavy oil or converting fossil fuel sources from one useable form to another (eg. coal to liquids or gas to liquids). Outside of these replacements that depend on improved technology--and will be very expensive-- there is only going back to nuclear power (which depends on another depleting resource, uranium) or the limited ability of renewables like biofuels, wind and solar to meet our energy needs going forward. Continued carbon dioxide emissions from fossil fuels spell disaster for the Earth's climate in the coming decades as droughts, torrential rains & flooding, heat waves and other extreme weather events like the recent Gulf of Mexico hurricanes disrupt mankind's ability to rebalance its energy usage. There is little consideration of these issues in Tertzakian's book.
Tertzakian has all his facts and data straight and is not delusional about the challenges we all face in the coming decade or so except in so far as the problems I point out above. I highly recommend the book. His realism (at least up to a point) is refreshing and stands in stark contrast to the Cornucopian nonsense we get from Daniel Yergin, Michael Lynch, Steven Levitt, the IEA, the EIA and other optimists who know with great certainty that innovative technology and the magical powers of the free markets will save us.
Dave Cohen is a contributing editor to the The Oil Drum, a weblog community focusing on discussions of our energy future and Peak Oil. (User name is "Dave"). This review was written for Life After the Oil Crash for Matt Savinar who runs that website.
