Businessweek Gets it Wrong-Everything You Know About Peak Oil is ‘Not’ Wrong

On January 26, Bloomberg Businessweek printed an editorial by Charles Kenny titled, “many of Yergin’s rosy predictions have proven false .

Kenny has another overstatement:

New technologies suggest the dawn of U.S. energy independence.

This is flowery language, but doesn’t represent the real situation. A big part of the reason our imports are down in recent years is because US oil consumption is down. People who are laid off from work drive less, and with high oil prices, fewer people take driving vacations or go by airplane. The EIA shows this graph of net imports.

We are still importing 45.2% of “products supplied”. This comparison is on a volume basis, not on an energy basis. If the comparison were on an energy basis, we would be importing over 50% of petroleum products. Biofuels and natural gas liquids, which are lower energy than oil, are treated if they were substituting for oil on a barrel for barrel basis, but they really are not.

We hear a lot about having very low natural gas prices right now, because of higher production of natural gas combined with a warm winter. Unfortunately, having more natural gas doesn’t fix our oil problem. Our oil problem is the fact that price is too high because of inadequate world supply and also because much of the cheap-to-extract oil is already gone. We have had to move on to more expensive-to-extract oil supplies.

Over time, natural gas may make a small dent in our oil problem, if a few vehicles can be converted to natural gas. But the large size of natural gas tanks and lack of refueling stations make them unsuitable for many uses. The amount of natural gas available for substitution also isn’t all that high, relative to the world oil deficit.

Kenny also said:

Limits to Growth suggested the world would be on the verge of complete economic collapse around about now, with industrial output falling to its level of 1900 by the end of this century, as resources vital to sustaining a modern economy dried up. However dire today’s global financial crisis, we are nowhere near such a doomsday scenario.

I would disagree with Kenny on this. He doesn’t seem to see the close connection between high oil prices and the economic problems we are seeing today. With high oil prices, people cut back on discretionary goods, resulting in layoffs among people who work in those industries. For example, fewer people have jobs in vacation industries (for example, in Greece and Spain) if oil prices are high. This leads to recession and debt defaults. If one country defaults, ripple effects can spread to banks around the world.

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Our economy has a high level of debt. We need economic growth in order to repay that debt with interest. If oil supply remains flat, or worse yet, falls, it will be difficult to produce the level of economic growth needed to prevent debt defaults.

Hopefully, Kenny will be right about the issue of economic collapse, but it seems to me that the possibility should be a serious concern. Peak oil and the related issue of Limits to Growth are real issues, even if Charles Kenny doesn’t understand them.