https://consciousnessofsheep.co.uk/2025/05/15/peak-oil-returns/ What is the biggest threat facing us today? Nuclear war between India and Pakistan? A conflict between Europe and Russia over Ukraine? Trump’s tariffs wrecking the global economy? Or might it be a somewhat technical issue concerning the “debunked peak oil theory?” Peak oil, you will remember, concerned the inevitable day when humanity’s production of the planet’s finite reserves of oil would reach its high point… after which, production could only decline. Against this, the religion of progress asserts that whenever any commodity is in short supply, the price will rise, leading to investment into new technologies which, in turn, will allow previously inaccessible reserves to be produced. This, surely, was proved correct in the twenty years since the peak of conventional oil production in 2005.
The 2005 peak went largely unnoticed at the time, although the wave of inflation it gave rise to, triggered the unravelling of the banking and financial system in 2008… by which time, the global oil price was spiralling upward, with analysts confidently predicting $200-per-barrel oil in a matter of months. It didn’t happen… for two key reasons. First, while oil shortages result in an initial price spike, they are actually deflationary – as businesses and households are forced to pay more for oil products, they must divert spending from elsewhere so that the broader economy contracts. Second, well known but previously too expensive technologies such as horizontal drilling and hydraulically fracturing the source rock appeared profitable at the higher price… and so, the American shale “miracle” began – with most of the original fracking companies going bust as excess oil and a global economic downturn brought the price of oil below $50-per-barrel again.
At face value though, peak oil seemed to have been discredited. After a small slump following the crash, global oil production rose steadily for the next decade, reaching another peak at the end of 2018, which was soon overshadowed by the disruption caused by pandemic lockdowns. Less obviously, particularly to the followers of the energy transition faith, unconventional oil overtook wind, solar, hydro and nuclear as the world’s leading new energy source across the decade. And despite claims that oil production would never recover from the impact of lockdowns, by October 2024 it had grown above the 2018 peak with little sign of slowing down.
Peak oil would seem to have been debunked once more. As Art Berman recently pointed out:
“Unconventional oil is still oil. Refineries—crude’s only buyers—don’t care about Peak Oil’s artificial categories. They pay for oil that meets their specifications, whether it’s conventional or unconventional.
“Dismissing unconventional oil is like saying, ‘Tomato production is up, but all the growth came from greenhouses, not traditional fields, so it doesn’t count,’ as if the tomatoes aren’t the same.”
Insofar as the early peak oilers tended to focus on the geology of oil, Berman is undoubtedly correct. So long as the world depends upon oil products, oil refineries will continue to supply them… using whatever oil sources meet their requirements. And if some combination of light shale oil and heavy bitumen sands can approximate the conventional crude that is now in decline, there is no reason why the global economy might not last another decade or two before the proverbial hits the fan… particularly if the western empire can find a way of toppling Russia and unlocking the vast shale deposits in Siberia.
When, however, “peak oil” is viewed as a real economy issue, the question of “net” or “surplus” energy emerges as the greater predicament. Nor is this solely a production issue. Since, while the energy return on energy invested in shale and bitumen sand production is significantly lower than conventional drilling, the more impactful problem turns out to be in the balance of oil products produced. This is because a large part of the new “oil” being produced is in the form of condensates and natural gas liquids which are best suited to propane gas and to the manufacture of polythene bags, rather than to the key fuels which make the real economy work.
Although there is no “typical” barrel of oil, on average a 42 US gallon barrel will be refined into:
7% Petrol (gasoline) 4% Diesel 8% Aviation fuel 5% Heavy (e.g., ship) fuel 4% Asphalt 3% Light (e.g., home boiler) fuel 2% condensates (e.g., lighter fuel) 1% Petrochemical feedstock and residual fuels.
It is the “middle distillates” – diesel, aviation and ship fuel – which make the world go around. And in one sense, the petrol and condensates are monetised products that would otherwise go to waste and which, crucially, keep the price of the middle distillates down. That is, in the event that the advocates of the energy transition were successful, the economies of the world would still be dependent upon the middle distillates, but would have turned currently economically viable products into costly waste products which would somehow have to be disposed of (most likely by burning them, which kind of negates the reason for going “green” in the first place). Refineries can – at considerable cost – be upgraded to produce slightly more of the middle distillates and slightly less of the other products. But nowhere close to the point where diesel could replace petrol.
This is a problem today, because while “oil” production has bounced back from the lockdown slump, diesel production is still lagging below the 2018 peak. Of course, given the self-destructive western sanctions on Russian oil products (which used to include supplies of diesel to Europe) along with the disrupted supply chains following the lockdowns, this lagging diesel production may be largely artificial… for now. Nevertheless, it is having a serious impact upon the global economy in a far from trivial way.
One reason why economists are invariably wrong is because they assume that markets are rational. This may have been true in eighteenth century Britain, where resources were local and banking and finance a tiny support to an economy where wealth was derived from the deployment of technology to enhance the production of goods and services. But in a global economy where banking and finance rules, and where there are few returns from investment in manufacturing, markets are wholly irrational… most often funnelling (digital) wealth to a handful of godzillionaires while simultaneously undermining humanity’s life support systems. A case in point – although you won’t have seen it in establishment media – is that while the political class is haggling about how much extra people should pay for cheap tat imported from the Far East, one of the key components of the global economy is at risk from diesel shortages.
Even as diesel-powered trucks continue to transport discretionary goods across Europe and North America, South America (which has far less purchasing power) is in the grip of a diesel shortage which, among other things, is impacting copper production. And since copper is essential to our way of life, this spells trouble ahead for such things as:
Building and connecting wind farms and solar panels Switching from petrol to electric cars and light goods vehicles Building new AI datacentres Building the British government’s promised 1.5 million new houses Rearming the European military.
Again, much of the current diesel shortage is artificial insofar as it concerns a lack of Russian imports together with a refinery fire in Peru. Although it also points to a global oil industry which is struggling to keep up with demand. And that, of course, is the real threat here. Because if the oil industry cannot keep up with demand for diesel, then sooner or later things are going to break. Without a steady supply of diesel, for example, it is impossible to feed eight billion people. Heavy agricultural machinery currently cannot be powered with anything else. Essential mineral production will also be impacted, since the global supply is based around massive diesel-electric haulage trucks. And the transport of pretty much everything westerners consume depends upon diesel-powered trucks and trains.
Perhaps one of the biggest problems with the early peak oil movement was a vision of catastrophe in which the peak of oil production would be followed by an immediate collapse of western – if not global – civilisation. The impact of shale oil on the last two decades points instead to a slower catabolic collapse in which the economy slowly adjusts… albeit in a downward direction, with politicians and economists misdiagnosing the situation and attempting to apply quack cures all the way down. It is conceivable – indeed likely – though, that governments and industries will deploy fourth generation nuclear as an alternative to fossil fuels in sectors like transport, where electric trains might replace diesel locomotives with heavy freight switching from road to rail again. Lighter, petrol-powered, vans might also replace heavy trucks in some sectors. Recycling – for example of copper – might expand as virgin supplies deplete and costs increase. Agriculture may well re-localise to supply continental rather than global demand. And it should go without saying that a large part of western consumption could disappear without threatening anyone’s life support.
The biggest casualty in the near-term will likely be a global banking and financial system whose existence depends upon perpetual growth on a finite planet. The amount of virtual wealth – existing merely as bits and bytes within the world’s network of datacentres – is already vastly greater than the collective real wealth which supposedly underpins it. And for the past half-century, the ability to grow real wealth has been grinding to a halt. Instead, most of what we have come to think of as wealth is no more than the product of competition to purchase speculative assets. So much so, that the entire financial superstructure seems wholly detached from its real economic base. In this sense, the real and financial economies are similar to computer software and hardware… dismantle your hardware and no matter how hard you try, you will not find the email you were writing, still less the password for your online bank. Nevertheless, there are a series of registers – on/off switches – at the heart of the machine which translates the hard wiring of the machine into the virtual software environment where most of us have to operate these days. In the economy, the equivalent of those essential registers is simply private debt. The whole financial superstructure ultimately depends upon a growing level of private debt created by loans to consumers, businesses and governments. But banks and (increasingly) shadow (i.e., unregulated) banks don’t make loans out of any sense of civic duty. Banks make loans where they calculate they will make a profit… which, in the real economy, means from a government, business or consumer whose real income is growing at least on a par with the interest on the loan.
Now imagine what happens when key resources like diesel fuel and copper are in short supply. Businesses struggle (like they have been in recent years) and attempt to raise prices. And so, consumers struggle (like they have been in recent years) and look to cut spending elsewhere. Even governments run into problems (like they have been in recent years) and attempt to raise taxes on already struggling businesses and consumers. For a while, everyone seeks to increase “growth” in the real economy as the simplest solution to the growing slump. And insofar as politicians and business leaders can spin a credible enough tale, banks can still be persuaded to lend. But with real growth (as opposed to the tiny gains made from “massaged” statistics) refusing to put in an appearance, the time is coming when bank lending dries up and (as happened in 2008) mountains of theoretical digital “wealth” turns out to be worth less than the digital contracts it was based upon.
In a world conditioned to be concerned with the financial – government borrowing, foreign investment, stock markets and currency values, etc. – shortages in the real can economy appear trivial and remote. Indeed, for the best part of three centuries, shortages have translated into opportunities as investors seek to unlock new resources to fill the gap. But filling the gap has always been about energy – whether (as happened when coal replaced water wheels or when oil replaced coal) through a new and more powerful energy source or through technologies which improved energy efficiency (aka “productivity”). And our real economy is late in that particular game. In theory, harnessing the energy from atomic nuclei (nuclear power) could power a new industrial revolution – a kilogram of uranium having the potential energy of two tonnes of coal – but nobody has figured out how to harness it beyond using nineteenth century steam turbines. But our suite of oil-powered and electrical technologies are already at (or more likely past) the point at which miniscule productivity gains come at the cost of far too high investment.
Without an increase in surplus energy, which unconventional oil cannot deliver – to paraphrase Art Berman, discovering that your glasshouse-grown tomatoes are too expensive to bother growing – growth becomes impossible. But the way in which it plays out is distorted by the “exorbitant privileges” within the financial system – Bolivians go hungry while Europeans consume cheap plastic goods from Asia – make it impossible to predict where shortages will materialise next. Nevertheless, the direction is clear enough. And while declining surplus energy is the real crisis, it will manifest as an updated and exponentially greater version of what happened in 2008.The last working-class hero in England.
Clio the cat, ? July 1997 - 1 May 2016 Kira the cat, ? ? 2010 - 3 August 2018 Jasper the Ruffian cat ? ? ? - 4 November 2021
Re: Peak oil returns: Spot on
Posted by t on May 15, 2025, 10:30 pm, in reply to "Peak oil returns"
Tim makes sense of the garbage we are being fed, both by our elites and Stop the oil crowd.
It's painful, and noting the number of years I have been against this: we need nuclear. Preferably the thorium kind Chinese are developing/developed.
Not sure how we can get to continue using fossil fuels to get to fertilisers. Absolutely essential if we are required to feed billions etc. Perhaps as usual, if there is a will, there is a way. Not denigrating the organic way in any shape or form ..
Re: Peak oil returns
Posted by Ian M on May 16, 2025, 12:43 am, in reply to "Peak oil returns"
Flashback to a cheerful website I used to frequent in the early 00's, Life After The Oil Crash (LATOC):
Anybody else visit? Strong on the doom but informative. Rhis was probably aware of it, being another MLMBer who would occasionally write about this particular conundrum that mass society was going to have to deal with fairly imminently. Looks like the 'long descent' scenario is most likely, but likely to be a v bumpy ride (with still the possibility of falling off the 'Seneca Cliff' - https://thehonestsorcerer.substack.com/p/2030-our-runaway-train-falls-off ) Re-reading Ozzy permaculture guru David Holmgren's 2008 offering on 'future scenarios' at the moment. Prescient in a lot of ways but overly optimistic about the ability of groovy eco-types getting together and successfully altering the course of systemic inertia that has been building for millennia:
He updated his thinking with the 2013 essay 'Crash on Demand' which had a much more pessimistic - or realistic - outlook, and explored the heretical idea that it might be possible, even desirable to precipitate a crash of the financial system in order to avert destruction of the climate and speed the transition to a sane & sustainable way of living : https://holmgren.com.au/writing/crash-demand/ Don't remember the exact proposals but I think it was fairly tame, mainly middle class greenies withdrawing from the consumer economy and that would break the system... somehow.
Anyway, peak oil was never going to go away. I'm amazed that fracking and tar sands have kept things stumbling on as long as they have. I guess you have to look at the cannibalising of the rest of the real economy to see the effects of it, as sheep guy skilfully points out. I worry about how people are going to deal with it, just looking at normal people and listening to the stupid sh!t they talk about. They no longer inhabit the real world - how on earth are they going to cope when it comes crashing back into their lives? "Deal With Reality or Reality Will Deal With You" indeed... or another quote I remember from that time which noted the cruel irony that the further along civilisation goes with its project of de-skilling and fostering abject dependency in the populace, the more it becomes the case that 'those most likely to face a hard crash will be those least capable of dealing with it' (heavy paraphrase).
on May 15, 2025, 9:10 pm