Peak Oil 101

Source: World Resource Institute. The “ANWR” bump on the crude production curve is an indication of how projected production would be in Alaska’s National Wildlife Refuge.

The acute problem of the Gulf oil spill makes the cost of corruption-afflicted government front page news. Lax Federal offshore drilling oversight under Bush 43 has cost us dearly. However, our society’s vulnerability to any trouble with this critical resource should also remind us of the chronic problem: peak oil.

Oil production follows a bell-shaped curve rising to a peak, then declining. Whether world oil production has reached its peak is hotly debated, but about U.S. peak oil there is no controversy. Even the American Petroleum Institute (the oil lobby) admits that U.S. domestic production peaked in the early 1970s. Even if we got all the projected offshore and Alaska oil, U.S. production will never return to that peak.

At the U.S. peak, oil cost less than $2 a barrel, and only 30% of domestic consumption was imports. Currently, nearly 70% is imports and the price is around $80 a barrel. Since demand hasn’t declined, unless we revise our energy use, we can expect to be increasingly reliant on imports, and on drilling in difficult locations like the deep waters of the Gulf.

Even though the U.S. uses about half the energy per dollar of GDP that it did in the 1970s, the Europeans and Japanese currently use roughly half our energy per dollar of GDP, so there is still room for improvement. These folks are not living it yurts, either, so we could have a fine, first-world lifestyle burning only half the oil we currently use. Conservation is cost-effective, too. It’s competitive with conventional energy now.

Most, conventional, non-renewable energy is subsidized, and the subsidy is enormous. The World Resources Institute estimated in 1989 that petroleum received $300 billion in annual subsidies from the U.S. That includes tax breaks (the “depletion allowance” for oil producers), transportation infrastructure not paid for by gas taxes, and security for the increasingly-important overseas oil. Nuclear power is even more heavily subsidized.

Perhaps the most insidious subsidy is the accounting fiction that classifies oil production as “income” rather than “natural capital.” Income is, by definition, what is left over after capital is replenished. But oil wells run dry, they don’t magically replenish.

oil storage tanksTo appreciate what this means, imagine going to your bank for a mortgage. You say your “income” is $2,000, but what you really have is a savings account with $2,000 (capital). The loan officer would call security to have you ejected as a crazy person, but that is literally how accountants classify oil production now.

Finally, consider “Energy Return On Investment” (EROI) — a principal reason oil remains tenaciously our fuel of choice. Historically old East Texas oilfields (now long past their peak) return as much as 100 times the energy invested to retrieve oil. Currently oil, coal and tar sands return roughly 22 times the energy it takes to retrieve them. Nuclear takes between 5 – 15 times as much, and wind returns 18. (See this for the footnotes) Nostalgia is not an energy source.

Domestic peak oil means we can expect increasingly reliance on difficult-to-get, or imported oil, increasing our vulnerability to spills, resource wars in places like Iraq and Afghanistan… or … we can embrace conservation, and renewables like wind. And we can stop building sprawl, which literally casts our petroleum dependence in concrete. Public policy is the most effective way to make the change, but even personal choices matter.

Coming soon: Peak Oil 102: What to do now.


  • To see the peak in more areas than oil, Chris Martenson’s crash course is a real eye opener.

Adam Eran


  1. Adam Eran says

    Several posters say “But there’s lots of oil in Gulf…or offshore in the China Sea…”…or delivered by the Easter Bunny!… Just ask the USGS (which admits U.S. peak oil occurred in 1971 and suggests worldwide peak oil will occur in 2020)!

    The graph of domestic production above is one that the even the API (the American Petroleum Institute is oil lobby) would agree with. You can find similar agreement from Daniel Yergin’s history of the industry (“The Prize”). Yergin is the head of CERA (Cambridge Energy Research Associates), and no tree hugger. He’s also the author of “The Commanding Heights” — a paean of praise for Reagan and Thatcher.

    The cornucopian arguments above also don’t mention the common observation that Wyoming has more oil in its oil shale than the Saudis have light sweet crude (is that part of the USGS potential oil survey?).

    If the recent Gulf spill wasn’t enough evidence that such difficult-to-get oil is an environmental nightmare waiting to happen, wait until you check out extraction from oil shale, or even the relatively easier-to-extract Canadian Tar Sands (which makes sense only > $70/bbl, and literally process something like the sludge refineries in the U.S. used to scrape from their tanks.

    No matter how much the U.S. has in projected offshore or Alaskan oil, it will never return to that 1971 domestic peak. You can cite all the old magazines you want, but this is settled science, not speculation.

    This means imports are not optional for the U.S. The trend of going from 30% imports to 70% imports (and $2/bbl to $90/bbl) clearly indicates that.

    And yes, the Obama administration’s oversight of offshore drilling was bad, but Bush’s was orders-of-magnitude worse. Let’s not strain at a gnat and swallow a camel, shall we?

  2. says

    The big problem with oil is only in small part that referred to misleadingly by the sexy phrase ‘peak oil’ – i.e. impending oil scarcity or expense.

    Rather, the big INCONVENIENT TRUTH – ignored by both the article and all the prior commenters – is quite different.

    Namely, even if we had gobs of oil that could be extracted for FREE (in both price and direct enviro damage) and given away to all comers, burning the oil (for any reason) means greenhouse gas emissions and CLIMATE CHANGE.

    Climate change effects will exact huge costs and sufferings – to economies, health, societies and environments.

    For that reason alone, even if there were no other, we must focus personal and governmental policies and behavior on ‘conservation’ in the broad sense – reduction in and avoidance of carbon fuel use. Not on ‘smarter safer’ drilling or on drilling of any kind.

    In the excitement and outrage over the BP spill, people have forgotten the pressing need not for ‘clean’ oil but for getting off ALL drilling, indeed all carbon burning.

    A variety of conservation tactics are available, and – given the stakes and opportunities – it may not matter so much which tactics end up being most used: sheer denial, substitution, energy efficiency or whatever.

  3. Marshall says

    I am getting too old, been around since FDR. It is 90 miles from key west to Cuba so that means they can drill 45 mils from USA islands. Key west is 130 miles from miami so that it 220 miles from Miami to cuba, thought trip in a boat, so that means cuba can drill close enough to Miami to mess up that coast also. I would rather have XOM drilling out there than China, how about you?

  4. Marshall says

    I forgot to warn you that china is going to be drilling off your coast soon and sharing the oil with cuba. How do you feel about them being better or worse than BP? Mexico did not clean up Tesas from the Mexico spill!!

  5. Marshall says

    I begin with a website and suggest you google USGS for untapped oil.

    We have on land enough oil to last until we convert all our cars to NG, of which we also have plenty. We drill at 5000 plus feet because we hear not in my back yard or keep that away from my shore. Had this well been at 200 feet, how long do you think it would take to cap it? If you prevent drilling production must go down so that was a false fact. If we drill where it is safe and send the tree huggers to live out in the woods (which I bet they would not last)we can be energy independent, no problem. People need to do their own research, bad research produces bad answers and look at the brains running our government these days. Even the media fails to do research and google makes it so easy.

  6. Steve Lamb says

    Peak oil is a oil industry joke being played on the rest of us. I collect books, all kinds of books. I can tell you with absolute authority that the US ran out of oil in 1916, 1932, 1940, 1956, 1966, and 1973. Oh maybe not? Well that’s when all the (oil Industry) “experts” said we would run out and they had cute charts and graphs too. You smelling the bullshit yet?I’ve been smelling it since I bought the bound 1912 Crafstman Magazines from a library in 1974. We , meaning the entire world, were going to run out of easy to get oil in 1916 and all oil by 1920. The answer? Well BUY AND ELECTRIC CAR….
    Ah nothing ever changes…..

    Now then the real problem is that there is a shitload of know oil reserves, but most of it is deep underwater and in disputed territory. In the Gulf and Carribian, Mexico, China, Venezuela and the USA are all drilling. Hmmm why? They each claim the rights to do so in international waters and they each want to dominate and control this area because the amount of oil under the gulf is between 200%-250% the size of the Saudi Arabian oil fields in the number of barrels. Then there is the China Sea of Vietnam….also AT LEAST twice the size of Saudi. A batch of oil reserves off the coast of Latin America too.

    Now BP are Butt Heads. They failed to install the rams they said they would, used a smaller array and then knowingly misloaded them causing the leak , just to save a few bucks so some dickhead middle manager could get a big bonus. Twit.Moron.Mental defective. That kind of culture must stop.

    The outcome of this disaster should be the NATIONALIZATION of all of BP’s USA assets and the return of that brand as RICHFIELD, the oil company that Atlantic Bought and took its environmentalist sensibilities away from beofpre ARCO sold itself to those Rat bastards at BP. We could have Richfield do what it once always did, environmentally responsible oil exploration, drilling and refining, and give every American a share (or however many is a even split) of the stock. Then lets also have them do biofuels, SINCE ALL OF THE AMERICAN PEOPLE take the ECONOMIC risk when oil companies drill, should we not ALL BENEFIT when they profit?

    • Fritz Dahmus says

      Steve Lamb,

      Thank you for that post. I’d like to mention how much I hate it when pundits/writers lump ALL the blame on someone’s head……usually a head of the opposing political party. In this case it is the democrats favorite target….George W. Bush. Obama’s administration had their own inspectors on the platform…..and even awarded BP something for work at that platform (you know the one that blew up and killed 11). It is as Steve Lamb’s post…..BP morons looking for bonuses and gov regulators looking the other way. Why wasn’t Obama notified of the atrocities on the platform and put an immediate stop to what was going on? Or maybe he was…but he was paid off….ah ah….that’s it….he AND George W. Bush were in on the plan. Pay offs to the White House and more profits for Big Oil. Mystery solved.

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