free html hit counter Peak Oil Debunked: 324. THE BIG GLITCH

Thursday, December 27, 2007


Buzzed over to LATOC today, and found this literature next to the cash register:

More of the huckstering pseudo-science we've come to expect from the peak oil doom cult. No evidence or data -- just faulty analogy, fluffed with fear, larded with opinion, and sold via MasterCardTM over the Internet. Apparently the ongoing credit armageddon hasn't shortcircuited Savinar's retail channels... yet.

So what really does happen when global oil production drops by 15%? Well, it turns out we know the answer to that one because it actually happened once before, in the early 1980's. Production hit a high of 66mbd in 1979, and over the course of 4 years dropped by 14% to 56.6mbd in 1983. In fact, oil production didn't surpass the 1979 high until 1993, 14 years later (Source: BP Statistical Review 2007). Let's call this event "The Big Glitch".

So what did the world look like in 1983, after oil production had collapsed by 15%? I'll tell you what. Go out to your local freeway, and look at it during rush hour, when it's totally crammed with cars. That's exactly what 1983 looked like. I was gassing up as usual, totally oblivious. The "crisis" had such a minor impact on daily life, that I didn't even realize anything out of the ordinary was happening, let alone a liquid fuels armageddon that was wholly shattering the oil dependent economy and reducing the citizenry to poverty. I could be wrong about this, but I'm pretty sure that no one was forced by starvation to eat their Flock of Seagulls albums.

The Big Glitch is also interesting because it shows us how the world economy behaves under the conditions of a long oil production plateau. To see this, connect the years 1979 and 1993 with a horizontal line, like so:

As you can see, from 1979 to 1993 the world actually used far less than the plateau condition indicated by the yellow line. And how did the world economy perform with no net gain in global oil production for 14 years? Here's the graph showing growth in world real GDP, based on figures from the World Bank's World Development Indicators Database:

The world economy didn't miss a beat. Over 14 years from 1979 to 1993, the world economy grew by 60%, despite a 0% increase in oil production.
by JD


At Friday, December 28, 2007 at 8:50:00 AM PST, Anonymous Anonymous said...

Also worth noting is that the automotive industry is substantially less prominent in the US economy today. As proof, compare the list of companies with the highest market caps between 1980 and today. I just thought it was best to preempt the inevitable, tired canard that decreased consumption would spell economic Armageddon because of some misperceived level of correlation between the overall economy and the auto industry...

At Friday, December 28, 2007 at 6:50:00 PM PST, Anonymous Anonymous said...

Someone sent a comment critisizing your graphs awhile back. I like 'em. Jim Frasier at The Energy Blog displayed a graph today of solar cell production from 1975 to 2007 that gave me a chuckle. Looks like peak oil deja vue all over again. I doubt I'll live long enough to see Bubbert's cliff. J.C, Sr.

At Saturday, December 29, 2007 at 12:09:00 AM PST, Blogger JSD said...

Hey JD,
Just like to point out that the US had a series of recessions between 1980 and 1983, which were the worst ones since the great depression, so it wasn't great times. In order to prevent runaway inflation Volcker raised interest rates to 20%. Can you imagine trying to buy a home at 20% interest? This suppressed demand for oil, since no one could afford to do new construction or open a new business. Even as oil production was falling in the early eighties so was price.

In the meantime, with Iran and Iraq mostly offline (fighting each other), all sorts of oil exploration was done and new extraction techniques were researched. Oil companies knew there was more oil out there. That will be much less the case, post world peak. Demand was also suppressed as car makers were implementing the cafe standards passed in 1978, which produced high mileage vehicles. Economics has a large psychological component, and by 1983, with oil production increasing again, there was optimism back in the economy and investment started up again. I'm not sure that kind of optimism will be easy to find post peak.

A lot of the lost oil was made up through increased efficiencies by businesses, but in a long decline, the point of diminishing returns will be reached fairly quickly.

Also, at that time, we were the largest consumer of oil with few competitors waiting to pick up the slack. It's not the case any longer with China, India, and SE Asia waiting in the wings to pick up any extra. And Europe, with the charging euro, can afford to buy whatever they need. There's much greater demand now than there was back then.

America has a lot of play in oil consumption though, I think. We use 22 barrels per person per year. Japan uses half that per person while maintaining a lifestyle close to ours. Our cars get (probably) the worst mileage in the world. There are a lot of ways we could make do with less oil.

At some point, things will pick up again as infrastructure changes are made and oil substitutes are researched and implemented. The question is whether any of that will be done in time while energy is still relatively cheap to avoid an extended dark period.

At Wednesday, January 9, 2008 at 10:41:00 AM PST, Blogger John Berry said...

A couple of comments:

(1) I agree with Jeremy Steven about the disruptions of the 1970s oil crisis: I remember having to plan long trips REALLY carefully so as not to run out of gas where and when there were no stations open. Also having a mortgage at 14.8% interest. The hiccup was NOT painless.

(2) I am a geologist and have worked in frontier exploration for the last 20 years. I am VERY sure that there will be few really major new conventional plays in the future because, with the exception of places like Greenland that may well be off-limits forever for environmental reasons, we have looked almost everywhere.

(3) It is true that some countries, such as Iran, Iraq and Russia are under-explored for political reasons, but my sense, having worked in some of those places, is that the cherries have already been picked.

(4) Yes, we have other resources to fall back on: tar sands, oil shales, coal and deep sea gas hydrates. However, the environmental damage caused by reliance on the first three would be enormous, and the last may fall in the same category is nuclear fusion - i.e. always round the corner, but never quite there.

(5) I am not sure when Peak Oil will be reached - but I think it may well be a political event rather than a geological or economic one. The oil companies only control 16% of the world's known reserves. The other 84% are nationalized and therefore subject to gross mismanagement (e.g.Mexico, Venezuela) or being withheld for political reasons (the reason that Iran gives for wanting to develop nuclear power - they want the possibility of withholding their oil from the market). Until 2005 the markets assumed that if a country had oil to sell, it had to sell it (in order to have the income). That does not apply to lunatic fanatics like Chavez or the Mullahs.

My advice is to scale down now, move close to work, and buy an electric/hybrid car. If we are spared disruptions, at least you will have saved money.
John B.

At Friday, June 13, 2008 at 6:16:00 PM PDT, Blogger Matthew said...

A) It's not like we were having a huge economic boom during that glitch you're talking about..

B) Take a look at national debt during your glitch. It's easy enough to keep expanding when the rest of the world will loan you resources. This was an artifact of the dollar being the global medium of exchange; it looks like that might not be the case in the near future.

Also, re first comment: It's technically true to say the US auto industry shrank while our economy grew, but also very misleading. We live in a global market. Our dependence on cars has not decreased one iota, we just outsource their production to Asia.

At Saturday, March 20, 2010 at 10:02:00 AM PDT, Anonymous Andrew McKillop said...

ANDREW MCKILLOP author 'The Final Energy Crisis', Pluto Books, 2005

Using maybe the same data sources eg IEA, BP, EIA etc but being a little less 'creative' with their interpretation (or even reading of them !)

I get world oil demand:

1979 65.9 Mbd 1990 69.5 Mbd

In other words we dont have to wait until 1993 to get back over the 1979 oil demand hump.

Like everybody who reads this blog knows, today we are around 86 Mbd.

To be sure the US and European car
makers, less so the Japanese, are abandoning this industry, in theory, but total carmaking capacity of US+Europe+Japan is way above 40 million cars a year. Like we know, China in 2009 beat the USA in producing cars, and India although far behind is doing its bit to become "postindustrial" in oil-lean US+Europe+Japan style, that is with a minimum of 400 cars per 1000 population.

Their target car fleet, combined, could be as high as 850 million, if they only copy the "postindustrial" and "oil lean" economies. Coverting even 10% of these fantasy cars to fantasy electricity is a stupid dream, so the OECD-versus-Chindia oil crunch will be certain.

Back in 1980 there was no Chindia and no global car industry. Today there is. Same for airplanes and container shipping. Try the numbers.

Economic growth measures and yardsticks since the 1980-1983 interest rate shock (the Volker Revolution) have received a lot of hard effort to show growth even when it doesnt exist. But oil demand is a no-fooling indicator, reflected by market operators who will bet up oil prices,back to $100 a barrel soon, as demand continues recovering.

Comments welcome


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