Energy Production And Usage Graphs

The Oil Drum has a great set of many graphs showing energy production and usage from a variety of perspectives. That page has over 100 charts and graphs and it takes quite a while to load them from a number of sites.

The most sobering graph: World net oil exports peaked in 2005. A large and growing fraction of all oil extracted from the ground is used in the country of origin. So less is available to oil importing nations on international markets. Since oil demand is rising more rapidly in oil producer states than in oil importer states the fraction of extracted oil available for importers is declining. So for importers in a very real sense world oil production has already peaked.

You can see this trend with Saudi production versus Saudi exports. Their rapidly rising internal demand is typical of many oil exporting nations. It explains how the world has finally hit a new oil production record and yet oil prices are at $90 per barrel. Oil consumption in Western nations is below their 2006 peak as reduced oil exports combined with rising Asian demand drive prices up to levels that cut Western demand.

Before you take US Department of Energy, Energy Information Administration predictions of future oil production seriously take a look at their track record. For the last 10 years they've been excessively optimistic. Their 2001 prediction for 2010 is about 11 million barrels per day too high.

Our energy supply problem is primarily a transportation energy problem rather than broad energy supply problem.

Note the incredibly heavy reliance on oil for transportation. The diagram probably understates that reliance since the very thin renewable biomass energy line flowing into transportation is at least in part corn ethanol. Well, the oil used in corn ethanol production and transportation probably isn't accounted for in that diagram.

Lawrence Livermore National Labs has a similar US energy flows graph.

Fun fact: bicycle and car production were almost equal in 1970 but about 2 and a half times more bicycles are now made than cars. As those bike riders become more affluent hundreds of millions if not billions of them will buy cars. Electric bikes have a big future too.

Why high oil prices? A result of monetary policy? Probably not. Paul Krugman sees growing world demand for oil and other natural resources with the United States more as a bystander feeling the effects of this development in the form of higher natural resource demand. Menzie Chinn highlights the uncertainty about future rates of economic growth in China as a major unknown in attempts to project future oil prices. My take: Since the remaining oil has much higher extraction costs than the oil we were burning 10, 20 and more years ago we can at least be certain that oil prices will not drop below $60 per barrel for any extended period of time. The marginal cost of each additional barrel sets a floor on future oil prices.

The bumpy oil production plateau the world has been on since 2005 is not what most conventional peak oil theorists predicted. Yet it is not a case of Business As Usual either. That production plateau in the face of rising oil prices indicates the difficulty the oil producers have had in trying to boost production. If we are near Peak Oil (and I continue to think we are) then why the production plateau? Why not the declining slope after a short peak period as has been the case for oil production in dozens of countries in the past?

Here's my take on the production plateau: High oil prices are delaying the decline from global plateau. When individual countries peaked other countries were available to make up the production shortfalls. So oil prices could not go up and stay up in a sustained manner. But when the whole world reaches Peak Oil something different unfolds: oil prices rise to keep the oil coming. That's especially the case now due to rising oil demand as a result of Asian industrialization. So there's a big push now to extract oil from very expensive sources. These sources are coming online faster than would have been the case absent the high oil prices.

The longer time on the global plateau has pluses and minuses. The pluses include rising prices that encourage efficiency and innovation. The plateau gives us more time to develop substitutes and to change lifestyles in ways that reduce our need for oil. But the higher the world economy can push the price of oil the longer the plateau will last and therefore the faster we will use up the remaining oil. So when we finally come off the plateau the decline then will be faster.

As I've argued previously, the bigger the world economy gets and the more pieces of the economy reduce or eliminate their need for oil the higher the price of oil can go. If a couple of billion Asians can each develop enough buying power to find oil useful for operating scooters or doing cooking then the demand decreases in the West in response to higher prices will not cause a decline in prices.

What I expect to see: a cycle of oil price run-ups during economic expansions until oil prices get high enough to cause recession. In each cycle of expansion the Western countries will use less oil and Asia will use more. But once we come off the production plateau if the production decline is sharp enough even India and China will use less oil. The wild card: technological innovation. Cheap electric car batteries would be the biggest potential game changer.