"Energy literacy" and "peak oil literacy" should be requirements for pundits – and for citizens more generally. I've followed these issues for many years now, and the poor energy knowledge among even the chattering classes and punditry still amazes me.

WTI crude prices are currently at about $110 a barrel, still well short of the record of $147 reached in summer of 2008 or the inflation-adjusted high of about $200 a barrel reached in 1981 in the wake of the Iranian revolution. This summer may, however, test new highs as the global economy recovers. 

Much of Europe and Asia relies on the Brent crude oil price, which is produced in the North Sea and acts as a price benchmark for Europe and other parts of the world, just like WTI does for North America. Brent crude reached an all-time high, at $126 a barrel, in late February of 2012. Reaching a record high in February all but guarantees that Europe will see far higher prices by summer and will face significant economic woes as a result. This is not good news as Europe attempts to fix other economic problems. 

Many politicians and pundits are calling for allowing more offshore drilling in the U.S. as a way to bring down prices. This is also a pipe dream, according to the EIA itself. It simply won’t result in very much new oil, compared to global totals, and thus won’t have much of an impact on U.S. or global prices. In fact, the EIA projected that allowing drilling in all U.S. offshore locations would, literally, result in a price decline of only three cents per gallon of gas by 2030.

We seem to be at a global peak in oil production and we’re running faster and faster to stay in the same place — let alone to meet new demand as the global economy heats up. 

Some good news

There is some good news from the point of view of energy dependency. The U.S. has seen a marked decrease in fossil fuel imports due to the recession and an increasingly efficient economy, as well as the recent increase in production of oil and natural gas discussed above. Our net energy imports are lower, on a net basis, than they have been for about ten years. We now import about 46 percent of our petroleum needs, down from about 60 percent a decade ago. EIA projects that this figure will fall to 36 percent by 2035. This seems very optimistic to me given our knowledge about decline rates from existing oil fields, but, as always, time will tell. 

Historical and projected U.S. oil supply and demand, millions of barrels per day, including, natural gas liquids, biofuels and other non-petroleum liquids (Source: EIA 2012 Annual Energy Outlook).

The picture is still better when we look at all US energy imports. We import, on a net basis, about 22 percent of our energy and this is projected to decline to 13 percent by 2035. 

U.S. energy imports total, quadrillion BTUs (Source: EIA 2012 Annual Energy Outlook).

Half of all U.S. oil imports come from the western hemisphere (Canada and Mexico, primarily). One quarter comes from Africa and the remaining quarter from the Persian Gulf and other regions. 

The bottom line, however, is that the U.S. will still be a substantial importer of energy even in 2035, and particularly of oil, under our current energy policies. I’ve written before about the geopolitics associated with net fossil fuel exports. The U.S. is looking at a future in which not only is the world beholden to backwards nations like Saudi Arabia and Kuwait, but also to nations like Russia, which is now the world’s biggest oil producer. Russia is also by far the world’s biggest net hydrocarbon exporter and its power will grow as the world’s remaining fossil fuels continue to decline. 

Net hydrocarbon exports of selected countries in 2010 (million tons of oil equivalent) (source: EIA). 

What to do?

It is indeed surprising and encouraging (from the point of view of energy supplies, if not with respect to climate change or the environment more generally) that the U.S. has increased its oil production at this time, while we’re in the declining tail of the bell curve. But this reversal in the long-term trend is very likely to be temporary and not replicable in other places around the world. Moreover, as mentioned above, this increase is largely due to a dramatic increase in the number of drilling rigs, which is simply pulling more oil out of the ground, earlier, and not adding to long-term supplies. 

So what happened to peak oil? The short answer: we’re in the global peak now, as evidenced by record-high Brent crude prices, WTI prices well over $100 a barrel even while global consumption is still shy of its peak in 2008, and the fact that total global production has barely budged for almost ten years even as demand has increased. 

Recent increases in U.S. production show that massively increasing the number of rigs, as well as new technologies like fracking, can help extend the tail, and perhaps keep us on an “undulating plateau” of production for a little longer. But the inexorable decline of the existing large fields, which produce the lion’s share of global oil, is the more important underlying factor.

Even the leading energy agencies are finally coming clean on peak oil. The IEA’s chief economist, Fatih Birol, stated bluntly in 2009 that “we have to leave oil before oil leaves us, and we have to prepare ourselves for that day.” 

Birol stated in the same 2009 interview, presciently, as we can see now: “[Tightness in oil supply] will be especially important because the global economy will still be very fragile, very vulnerable. Many people think there will be a recovery in a few years’ time but it will be a slow recovery and a fragile recovery and we will have the risk that the recovery will be strangled with higher oil prices.”

We are now faced with dramatically high prices yet again and if they remain high or go even higher it seems all but certain that the U.S. and the world will soon dip back into recession.

This is the discussion we should be having in the U.S. presidential election, instead of the inanity we are witnessing instead. We need to rely on facts that aren’t cherry-picked to support a narrow point of view or a political point. 

How do we get off oil and other fossil fuels? By working vigorously now to become more energy efficient, conserve more, build massive amounts of renewable energy (wind, solar, biomass, geothermal, etc.) and over the next few decades shift to using electricity to transport people and goods. Energy efficiency and conservation alone can do far more than increased oil production — as recent history has amply demonstrated.

For this transformation away from fossil fuels to happen, we need to educate ourselves on energy. It’s time to learn a new vocabulary and to pay attention to what may seem like arcane facts. These arcane facts are going to become extremely important in the coming years.