For all the talk about electric cars and renewable electricity, global oil production rose above 100 million barrels a day last month. For all the policy pronouncements to the contrary, the stark reality remains that our insatiable demand for oil, the products of oil, and all of the stuff that we transport with oil continues to drive up demand.

There is, however, a big problem with that 100mbb/d figure that has yet to make it to the forefront of media and political debate. This is that not all oil is equal. This ought to be obvious enough to anyone living in my part of the world; where our economic history was shaped by the difference between the low-quality bituminous coal at the east of the South Wales coalfield and the high-quality anthracite coal in the west. The same issues are true for oil. On the one hand there is the sweet crude from fields in Texas, Libya, Saudi Arabia and the Gulf States; on the other there are the ultra-light condensates fracked out of the shale plays, the bitumen boiled out of Canadian tar sands and the high-sulphur toxic stew being extracted in Kazakhstan. The former powered the unprecedented burst of global industrial expansion between 1953 and 1973. The latter are the dregs that humanity will have to get by on in the future.

Not, of course, that this has been a problem so far. Those older oil fields are still producing – although many are past their peak – and with a little tweaking of the set-up, refineries can manage blends of heavy and light oils that approximate the sweet crude they were designed for. But there are limits to the tweaking. And as the world comes to depend increasingly on blends of too light and too heavy oils, refineries will not be able to supply enough of the fuels that we have built the global economy upon.

Refining uses a combination of heat and chemistry to “crack” the molecule chains in the crude oil into various lengths according to the fuel being produced – butane and petrol (gasoline) are the lightest, kerosene and diesel in the middle and the heaviest are fuel oils used in shipping and building heating. And while you and I might value the lighter fuels for sparking up a barbecue or powering a car, for the global transportation system it is the middle and heavier fuels that are the most important. Most important of all, of course, is the diesel oil that powers all of the heavy machinery and trucks that are essential to the extractive processes that convert naturally occurring materials into the resources used to manufacture all of the stuff – including our food – which we consume.

Simply looking at total global oil production, then, is only part of the story. What we also need to know is what fuel products those 100 mbb/d are being converted into. This is where a recent post on The Oil Crash blog should ring alarm bells. Drawing on data from the JODI database, they show that:

“Since 2007 (and therefore before the official start of the economic crisis) the production of other [heavy] fuel oils is in decline and also seems perfectly consolidated…

“The fact is that if you have made changes in the refineries to crack more oil molecules and get other lighter products (and that is why less heavy fuel oil is produced), those molecules that used to go to heavy fuel oil should now go to other products. It follows, taking into account the added value of fuels with longer molecules, that these heavy fuel oils are being cracked especially to generate diesel and possibly more kerosene for airplanes and eventually more gasoline.”

Concern about peak oil was always, ultimately a concern about peak diesel because of its central role in the global economy. However, producing ever less heavy oils to maintain the output of diesel and kerosene (and eventually petrol) can only be a temporary solution. Indeed, the JODI data shows an alarming decline in diesel fuel production since 2015:

“That is why, dear reader, when you are told that the taxes on your diesel car will be raised in a brutal way, now you will know why. Because they prefer to adjust these imbalances with a mechanism that seems to be a market (although this is actually less free and more intervened) to explain the truth. The fact is that from now on what can be expected is a real persecution against cars with internal combustion engines (gasoline will continue for a few years longer than diesel).”

To add to our woes, the decline in heavy oil production is compounded by new regulations that will dramatically increase demand for diesel just as the industry’s ability to produce it is in decline. As Nick Cunningham at Business Insider reported back in July:

“A research paper from economist and oil market watcher Philip K. Verleger predicts there could be a shortage of low-sulfur diesel fuel in 2020 as a result of regulations from the International Maritime Organization (IMO) aimed at cutting sulfur emissions…

“Up until now, the maritime industry has been burning the residual fuel oil left over after the refining process. Fuel oil is the bottom of the barrel – it’s the cheapest, most viscous and dirtiest part of the barrel.”

The choice facing the shipping industry is whether to invest in expensive scrubbers and filters designed to capture sulphur that would otherwise escape into the atmosphere or whether to make much cheaper engine alterations in order to run ships on diesel. It is difficult to argue with Cunningham assessment:

“By 2020, diesel production will need to rise by at least seven percent, according to Philip K. Verleger, on top of the three percent increase needed for road transport and other uses. All of it will need to be low-sulfur.”

If ship owners switch fuels, we are looking at a global oil price above $200 per barrel; with diesel fuel being priced well above anything ordinary working people can afford for powering cars; and other fuels following close behind. This will impact British and American motorists far harder than those in Europe because of our systematic neglect of public transport and our insistence in building out into the suburbs. The broader question, however, is whether the current strategy of relying on a combination of fuel taxes and higher prices is a sensible approach to diesel shortages.

Prices and taxes most often result in the misallocation of resources. This is most obvious when we contrast the suffering of millions of people in poorer countries against the frivolous consumption of the fortunate top ten percent of the global population living in the G7 states. However, because the growth in global energy consumption has allowed billions of people to experience an increase in their standard of living in the years since World War Two, the misallocation has appeared to be less urgent (to those in the developed states). In the event that strategic fuel production falls – as it appears to be doing – continued misallocation will accelerate the process of collapse.

For example, most farmers depend upon diesel-powered machinery to maintain yields. Unfortunately, many of those same farmers are already struggling to remain in business despite already receiving subsidies from the state. And while there are some alternative power sources (batteries, biogas, hydrogen) for light vehicles, there is no means by which heavy diesel machinery and haulage vehicles can be substituted. Thus, if diesel prices rise, either food prices rise accordingly or (and most likely both) farmers go out of business. At the same time, however, the very richest one percent of the population is likely to regard the rise in diesel prices as a good thing since it will remove much of the road congestion they experience without preventing them from driving and flying.

The alternative would be to develop and implement a rationing scheme based on the need to maintain critical infrastructure (including food production) even if this comes at the expense of limiting private vehicle use and severely restricting commercial air travel. In practice, unfortunately, our response to this looming fuel crisis is more likely to follow the pattern of our response to climate change; with powerful lobbies paying to distract our attention, large numbers denying the crisis exists, and most of those who acknowledge the crisis grasping at techno-utopian pseudo-solutions like electric cars and windmills.

All I can say is hold onto your hats because when oil prices spike above $200 and our ability to consume collapses, we are going to witness economic and social dislocation on a scale that will make Brexit and the policies of Donald Trump that everyone seems so exercised about look trivial.

As you made it to the end…

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