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Peak oil: Are we looking at it all wrong?

By as early as 2015, global demand for oil will begin to decline, some scientists say. Not because we'll have run out of the fossil fuel, but because we just won't need as much of it.

Published May 31, 2012

I don’t know about you, but when I’m skimming around on the Web and I catch sight of the phrase “Scientists now say” or “Some analysts find” I usually just click right on by. Because that article is going to be a bummer. Those analysts will find that the U.S. educational system is actually removing knowledge from children’s minds, and those scientists will turn out to say that pizza consumption is related to early-onset dementia. So I keep going until I find something about psychic twins or a baby raised by goats.

But it’s a good thing I broke with tradition when I came to the New Scientist article “Dump the pump: When oil will lose its luster.” Guess what these scientists and analysts now find? You know that whole problem with oil, how eventually it’s going to run out and trigger a global depression and maybe a breakdown of civilization and is it really such a good idea to bring children into this crazy world? Well don’t sweat it, everything’s going to be totally fine. It’s all going to be one hundred percent a-okay.

All right, that might be a somewhat simplistic rendering of the argument. What the scientists and analysts are arguing – and presenting evidence for – is that although we’ve been worrying this whole time about peak oil supply, the operative force will actually be peak oil demand. Due to a variety of factors – the article focuses mainly on advances in automotive fuel efficiency – global demand for oil is only going to keep increasing for a few more years, after which it will begin to decline and will continue on a downward path.

Specifically, the costs of alternative-fuel vehicles will drop as their batteries become easier to mass-produce, the cost of oil will keep going up, and carmakers will have to sell a lot of electrics and hybrids to keep up with intensifying CAFE (Corporate Average Fuel Economy) standards. The global demand for oil will peak long before the supply does, according to a study from Ricardo Strategic Consulting – perhaps as early as 2015.

That’s a bit hard to take in. Partly because 2015 isn’t just close at hand, it’s close in a very tangible way. Have you recently bought a new pair of jeans? The day you read the headline that oil consumption is on its way down, those jeans may still be in your drawer. You might even be wearing them. I know. Freaky, isn’t it?

But it’s even harder to accept the larger implication: we, as a species, may have gotten this one right. It’s like if the class clown slacker troublemaker looks up one day to find he’s been nominated for the National Honor Society – kind of doesn’t fit in with our self-image. You mean, we noticed we were using up all the oil, and started making plans to do something about it, and then did that thing? In a timely fashion? Before we were forced to realize the folly of our ways as we struggled to build new lives in a grim dystopian wasteland? That sounds awfully … rational and sensible and disciplined of us. Doesn’t sound like the us I know.

So is it too good to be true? Let’s start by asking the other side – because you know that wherever scientists and analysts gather to make an argument, you will find, called as if by some ancient instinct, a whole bunch of them ready to argue the opposite. The article quotes an automobile analyst (yes, that’s a job title – those cars aren’t going to analyze themselves, you know) as saying that alternative fuel technologies will remain too expensive to compete on a large scale with ICEs (internal combustion engines), and that fuel efficiency in ICEs themselves is what will allow carmakers to meet CAFE standards. Okay, but that will have largely the same effect, right, in that the cars will use less gasoline and thus demand less oil? Yes, the analyst says. So that’s kind of a weak counter-argument.

The other counter the article presents has to do with the rebound effect, a fun concept that economists and environmentalists like to get out occasionally and bat around like a ball of yarn. It refers to the universally-acknowledged truth that if a given good becomes cheaper to consume, people will consume more of it. So, if you make driving cheaper by making cars use less gas, people will drive more. Efficiency benefits will be partially or completely erased. Now don’t you feel foolish, you silly environmentalist?

What makes this concept so fun is that it’s totally logical and therefore to some extent undeniable – yet it’s not provable (so far) in both directions. You can’t prove that energy efficiency rebound doesn’t happen and it’s only common sense to assume that to some extent at least, it does. But you also can’t prove that it happens on a large enough scale to really make a difference.

You also have to think about where we are on the driving-consumption curve, and what kind of cheap-energy behaviours are left to create. Gosh, if fuel-efficiency made us all get lackadaisical about how much we drive, we might start doing wasteful things like leaving the car running in the parking lot, driving to destinations that are half a mile away, arranging our living patterns in such a way that we have to drive absolutely everywhere we go, living a 30 minutes’ drive or more away from our workplaces … oh, wait.

Fact is, there’s not that much more disregarding-of-fuel-usage we can get before we’re spending our Friday nights cruising around the traffic circle. (Don’t bother – it’s not as fun as it sounds, and after a while the sheriff calls your parents. Uh, so I’ve heard.)

Weak showing, other scientists and analysts. Let’s see what else we can come up with in the way of undermining this happy theory. What would have to be true for this to pan out as they say – for oil demand to peak before oil supply does?

For one thing, we have to acknowledge that not all oil demand rests on gasoline consumption by individually-owned automobiles. Industrial and other “stationary” uses – meaning uses that are not related to making something move – are significant as well. Still, it’s clear that these cars are the biggest single factor influencing demand for oil; estimates differ, but gasoline for automobiles uses up about half the world’s oil. In the U.S., the proportion is closer to two-thirds. So chalk one up for the happy theory – there’s no denying that making cars more fuel-efficient will put a big dent in the demand for oil.

But we hit a bigger snag when we come to the question of falling prices for hybrid and electric cars – which will happen supposedly because of the falling cost of producing lithium ion batteries. It wouldn’t have to fall enough to make hybrids and electrics cost the same as ICEs, according to the analysts – “just enough to be swallowed by [the fuel-cost] gap.” But actually, they’d have to fall further than that – and not just the battery costs. Hybrids and electric cars aren’t more expensive just because the batteries are – they’re also recouping the cost of the research, technology development and testing that went into creating them.

Plus, the price doesn’t have to fall only enough to make the overall equation, including fuel expenditures, balance out: It has to fall enough to overcome the basic economic fact that the big lump sum you spend now – or commit to spending – always looms much larger than the steady moderate amounts you’re going to save later. Have you ever heard the saying “it costs less to be rich”? That’s because people with more money can do things like invest in efficiencies that will pay off over time. People on a budget have a much harder time doing that, and will be more turned off by that higher sticker price.

Perhaps the biggest assumption that this whole argument glosses over is that “car manufacturers will not be able to meet [CAFE standards] without selling a significant number of electric vehicles.” I’ve ranted about the loopholes in these standards before, so I’ll only say: sure they will. They can trade credits with other carmakers – which, if the credits come out of electric/hybrid sales that would have happened anyway, doesn’t boost the overall industry sales. They can use the provision that allows them three years to comply with the standards, in hopes that some “less socialist” president will come along and save them. They can reclassify some of their vehicles as light trucks (as Subaru infamously did with the Outback), which have lower fuel efficiency standards. They can gain credit toward meeting the standards by converting some of their vehicles to flex-fuel – which to date has resulted in very little actual fuel savings.

These loopholes can be closed, of course; this isn’t an insurmountable problem. But so far they haven’t been closed – and until they are, it’s not a simple, straightforward statement that carmakers will have to sell lots of electric cars in order to meet these standards.

On the whole, though, I’m glad I stopped at this article. It seems there’s at least a good case to be made that we are making our way toward resolving our demand for this finite resource – and the primary obstacles in the way are ones we can tackle. As an anti-bummer, it was even better than the goat-loving baby.

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