Despite this week’s news that the price of oil dropped below $126 a barrel, summer vacationers are undoubtedly still worried that they’ll be paying $4 for a gallon of gas before the season is over—if they aren’t already. Even if speculation that the current oil market “may have peaked” is correct, however, there is a more ominous peak looming. Increasingly, energy experts and journalists are starting to talk about what will happen when the rate of petroleum production tops out and begins to slide toward zero. It is uncertain when that apex will come and how quickly the ensuing decline would play out. CJR contributor Katherine Bagley invited two journalists who have covered the “peak oil” question to debate how the press should approach this contentious issue. This is the second of a four-question series that will be posted this week.
Lisa Margonelli is an Irvine fellow at the New America Foundation and writes about the global culture and economy of energy. Her book about the oil supply chain, Oil On the Brain: Petroleum’s Long Strange Trip to Your Tank, was published by Nan Talese/Doubleday in 2007. Recognized as one of the 25 Notable Books of 2007 by the American Library Association, Oil On the Brain also won a 2008 Northern California Book Award for general nonfiction. Margonelli’s work has appeared in The Atlantic, The New York Times online, The Washington Post, the Los Angeles Times, Wired, and Discover, among other publications.
Ed Wallace holds a Gerald R. Loeb Award for business journalism, bestowed by the Anderson School of Business at UCLA. His column heads the Sunday Drive section of the Fort Worth Star-Telegram, and he is a member of the American Historical Society. The automotive expert for KDFW Fox 4 in Dallas, Wallace hosts the top-rated talk show Wheels, Saturdays from 8 a.m. to 1 p.m. on 570 KLIF AM in Dallas.
Katherine Bagley: Does the media hype, underreport, or adequately cover peak oil?
EW: Just prior to the Great War, Charles Kettering, inventor of the electric starter for automobiles and General Motors’ in-house genius, ran into the office of company founder Billy Durant. Kettering carried bad news: experts had told him that the world had only enough oil to last until around 1940. Unless GM could find a suitable substitute for gasoline, Kettering explained, the car company would simply go out of business within two decades. Durant contemplated Kettering’s comments and then replied, “Charles, the experts are always wrong. They’ll find more oil before you’ll find an alternate fuel source.”
It wasn’t known as Peak Oil then, but the concept was the same. At the time world demand for oil was surging, owing to the increasing popularity of automobiles and the military’s oil needs for the war. But Kettering’s experts weren’t the first to fear that the world’s oil was vanishing. Our own government discussed it in 1911; only a decade earlier, the Spindletop gusher, outside Beaumont, Texas, had finally convinced America that we had large deposits of oil in places other than western Pennsylvania.
Much is made of Dr. King Hubbert’s 1956 theory of Peak Oil, which posits that, once “half of the world’s oil” has been extracted from the ground, a terminal phase will begin in which oil production becomes problematical, in turn creating price instability. Moreover, because Dr. Hubbert predicted that American oil production would “peak” in the early seventies, and it seemed to, no one questions his theory of oil production at or after the peak. Too bad: if today’s deep-water oil extraction technology had existed in the sixties, or if political actions hadn’t mostly closed our east and west coasts to oil production — or if the North Slope or ANWR reserves had been known and producing in 1970 — then “American Peak Oil” might not have happened when Dr. Hubbert predicted it would. Overlooked is that Dr. Hubbert readily admitted that better technology or new reserves discovered would alter his predictions for the actual date of Peak Oil. Cambridge Energy now says that Dr. Hubbert’s “oil curve” for American production was off by 66 percent in 2005.
Undoubtedly Peak Oil will happen, someday. However, three times in the last thirty-five years, the media has confused it with the historic cycle of oil production: prices rise when tight supplies meet rising demand; those additional profits are reinvested in new oil fields or delivery infrastructure; and then come lower prices and little new investment — which inevitably creates supply shortages and higher prices.
Is media hysteria overselling Peak Oil? Could be. In my lifetime the media has warned us of many “end of the world as we know it” scenarios: Communist takeover of America, nuclear Armageddon, running out of drinking water, global cooling, global warming, three Peak Oils, an errant asteroid wiping out humanity, killer bees, Y2K, and a worldwide pandemic. Any of those disasters could befall the world one day, but not one has happened yet. Neither has Peak Oil.
LM: The media does as bad a job of covering Peak Oil as it does covering oil in general. Covering Peak Oil well—without being alarmist, referring to conspiracies, or dismissing it entirely—is difficult. The best article I’ve read was Peter Maass’s article on Saudi Arabia for The New York Times Magazine. Another issue with Peak Oil is that oil’s availability in reservoirs does not determine the course of history—politics, economics, and environmental factors also determine how things move forward. I think Sheik Yamani said, “The Stone Age did not end for lack of stone.”
However, the media have done a lousy job of reporting on the end of cheap oil, of fully explaining to people why current high oil prices are neither the result of a conspiracy nor a sign that oil is about to “run out.” Part of the reason is that reporters are usually assigned to cover oil at the beginning of their careers and when they succeed they get promoted to another beat, so they don’t develop deep wells of knowledge and skepticism that could help them put “news” in context.
I’d like to make an appeal to cover oil the way we cover sports—as a personal, nutty opera with huge consequences for daily lives—as much for us as for those who live at the other end of the pipeline in places like Nigeria and Siberia. If you read the oil trade publications you get that scintillating play-by-play action, but the daily papers are not as ambitious.
Returning to Ed’s response, though the press has appeared to “cry wolf” about oil supplies several times over the last century, in fact it was reacting to current perceptions—declining U.S. oil discoveries in the 1920s and late 1930s, declining output in the 1970s and now. The alarm it generated elicited a reaction and new government and industry strategies that relieved the problem. Roosevelt’s cabinet saw that U.S. oil production would fall off and struck a deal with the Saudis that included policies that discriminated against U.S. oil producers and favored companies doing business abroad. That flood of imported oil intentionally delayed a decline in U.S. production. In the 1970s, another plan encouraging conservation and drilling in non-OPEC countries took shape, ultimately causing prices to fall and lulling Americans into a sense of security. This time around, reducing the impact of high oil prices on the U.S. economy while lowering greenhouse gas emissions will require gutsy political and economic leadership.
EW: Recently Goldman Sachs issued a note to investors suggesting that oil could hit $200 a barrel within two years. That same day, Tim Evans, an analyst with Citi, stated that oil prices could fall to $40 — because current supplies are “comfortable.” On April 24 the British Telegram reported Lehman Brothers’ statement that oil supplies are “growing faster than demand.” Further, we put 5.7 million more barrels of oil into reserves, up 32 million barrels since January 1, 2008.
Only Goldman Sachs’ frightening prediction made the headlines.
Also underreported is that Brazil’s Petrobras will be hiring 14,000 new geologists and oil-rig workers as part of their $112 billion expansion, which many believe will make Brazil the world’s second largest oil supplier. Totally ignored is Iraq: experts claim at least 115 billion “easily recoverable” barrels exist there and maybe much, much more.
Yes, the theory of Peak Oil is accurate; what’s under debate is how much oil the world started with. Cambridge Energy puts it at almost 5 trillion barrels; the United States Geological Survey estimates more than 4 trillion barrels — and since the start of the Oil Age, the world has extracted barely more than 1 trillion barrels. Peak Oil is years, maybe decades, from happening.
On the issue of long-term oil prices returning to $10 a barrel, we can all agree that that’s not likely to happen. However, media and public alike confuse Peak Oil with normal supply and demand problems; they always have and apparently always will.
Tomorrow’s debate question: What types of articles necessitate a mention of peak oil and which do not, and how do reporters tell the difference?