Peak Oil and the Fracking Bubble: Could this

Mimic the 2004-2008 Housing Bubble?

Has fracking reached its twilight? (photo: Imahornfan)
Has fracking reached its twilight?
(photo: Imahornfan)

I'll admit that I was completely caught off guard by the recent (and ongoing?) crash in oil prices. It'd be a stretch to say I'm embarrassed by my lack of foresight, although perhaps "dumb-ass" would be a bit deserving.

I would say I'm well enough versed with the reality of peak oil: I've read perhaps a couple dozen books on the topic, poured through several of the peak oil blogs (upon deciding to end my 5-year Internet hiatus a year ago), have seen several talks given by authors and writers on the topic, and I've attended two Age of Limits conferences.

Nevertheless, even though there were bloggers out there discussing the possible ramifications of low oil prices, its possibility still didn't register with me. I'll explain what I mean by that shortly, but to do that it'd be best if I first give a recap of what the mainstream media have been saying about collapsing oil prices the past couple of months.

If you've been following the recent oil-related news stories then you'll be familiar with two things: first, that the price of a barrel of oil has been crashing (to nearly 50% of its value half a year ago), and second, that OPEC (Organization of the Petroleum Exporting Countries) has refused to cut back its production, the hope being that a cut in supplies would have resulted in a rise in prices.

The first sign of trouble came after OPEC's November 27th meeting in Vienna whereupon it was announced that OPEC was going to maintain its production levels. Seeing how no explanation or elaboration was given, it was no surprise when the expected theories on the topic began appearing, and, of course, the conspiracy theories.

Some of the more mundane theories (not to say that there isn't any truth in them) include (1) that a rising US dollar has resulted in a downward pressure on the price of oil (since oil is priced and predominantly purchased in US dollars); (2) that Libyan production has increased and so contributed to a glut in supply; (3) that demand in Europe has been declining, also leading to a glut in supply; and (4) that increased production in the United States has meant increased consumption of domestic supplies and so a decrease in need for imports, once again resulting in a glut on world oil-supply markets. To name just a few.

Jumping over into the conspiracy theory realm (again, not to say that there isn't any truth in them), first is the notion that Saudi Arabia has colluded with the United States (something to do with the United States' Secretary of State having made a trip to Saudi Arabia a few months back), the intent being to bring down oil prices so as to crush the Russian economy (oil and natural gas make up about three-quarters of Russia's exports and more than half of its budget revenues).

United States oil production levels, in thousands of barrels per day
(image courtesy of Ron Patterson / Peak Oil Barrel)
United States oil production levels, in thousands of barrels per day (image courtesy of
Ron Patterson / Peak Oil Barrel)

Another of the popular conspiracy theories is that rather than colluding with the United States, Saudi Arabia is actually attempting to crush the tight oil (otherwise known as shale oil or fracking) boom in the U.S., the idea here being to restore its and OPEC's dominance in the oil markets. For what's been going on is that since 2008 the United States has increased its production levels of oil – thanks to fracking – by some 4 million barrels a day, nearly doubling its previous extraction rate.

Secondly, since the peak in conventional oil supplies (that found under the ground and deserts and such) occurred in 2005, the only thing that's been keeping overall extraction levels increasing (in order to maintain worldwide economic growth) are the newly tapped unconventional oils – tight oil, tar sands, and deepwater offshore oil. And since tapping these forms of oil is similar to the extra effort required when scraping the bottom of a barrel, these unconventional sources require more energy and so cost more money to extract.

The idea then is that since tight oil in the United States is rather expensive to produce, if Saudi Arabia lets the oil price drop, this could very well bankrupt shale oil producers in the U.S. With a drop in production levels, prices would level off if not rise again, and not only would OPEC reap the restored higher prices, but they wouldn't have lost any market share.

That all being said, deciding to finally end the silence and partially put to rest lingering conspiracy theories, Saudi Arabia's oil minister was quoted on December 18th as stating that "The share of OPEC, as well as Saudi Arabia, in the global market has not changed for several years... while the production of other non-OPEC [countries] is rising constantly."

Similarly, the oil minister for the United Arab Emirates stated that "No one likes the price drop, but it is not right that one party should interfere to fix the matter. [The party] responsible for the price fall [by causing the current oil glut] should contribute to fix the imbalance in the market."

In other words, while OPEC members have maintained their overall production levels of roughly 30 million barrels a day for about a couple of years now, it is the United States' fracking industry that since 2008 has significantly increased worldwide production levels, earning itself, no less, the rather idiotic moniker of "Saudi America."

A few days after the aforementioned statements were made, Saudi Arabia's oil minister again pleaded for non-OPEC members to cut back on production, then adding that those countries "will realize that it is in their interests to cooperate to ensure high prices for everyone." Furthermore, he also added that OPEC doesn't intend to cut supply "whatever the price is." "Whether it goes down to $20, $40, $50, $60, it is irrelevant."

And finally, in his response to conspiracy theories bandied about regarding Saudi Arabia pulling out the oil weapon on so-and-so countries, Saudi Arabia's oil minister stated that "Talking about such alleged conspiracies... is absolutely incorrect and indicates a misunderstanding in some minds... Our economy is based on strictly economic strategies, no more, no less."

So. I suppose that what one could do is wonder whether these statements are simply a smoke-screen for some nefarious, underhanded deals going on. But not only do I not have the faintest clue whether that's the case or not, and see no good reason for throwing uneducated guesses around, author Ugo Bardi put it even better when he said that "we tend to interpret the present downward cycle as the result of strategic choices or conspiracies, but this is mostly an illusion (the illusion of control)." That being said, what I do see as being important (and useful) is looking at why prices started to get so low in the first place.

Estimated oil price levels needed for OPEC members to balance their government budgets in 2014 (data via The Wall Street Journal)
Estimated oil price levels needed for OPEC members to balance their government budgets in 2014 (data via The Wall Street Journal)

First off, certain OPEC members – namely Saudi Arabia, the United Arab Emirates, and Qatar – have either built up such substantial financial reserves and/or can extract oil so cheaply that they are able to bear the brunt of low oil prices for some time. Not so much others.

While Iran needs oil in the $100+ range in order to balance its books, Venezuela is in the worst position of all. While the Latin American country is already a very polarized nation, oil accounts for 95% of its export revenue. Low oil prices could therefore easily make a grim situation worse, some people having a propensity to become hostile when their standards of living continually depreciate. Likewise, a default on Venezuela's debt wouldn't be out of the blue.

But perhaps more pertinent and interesting to readers of this blog is what of the non-OPEC producing countries? This, I think, would be a much better area to look at, seeing how it would shed much light on how we got into this situation in the first place.

First off, it's worth noting that for the past three years or so, before oil's recent crash, the price of crude has been bouncing around the $100 mark. This was a relatively expensive range, particularly in comparison to its long-standing rate of $20-$40 per barrel for more than a decade, before its gradual then meteoric rise to $147 in 2008.

Since oil is entwined with the price of pretty much everything nowadays, its changes in price can have a significant effect on economies (as we currently [mis]understand the term). With higher and higher oil prices sapping a greater percentage from expenditures – be it of "consumers" or businesses – a price point is eventually reached where goods become so expensive that those who can't afford them anymore simply stop buying them. This is what is called "demand destruction."

When demand dries up and fewer goods thus end up being bought and sold, a glut in oil supply results, which ends up crashing prices. This is simple supply and demand. Along with other factors, this is what happened after the $147 oil price spike in July of 2008, and resulted in oil tumbling down to $32 by December of that same year.

While the ensuing low oil prices get seen by some as a boon (via the expectation that consumers will have more money to spend), the opposite problem actually kicks in – namely, "offer destruction." Since many businesses get forced to close down due to crashing oil demand and so in effect fewer sales, and since a number of people get their hours cut or even lose their jobs, there often-times isn't enough money to pay for oil and other goods, regardless of how low the prices go. This is what happened in 2009, gets referred to as being the Great Recession, and can be fairly described as "the beauty of the market."

To return to the first paragraph of this post, this is where I got thrown off. To digress:

As mentioned earlier, 2005 is seen by some as the year that conventional supplies of oil peaked. It is because of this (and a few other factors, like speculation) that oil climbed to $147. Although prices subsequently crashed due to demand destruction, they eventually made their way back up, to the point that several unconventional forms of oil (shale oil/fracking, tar sands, and deepwater offshore oil) became somewhat profitable.

The problem with peak oil is that when (if?) growth kicks in again, and since more and more energy is getting used, soon enough the increasing levels of energy-use may very well butt up against maximum extraction levels, resulting in a shortage in supply and causing the whole demand and offer destruction cycle to kick back in again.

Furthermore, and as far as one theory goes, higher highs and higher lows will occur. That is, instead of maxing out at $147 per barrel, oil will reach, say, $200 per barrel, before crashing down to $80 or so instead of $32. And so forth.

And it is because of this notion that peak oil pulled a fast one on me. Expecting the higher high having to happen, what I didn't clue into was that oil prices at a high enough level for a prolonged period of time would be enough to have a similar effect as a quick rise to $147.

Case in point, one can look at countries that have recently slipped into recession or simply haven't gotten out since 2009 – Greece, Spain, Italy, Brazil, and so forth. Furthermore, some of the more robust and rich countries are seeing their growth wane – Japan, China, Germany, to name just a few. For what is a slowdown in Europe leads to fewer consumer purchases from China leads to less iron ore and coal bought from Australia.

(image courtesy of Ugo Bardi / Resource Crisis)
(image courtesy of Ugo Bardi / Resource Crisis)

For a closer look, take a look at Italy. Oil and gas consumption peaked in 2004 and has been on a decline ever since. According to Ugo Bardi over at Resource Crisis, "Italy is in full collapse." One not only sees that industries are closing down, but also that restaurants are popping up in the attempt to attract the wallets of globe-trotting, placeless tourists, along with all the chic restaurant-hoppers. What is being witnessed, says Bardi, is "unreal."

Unfortunately, and much like the aforementioned countries, if one is looking for solid explanations about these economic collapses from mainstream news sources, then one is pretty much SOL. As Bardi then explains,

When the crisis is mentioned, different culprits periodically appear in the first pages of the newspapers: the Euro, the European Union, politicians, immigrants, government employees, bureaucracy, lazy workers, terrorism, femicide, Angela Merkel, Vladimir Putin, Silvio Berlusconi, and more. It is a cycle that never stops, it keeps turning, every time pointing at something - new or old - that the government will target to solve the crisis once and for all.

In turn, not only could low-priced oil ($20!?) usher in another Great Recession via a meltdown of the oil market, but the newly enshrined oil ventures are at serious risk of collapse, and whose bubble bursting could be akin to the recent housing bubble. (To be fair, I can't imagine oil reaching that low if not staying there for very long, for the very simple reason that any number of unfortunate conflicts around the world could cause its price to increase overnight.)

Cost of oil production for various projects and countries
(image: The Oil Drum)
Cost of oil production for various projects and countries (image: The Oil Drum)

In short, many of the unconventional sources of oil require $100 prices in order to remain financially viable (or at least give that impression). Since many of the fracking plays in the United States are owned by independents who don't have the financial reserves to weather a prolonged period of prices below costs of production, things could get hairy.

Furthermore, since fracking is capital-intensive, drillers have borrowed ridiculous amounts of money in order to acquire leases, drill wells, as well as purchase and install processing equipment and infrastructure. And since fracked wells have both steep production increase levels and decrease levels, drillers have been forced to continually drill more and more wells to keep up the semblance of growth – and to keep the debt piling up. What's resulted is a junk bond market possibly akin to what was witnessed a few years back with the housing fracas.

And not to let all the boosters off the hook, for it was once again an all-too-giddy media that kept itself busy cheering on the latest (fraudulent?) money-making scheme, pumping up all the debt with nary a peep about any possible consequences.

And so what's going on now that prices have crashed? That would be sellers panicking to unload their energy-related junk bonds and other investments in unconventional oil and related industries, and it's anybody's guess as to how much of a collapse will occur in these fields – and if it's significant enough, if they'll even have a chance to recover.

And as mentioned earlier, a round of offer destruction is expected to kick in after a round of demand destruction. For instance, nearly 40% of the jobs created since 2009 in the United States have been in energy related fields, those being some of the higher paying jobs in the nation, a catastrophe to the U.S. economy if lost.

As John Michael Greer recently put it over at The Archdruid Report, "If I’m right, the spike in domestic US oil production due to fracking was never more than an artifact of fiscal irresponsibility in the first place, and could not have been sustained no matter what."

What we might be about to find out is how vulnerable the United States' shale boom is to low prices, and how profitable fracking actually is.

Regardless, what happens next is anybody's guess, and it would be a fool's game to try and give any predictions. Nonetheless, it's worth quoting Terry Lynn Karl from a recent conversation with Andrew Nikiforuk. "We are in a situation where oil supply limits can cause recessions and oil supply gluts can cause stock market failures."

The reasons to get off oil seem to be piling up.


UPDATE 04/06/2015: I reverted this post to its original title (as can be seen here), from "Peak Oil Pulled a Fast One On Me."

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Comments (17)

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Dean
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Aug 2014
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Excellent article
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Allan Stromfeldt Christensen
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Dean: Much obliged.
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John L. Kelly
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Jan 2015
Let me guess here. You're a follower of the Keynesian Superstition, correct? Because a Classical economist would state that those fracking companies going under would be the result of a shake-out where the unproductive would be weeded out of the equation, and the more productive making the system more efficient.

One other thing: Frederic Bastiat. He wrote a little thing about what is "Seen", and what is "Unseen". You are quite good at recognizing the "Seen". But perhaps you should check out what is really under the rug and still "Unseen".

Thanks for the article.
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Allan Stromfeldt Christensen
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Kelly: No, I'm certainly not of the Keynesian persuasion (or of Paul Krugman for that matter), but nor do I put much more mirth in that Bastiat-like point of view either (widely known nowadays as austerity and the laizzes-faire free market economics of Milton Friedman).

In short, both viewpoints have the optimistic belief in growth as the cure for economic ills, and so neither take into account limits to growth. More to the point, money is simply a proxy for energy. Remove money from the economy, and although things will be tough, they can muddle by. Remove energy, and you've got serious problems. I'm sure I'll write a post on that some time later.
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Grego
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Jan 2015
Most peak oilers saw the arrival (and quite logically) as high oil prices and hyper inflation. The problem was applying Economics 101 to a problem that is way beyond that simplistic level of thinking. That said a handful of the more qualified analysts foresaw the opposite affect heralding the arrival of peak oil. (eg. see Tverberg: ourfiniteworld.com 2012) viz. Low oil prices driven by contracting demand and unsustainable debt. Simply put if growth slows or stops and goes into reverse credit dries up. People are paid less. Prices drop. Debt defaults. You enter the deflationary spiral which is just as bad if not worse in a debt riddled global economy. Economic collapse would always precede total collapse and it's happening as we speak. So I wouldn't get to excited about "peak oil" being over. It's just begun. Infinite growth with finite resources. Do we really think this story has a happy ending...
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Allan Stromfeldt Christensen
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Grego: Too true. Yet unfortunately, and much like 2008, peak oil's involvement with current economic conundrums is hardly given it's due recognition.
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Johnny
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45
Mar 2015
Alan, peak oil has been around far longer, and suckering in more people, than you are familiar with. So sure…it suckered you in. True believers on this topic have been at it for decades, and those who dared to point this out were rounded ostracized when they did. And it is just as obvious now, as when peak oil was declared in 2005, that the same reasons continue to discredit the idea, and WILL continue to discredit the idea. You've heard that those who refuse to study history, are doomed to repeat it, right? Peak oilers have been doing this…how far back are YOU familiar with the history of this routine, or the more exciting routine of "running out" that preceded it?
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Allan Stromfeldt Christensen
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Johnny: Yes, I'm aware of what you're talking about, and it goes as far back as the 1800s (I forget the exact year) when proclamations were made that coal was about to run out, to the early 1900s when it was said that oil was about to run out, and so forth. What they didn't have then, and what we have now, is more concrete geological evidence of what's actually under the ground.

On the other hand, if what you're talking about is abiotic oil, that oil emanates from deep in the centre of the earth and slowly makes its way up, that's a bunch of cornucopian hogwash, and is simply another form of denying that limits to growth exist.
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Johnny
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Mar 2015
J.P. Lesley made just such a claim. 1886. In Pittsburgh. There is also another cool one from 1849 related to using up "rock oil before its gone" but that doesn't seem to be a fair reference on the topic. As far as knowing much better what is in the ground now, you are quite correct. But that isn't the problem, the problem that is peak oilers don't use that number, they use much smaller ones. Do you know why? To obtain that number, one only needs to purchase the IHS Edin database, collect all the field data, and add it up. Why don't peak oilers do that? Ever?

And no, there is no need to talk about abiotic oil. Why should I, others have already worked through the basics of why peak oil keeps schnookering folks? A single damn paper demonstrates why, and can you tell me how many times you've seen it refuted?

Saleri, N.G., 2006, The Next Trillion: Anticipating and Enabling Game-Changing Technologies, Journal of Petroleum Technology, Vol. 58, Issue 04, April 2006.

$15 for SPE non-members , you can find it at OnePetro...funny thing, peakers not even able to spend a lousy $15 to get a grasp of why they have been wrong before, and are likely to again.

Buy a copy for yourself, you won't be able to claim you were schnookered next time.
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Allan Stromfeldt Christensen
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Johnny: Okay, I see what you're saying. That our estimations are a bit low. Supposing that's true, how much of a difference does it make if our estimations are short by, say, a trillion barrels? With oil consumption currently in the range of 33 billion barrels per year, and supposing that it continues increasing year after year, all an extra trillion barrels buys us is a bit more than 10 years. If that's you being referenced, then I'm sure you've seen the graphic posted at Kjell Aleklett's site a few days ago which I came across when doing a search for the paper you mentioned. As Aleklett references:

image

Supposing we do have an extra trillion or two barrels of oil, and putting aside that that would seriously trash the planet if we were to burn all that as well, Robert Hirsch et. al. already pointed out in the Hirsch Report that we ought to start preparing for peak oil 20 years prior to its arrival if we'd like to try and make much of a non-chaotic transition. So if we've got that time (and again, putting aside climate change), then great. Let's get a move on it. That being said, I don't think we have those higher levels of oil, conventionals peaked back in 2005, cumulative conventionals and unconventionals are about to peak in the next couple of years or so (not in 2026 as that USGS chart suggests), and as per the Hirsch Report's analysis we're about 20 years too late to get started. But there's no better place to start than where you currently are.

That all being said, I don't see the need to spend the $15, regardless of who has the right figures. I left the party some time ago.
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Johnny
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Mar 2015
Note the comments section on that part of Aleklett's blog, and who brought up the EIA work. Interesting that his name was Johnny. Someone there already figured out that the EIA representation is unreasonable, and so too should peakers. Johnny on that blog referenced the EIA work only to demonstrate that they are now, by definition, closer to a peak oil date than Colin Campbell's prediction, the grandfather of the modern peak oil meme. You see, growth in production does not exponentially increase and then go off a cliff, regardless of whether or not it was said by EIA or Albert Bartlett. Numerical analysis often fails when it doesn't operate from first order principles, see the demise of TOD as one such example.

And it isn't an extra trillion or two, as those of us with access to IHS Edin can attest, or who took the time to pay the $15 to read the paper referenced, or have a subscription to JPT. But it does accentuate the point about why peak oilers have decided to be so willfully ignorant of even the most basic geoscience topics. Out of curiosity, if you left the party some time ago, then why would you care in the least about how schnookered you were?

If you wish to discuss the Hirsch report I can do that in extensive detail, and while I understand the fascination with his magic "wedges" spanning 20 years, his fundamental assumptions and knowledge of the resource base were discredited about the same time his report was published. His magic wedges was a fascinating concept, too bad he didn't factor in how fast industry technology made them invalid. His report in some cases was the best description of certain processes and procedures ever contained within a peak oil advocates writing, and also the worst.

And of course you must be aware of his claims of running out, peaking, and the oil crisis in the early 90's, correct? He was quite concerned, back in about 1988, about that oil crisis. You know, the one that never happened either?

And that chart? It wasn't from the USGS, and some of that is explained by Johnny on Aleklett's blog in the commentary section as well. He even provided references. Funny thing that, people not reading source material prior to doing something that has been specifically precluded by the authors.
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Allan Stromfeldt Christensen
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Johnny: Well, then I suppose I'm just another "schnookered" sucker who doesn't know a good $15 dollar deal when he sees one.
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Johnny
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Mar 2015
So now we are turning on moderation to censor? How interesting…..can't say it is unexpected, but how intellectually honest and informed can you claim to be when your only answer to a poorly informed opinion is to censor those who not suffer the same problem?
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Allan Stromfeldt Christensen
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Johnny: No, the default setting on this comment script is set to not automatically let through comments with links (you provided a link to peakoil.com) which has so far blocked such junk as advertisements for viagra pills, Gucci bags, and your previous comment. I was most certainly going to be "intellectually honest" and approve it, until I read it. Unfortunately there was little to nothing that was "intellectual" in it to be "honest" about (which you should very well know), and such callousness will not be tolerated here.

Furthermore, I get the impression that you barely paid any attention to what was in my post, since you have not acknowledged what was actually said in it: overall supply levels have been increasing for the past several years due to the recent tapping of nonconventional supplies of oil. No theories or papers that you cite are going to change the reality of the matter.

You've hammered away on your point over and over again that there's much more oil than many in peak oil circles think there is, and that (from what I gather) the peak is therefore much further away than I think. I have stated otherwise. I was hoping to be able to leave the comments on this site permanently open, but your recent post shows that that time has come to an end. If you would like to post another comment with a link to a website of yours where you state your argument(s), that would be fine. Otherwise, it would seem that this conversation is over.
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Nathanael
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May 2015
One nitpick, but it's important.

"Demand destruction" due to high oil prices does NOT refer to reduction of total purchase of goods due to unaffordability. That isn't a reduction in demand for oil, that's a reduction in the purchases of oil; people still want oil. So when the price goes back down, oil usage goes back up.

"Demand destruction" for oil refers to people (and businesses) who look at the price of oil at $100/bbl and decide to retrofit to stop using so much oil. For instance, someone who replaces their 12 mpg car with a 40 mpg car, or with an electric car. Or someone who replaces oil heating with gas heating or electric heating. Or someone who insulates their house and reduces their oil heating bill permanently. Or a factory which retrofits its equipment from using oil to gas. That's "demand destruction". (The closure of coal generating plants and the opening of solar farms is another example of "demand destruction" for coal.)

The key point is that when oil stays high-priced for a long time, a bunch of people decide to make the long-term retrofits -- replace their car or their boiler -- which removes demand *permanently*. Even when the price goes down, the demand is GONE becaue that 12 mpg car is scrapped, the oil boiler is scrapped, etc.

"Peak oil" happens when oil is expensive enough that alternatives are cheaper. And we're passing that point at high speed. The possible selling price for oil is capped by people switching to alternatives, but the production cost of new oil keeps going up as all the "easy" oil is gone. This causes total demand for oil to drop drop drop -- the price will gyrate but the volume traded will start dropping.
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Nathanael
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May 2015
I will be more specific yet. There's a Deutsche Bank report analysing the future of oil prices. They expect the following pattern:
1 -- demand rises as economy grows, but supply cannot keep up. Prices rise.
2 -- high prices cause people to switch away from oil (big expensive permanent changes which take years to do, and are hard to reverse)
3 -- drop in demand, with supply constant, causes prices to crash
4 -- shakeout in the market eliminates high-price oil suppliers
5 -- low profits mean that oil exploration is cut back massively
6 -- so supply stays constant or declines
7 -- demand grows, and oil prices go up again
8 -- but investors are a lot more skeptical of oil exploration because they lost their shirts last time, so exploration doesn't recover much...
9 -- ... while high prices cause people to switch away from oil,...

Repeat until volume of oil sales is very low.

TLDR: cycle of low prices causing no oil exploration, alternating with high prices causing consumers to switch away from oil.

So far we're following the Deutsche Bank model *precisely*.
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Allan Stromfeldt Christensen
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Nathanael: Fair point. I couldn't find (just now) the original source for the term "demand destruction" (although it seems that it may have come from the peak oil crowd), which I presume was derived from the strict understanding of "supply and demand." But what you're saying is that demand – or perhaps, desire – hasn't been destroyed, just people's ability to afford to pay for it. So if I'm not mistaken, a more clear understanding of the situation and terminology would be "affordability destruction."

But although some people do make retrofits as a response, many others remain in denial and/or expect the "good times" of cheap prices to return. As just one example, sales of gas guzzling vehicles have recently increased as a result of cheap oil and gas prices.

As well, I'm not so sure about the notion that "'Peak oil' happens when oil is expensive enough that alternatives are cheaper." Never mind that this assumes a transition from one energy source (oil and other fossil fuels) to another ("renewables"), or that higher oil prices may translate into higher prices for the construction of alternative energy sources and so lessen any price advantage, but I think peak oil has more to do with extraction rates that are determined not by what people are willing to pay, but what they're able to pay. That is, I don't think people will overwhelmingly use less oil because they choose to use alternatives, but rather, because they can't afford to pay for it in the first place. (This would all be an outcrop of decreasing EROEI levels, which I take it you're familiar with.)

About the Deutsche Bank report you mention, I think they got #1 right, but lose it with #2. Seems like a bit of a techno/cornucopian/optimistic view of how things work, derived from an extrapolation of how things have worked, on to the assumption that they will continue to work in such a way in the future (if not in perpetuity). To make just one point, if people can't afford the high price of oil, how would they be able to afford something else instead?

And about us following the Deutsche Bank model "precisely," from what I've read, alternative sources of energy have not even been outpacing growth, and so have yet to cut into fossil fuel use. You might say that they've actually been allowing for growth to continue. Perhaps their growth curve will grow exponentially and allow for a "switch" to occur (i.e. they outpace growth), but I don't see it happening as I don't think alternatives can become cheaper than the "free" subsidies of fossil fuels. While alternatives can be useful for some time, they're not a replacement, and at best can assist us on the down-slope and in a bit of de-centralization.

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