November 8, 2013

What will happen after peak oil?

In the earlier article, Oil since 1859, we could see signs of peak oil, which is the idea that the world is running out of oil. As far as we know it, oil is not an endless resource as we could clearly see in the chart how the oil production in US has peaked in the 1970s and US is now dependent on importing oil from other countries. But what happens when US can't import any more oil from these countries because their oil wells have also peaked? It will happen and according to experts, the world's supply of oil may begin to decline as early as 2020.

There are a few scenarios of what might happen after the peak:
  1. The world will become one large North Korea - or like in the Mad Max movies. Comparing with North Korea is actually not a good idea since they are importing about 15000 barrels of oil per day, but they are still consuming 99 percent less oil than the US (The North Korean oil industry)
  2. Nothing happens because oil is an endless resource - we just don't know it yet. We just have to drill deeper or there might be trillions of barrels of oil hidden somewhere
  3. As the price of oil increases, the world will automatically transform into a world not dependent on oil. Or as a Saudi oil minister said: "The Stone Age did not end for lack of stone, and the Oil Age will end long before the world runs out of oil"

I believe the third scenario is most likely. Peak oil has actually already happened - but at a much smaller scale. In 1973, the world experienced a larger oil crisis. Several oil exporters from the Middle East limited the supply of oil because US supported Israel during the Yom Kippur war. The price of oil skyrocketed. Gas stations had to shut down because no oil was available, so people began to steal gasoline. But after the crisis ended, you could see how the society had adapted to the new conditions. While US as a whole became 32 percent more oil-efficient in 1985 compared with before the crisis, vehicles became 50 percent more oil-efficient.

The same thing happened in Cuba. In the 1990s, after the fall of the Soviet Union and after an increased blockade by US, Cuba couldn't import oil and entered a period known as the Special Period. Blackouts could last for sixteen hours a day, and water had to be roped with buckets to the top of the tallest buildings. As an act of desperation, they imported 1.2 million bicycles from China and 500 000 more were manufactured by the Cubans themselves. But the Cuban society adapted to these new conditions. It became more common to hitchhike, and government cars were required to pick up anyone who wanted a ride. The Cubans developed the Camel truck that could carry 300 people. In small towns, the Cubans used horses and mules for transportation. They ate less, and they walked and biked across the country, so the average Cuban lost 12 pounds [6 kg], thus the number of heart attacks, diabetes, and strokes decreased.

When peak oil happens, we have to replace our cars with cars not dependent on oil. It might be a good idea to begin replacing our cars before the peak. These cars will most likely be powered by electricity since the other alternatives are not as good. I said probably because engineers may in the future find some kind of new technology that is more efficient than batteries. 

A customer will buy an electric car because:
  • They care about the environment - the environment will probably be saved because of peak oil - but they want change now
  • The electric car is better than the car powered by gasoline. They like arguments like: you can charge your car in your garage, an electric car has a better acceleration compared with the gasoline powered car, and the electric car is safer like the Model S by Tesla Motors
  • They do not want to contribute to the fact that US has to import oil from "troublesome" countries
  • Electric cars are cheaper than gasoline powered cars because of the high oil price

Of these points, only wealthy customers can care about the first three points, but if the broad public are going to buy electric cars, they have to be cheaper than the cars powered by gasoline. The major factor that will make the average citizen to buy an electric car is the supply of oil. In US, we can't see any signs of a dramatic lower oil supply:

US oil supply 1910-2012

But the oil price is still high:

Oil price 1861-2012

This high oil price and the other factors from above have started a second electric car revolution. It seems like almost all car manufacturers want an electric car. The first revolution happened in the beginning of the 20th century before we discovered the large oil sources. For example, Detroit Electric manufactured 13,000 electric cars between 1907 and 1939. You can also argue that the brief demand for electric cars in the 1990s, when California forced auto manufacturers to sell electric cars, was a revolution. But this new revolution is still small compared with the sales of passenger cars:

US car sales 1931-2012

From the graph above, I've included not only plug-in electric cars, such as Tesla Model S, but also hybrid electric cars, such as the Toyota Prius. You can see that the sales of these types of cars is minimal compared with the sales of gasoline powered cars, so we need a new graph:

US environmental friendly car sales 1999-2012

From the graph above we can clearly see that hybrid electric cars are more popular than plug-in electric cars and the most popular one is the Toyota Prius with a sales of 147,500 in 2012 (If you want to see sales numbers for the other models, you can find the charts at Alternative Fuels Data Center). 

One company with the goal to improve these numbers is Tesla Motors. The co-founder of Tesla Motors, Elon Musk, knows that the world will run out of oil and he argued that the supply of oil will begin to decrease in 2020. So the goal of Tesla Motors is to accelerate this process of increasing the number of electric cars on the roads before 2020. In the beginning, they will sell 20,000 cars a year, but that number will increase in the future as they complete new models. We can also note here that Elon Musk is not a fan of hybrid electric cars - he want cars that run on only electricity. What's the point of selling hybrids if we are going to run out of oil anyway?

If you are interested in the data used here, leave a comment or send me a mail and I will upload it somewhere.