Preparing for Life After Oil

This past May, in an unheralded and almost unnoticed move, the Energy Department signaled a fundamental, near epochal shift in US and indeed world history: we are nearing the end of the Petroleum Age and have entered the Age of Insufficiency. The department stopped talking about "oil" in its projections of future petroleum availability and began speaking of "liquids." The global output of "liquids," the department indicated, would rise from 84 million barrels of oil equivalent (mboe) per day in 2005 to a projected 117.7 mboe in 2030 -- barely enough to satisfy anticipated world demand of 117.6 mboe. Aside from suggesting the degree to which oil companies have ceased being mere suppliers of petroleum and are now purveyors of a wide variety of liquid products -- including synthetic fuels derived from natural gas, corn, coal and other substances -- this change hints at something more fundamental: we have entered a new era of intensified energy competition and growing reliance on the use of force to protect overseas sources of petroleum.

To appreciate the nature of the change, it is useful to probe a bit deeper into the Energy Department's curious terminology. "Liquids," the department explains in its International Energy Outlook for 2007, encompasses "conventional" petroleum as well as "unconventional" liquids -- notably tar sands (bitumen), oil shale, biofuels, coal-to-liquids and gas-to-liquids. Once a relatively insignificant component of the energy business, these fuels have come to assume much greater importance as the output of conventional petroleum has faltered. Indeed, the Energy Department projects that unconventional liquids production will jump from a mere 2.4 mboe per day in 2005 to 10.5 in 2030, a fourfold increase. But the real story is not the impressive growth in unconventional fuels but the stagnation in conventional oil output. Looked at from this perspective, it is hard to escape the conclusion that the switch from "oil" to "liquids" in the department's terminology is a not so subtle attempt to disguise the fact that worldwide oil production is at or near its peak capacity and that we can soon expect a downturn in the global availability of conventional petroleum.

Petroleum is, of course, a finite substance, and geologists have long warned of its ultimate disappearance. The extraction of oil, like that of other nonrenewable resources, will follow a parabolic curve over time. Production rises quickly at first and then gradually slows until approximately half the original supply has been exhausted; at that point, a peak in sustainable output is attained and production begins an irreversible decline until it becomes too expensive to lift what little remains. Most oil geologists believe we have already reached the midway point in the depletion of the world's original petroleum inheritance and so are nearing a peak in global output; the only real debate is over how close we have come to that point, with some experts claiming we are at the peak now and others saying it is still a few years or maybe a decade away.

Until very recently, Energy Department analysts were firmly in the camp of those wild-eyed optimists who claimed that peak oil was so far in the future that we didn't really need to give it much thought. Putting aside the science of the matter, the promulgation of such a rose-colored view obviated any need to advocate improvements in automobile fuel efficiency or to accelerate progress on the development of alternative fuels. Given White House priorities, it is hardly surprising that this view prevailed in Washington.

In just the past six months, however, the signs of an imminent peak in conventional oil production have become impossible even for conservative industry analysts to ignore. These have come from the take-no-prisoners world of oil pricing and deal-making, on the one hand, and the analysis of international energy experts, on the other.