Garland Report, Ep. 1: The Truth About Peak Oil w/ Gregor Macdonald

there eric garland here and i am with my friend the esteemed energy analyst gregor mcdonald in portland oregon how you doing gregor i’m doing quite well eric we’re having a beautiful summer in portland um you know i have a little sympathy for my friends in the east with all the humidity we’re just having as as usual very dry summer i’m riding my bike a lot it’s great so it is a time of joy for us all that’s wonderful so for the people who don’t know you and and what you do could you just explain quickly who you are yes so uh i’m an independent journalist covering uh energy issues mostly i’ve been doing this work for about five years now i have a blog i’ve got a website where i sell a monthly ebook called tarajewell.us i write for various publications um mostly uh out of london of late and um you know my my main interest is is uh i’m doing a lot of work on coal at the moment but i’m also doing a lot of research covering the renewable space so um i’m very chock full of data and ready to chat with you today excellent so the big issue i’ve had you know i’ve been reading you for several years now and one of the topics that you’re really into is what is commonly referred to as peak oil or in more general terms energy transition and that’s the one you tend to prefer and for the years that i’ve been reading people not in the traditional media space but analysts such as you chris nelder and other voices that are not represented every day on television or in some of the major newspapers you know you get a different narrative and it’s been quite fascinating it’s always usually backed up by more data and and what seems to be more balanced and complete insight and one of the things i’ve been following in your work and other people’s has been we are coming to the end of cheap oil in the way that we have come to expect it in the 20th century um and that’s commonly referred to as peak oil by by some folks and so that’s uh that’s turns out it’s one side of a debate there’s some people who say there’s peak oil and other people are more i believe the term is cornucopians there’s tons of oil everywhere the earth has got nothing but oil and we can use it as fast as we want it’s awesome i’m trying to true up a couple of things the other thing i’m reading about these days is how hey baby it’s a bull market s p 500’s post record profits dow’s back up man if things aren’t going your way i mean i just guess you know you just need a little prozac cocktail or something you gotta you gotta get your spirits back up because everything’s uh forget that 2008 stuff all this is it’s great and uh energy we get fracking the united states did you know the united states is now an energy exporter it’s true i am trying to true up the stuff i read from you and the new bulls out there that all of a sudden all those things that just seem to have so much compelling data about them they’re gone now so gregor what is this tension between peak oil or energy transition and the new abundance we apparently have an energy your thoughts yeah okay so um these are pretty big complex issues but i’ll just i’ll just make it uh let me make a few declarative statements just to uh help your listeners out here so we are there is we are not yet at peak coal okay we are not yet at peak natural gas all right um we’re not at peak uh solar or wind power okay those are all energy sources or energy technologies that are going to continue to grow in quantity and size in the years ahead um we are we are in peak oil um you know what i want to say to people is learn the difference okay learn learn the difference from when when you’re in in the domain of peak oil and you’re not in the domain of of peak coal or peak natural gas um so do some people take peak oil as a hyper depressive way of saying oh it’s peak energy and there’s not gonna be energy and we’re all gonna be trying to break the plow break the fields with john deere plows and oxen and right right i mean we have to we we have to separate all the crazy things that people may have said in the past about what the effect of peak oil would be from just the fact of of peak oil okay so what is just so to bring it down to basics what is peak oil yeah so peak oil has been the prediction for the last decade or two that the world would eventually reach a a moment or not a single moment in time but really a period of time in which the global production of oil would uh begin to flatten out okay it would begin to would begin to flatten out and in that period you would generally find that the global production of oil not the production of law in the united states or the production of oil in mexico or the production of oil in russia or saudi arabia the global production of oil you would reach a point where the volume of oil being produced on an annual basis would begin to flatten out and you might have some dips in that production you might have some increases in that production but essentially you would be hemmed in by geology and price and that’s really where we’ve been since 2005 global oil production reached above about 74.5 million barrels a day in 2005 and it’s been up and down but roughly at that ceiling um for the past seven or eight years and recently we’ve seen production levels at 75 million barrels a day 75 and a half million barrels a day but again not really on an annual basis have we seen any significant increases so well oil global oil production is roughly on this flat plateau and it dips down one or two percent uh when there’s like a financial crisis it dips up one or two percent um when the price of oil is high enough to bring on these new expensive resources so it’s i have to admit it’s it’s tedious for me i’ve sort of stopped having the debate with people about peak oil um it’s it’s not a philosophical position it’s not a political position it’s not a um you know any other sort of uh uh type of theoretical position it’s just a it’s just a fact so okay so a lot of people fight this um you know you say it’s it’s not religious or philosophical that’s right there’s people that take two sides of this and the peak oil is made out to be it’s the end of oil man it’s all going away and we’re going to be walking everywhere maybe a segway if you have batteries for it yeah um and you you’re a naturally uh you’re an expert in things that you study and you’re naturally by your disposition not a hysterical person so when you describe a flattening you’re not even talking about something bombastic even when you say it’s happening it you you know it’s it’s not a super exciting thing people fight this this notion that well we might reach a point where we just don’t necessarily produce more than we did last year people fight that like it is um you know you’re talking about the end of the color blue or the end of ketchup or something yeah well you know it’s it has been concerning to different people to different degrees now let let’s remember this still have your greater yeah i’m still here the the point i was making was that people talk about peak oil as if you’re making a cataclysmic right prediction and that it is going to be enormously disruptive to the world economy and it’s the end and there’s going to be repricing and it’s what you’re saying there’s going to be 40 a gallon gasoline that’s crazy pants you’re talking about we just don’t grow any more year over year and that might be permanent um why is there this this amount of of emotion in everything yeah so you know it it is somewhat understandable when you when oil has been the master commodity since uh uh starting in the great depression oil began to take over from coal oil was very cheap and it was a more powerful energy substance and then world war ii really accelerated the transition to oil and and really sort of um locked in the fact that we would enter on oil age so it’s understandable that if you’ve had so many decades of history and economic development it was basically on the back of oil that people would become understandably very concerned about what would happen when the production of oil would begin to um you know would begin to flatten out um but again i i i do want to point out you know in in the year 2000 at the beginning of the new millennium uh if we look at all energy sources for the entire world oil had a forty percent market share and now oil has a 32 percent okay so when people again this is it’s i i i think i need to be a little bit uh harsh here in order to make my point when you talk to people or read essays from people who either scoff at peak oil or laugh about people or dismiss it it’s amazing how uniform their message is it doesn’t have data they don’t use numbers and they’re really dismissing things that they don’t understand so the oil age is in rapid decline the 2 billion people in the developed world that’s japan u.s and europe stopped increasing their oil consumption uh over eight years ago um oil is essentially a zero-sum game so you know we we gave up a tremendous amount of oil over the past uh decade so that asia could have oil you know this is this if oil is a zero-sum game and and new users in the world are able to pay a higher price someone else has got to give up that supply so you know this is just classical economics eric price rations supply and it has done so we repriced oil from 25 dollars a barrel to a hundred dollars a barrel we basic oil basically kicked off a whole bunch of people that used to use oil and it welcomed a whole bunch of new people uh to use oil who were willing to pay the new price uh so you know that’s that’s where we that’s where we are now just to be very clear we’re never going back to an era where oil will be cheap and more plentiful than it is today could we have greater oil supply at 150 or 200 a barrel probably probably bring off on some new supply at those prices but we’re never going back to 25 oil with plenty of oil for the world just it’s it’s just not possible okay so you said there’s you’ll read um the responses to peak oil from people who have no data a lot of assumptions a fair amount of emotion i’ve read some of these that’s correct and um between you and chris elder you have some of the most amusing commenters yeah we we do and again i i when i talk about this i really like to be clear with people again as we kicked off our conversation today we’re not in the domain of peak natural gas we’re not in the domain of peak of pete cole i mean if i was someone who had a philosophical position about calling you know the peak of everything i would probably you know hop on board the train that there’s peak coal and there’s peak natural gas there isn’t um you know sadly if you’re concerned about climate this is uh very concerning um that we’re nowhere near peak coal for for example um because it means that the world will have many more decades uh to come in which you can call upon uh coal resources so um you know it’s that we’ve got we’ve got limited oil supply on one hand that’s kind of you know concerning because it means we can’t run the world at the fast speed that we used to run the world and then we’ve got um uh and then we’ve got this abundance of coal unfortunately so um we we’ve entered a new energy era we are in energy transition and i just you know at this point i shrugged my shoulders if people just don’t want to get their head around this then i guess they won’t okay so this last week i saw that the very popular website called the oil drum is shutting its doors or or reducing operations i forget exactly the story but this caused some people that have been around this space who were on the cornucopian side to say see it’s a pr it’s proof yeah there was nothing to this to begin with now i’m here’s here’s my question who gregor who are these people that are engaging in this debate that seems pretty they they very much i’ve read these arguments they cherry pick the kinds of data it’s all very very narrow data it’s like see there’s shale oil in north dakota and see there’s lots and that’s good and that’s why peak oil which is much broader i mean you guys are explaining this in much broader terms there’s none of it’s true because north dakota i mean it’s a weird argument who get who’s making these arguments who’s being paid to do this you know why do people believe this okay so look eric it’s it’s always been the case that a national media will cover its own domain um so you know london media will cover the uk energy situation much more than it covers the global energy situation and your typical uk reader will look at the coverage of the uk energy situation so for example natural gas is getting more expensive they have to import natural more natural gas from russia uh electricity rates are going up uh nuclear power plants are shutting down your typical uk reader will extend the reality of what’s happening in their country to the rest of the world that the united states is no different in this regard with the increase in u.s oil production um in the united states um you know american readers of american media are thinking well global oil production must be increasing i mean you actually see this from professional writers they’ll say you know we’ve got more oil here in the united states therefore peak oil is dead but it’s it’s sort of silly really because somewhere in the world oil production is always increasing and in other parts of the world oil production is always decreasing so there are some pretty big spots where where oil production has been decreasing um at a very rapid rate my understanding is cantorell in mexico and agawa is that in eastern saudi arabia are the some of the mega fields that are coming off very very sharply eric i have a noise issue here i don’t know if you’re picking that up do you want me to deal with that um what’s the noise on your side yeah no it’s not disturbing me okay great um yeah so uh look you know you we can divide the world between non-opec producers and opec producers okay i mean that’s just a really easy way to divide you can just cut up the world into two parts of oil production there’s opec and then there’s everybody else so it’s great for the economies of north dakota or texas that they’re producing more oil and it’s great for the united states that we’re producing more oil we’re also consuming a lot less oil but is non-opec of which the u.s is a part is non-opec producing moro not as not so much actually um in fact almost 60 percent of the new oil supply that’s coming out of the united states has been uh neutralized if you will by declines from the rest of non-opec so for example a typical story you’ll see today is opec is biting its fingernails worried about all the supply coming out of north america opec as a cartel is losing power but you look at the data there’s really nothing for opec to be worried about um the amount of oil that’s come out of non-opec over the past couple years is maybe 700 000 barrels a day it’s really just not that significant so we’re talking about uh maybe you know uh six or seven or eight tenths of one percent of new supply coming out of non-opec and as you can see has the price you’re talking about a story in in a probably a well-regarded journal of some sort oh yes especially the geopolitical journals like foreign policy and a lot of them especially this is this is especially the kind of inaccurate storytelling that that comes out of the geopolitical complex of washington dc you’ve just seen a ton of stories about energy power is swinging back to you know north america and opec is declining in power i just see no evidence for that and that’s over seven tenths of a percent in supply exactly right that’s a rounding error exactly so is this just you know and and i um i lived in washington for 11 years you know enactors inaccuracy and fantasy is a big thing there now yeah yeah right um we do we ran some delightful wars i don’t know if you saw that um so we’re not great we’re good at intelligence gathering we’re not good at intelligence analysis um and you know just in general policy may this is going to be a bit of a tangent but just i think to your quote is economists don’t do energy and foreign policy guys generally dick cheney accepted don’t do energy it’s energy is something that they know is important but it it seems like there’s a lot to learn and it’s just there’s they’re not even interested in understanding what what the real deal is and so you have people make writing articles in foreign policy or foreign affairs magazine based on six tenths of one percent swing going up north america is going to run the show yeah i mean i mean if you really want to talk about the type of power swing or power shift that’s occurred in global energy the past few years the amount of oil that americans have stopped consuming because of poor wage growth because they’re not employed you know because the economy is not growing because the price of gasoline is high that actually out distances by two to one the amount of new oil that we’re producing so i mean if if the geopolitical complex of washington wants to write a story about a pendulum swing of power back to north america the story they should really be writing is hey we’re less dependent on global oil because we’re using less i mean and and what’s funny about this eric is this was always a choice that the united states could have made at any time over the last 40 years at any time over the last 40 years the united states could have decided to raise gasoline taxes invest less in roads invest more in trains become more european and therefore become less dependent on global oil prices and global oil supply we could have we could be we could we could have been sitting here in 1983 saying isn’t it amazing what our country is doing to to wean itself off of global oil so again this really is not a supply swing this is really a much more complex set of changes that have largely occurred uh as i said because of because of price now just let me just link this to one other thing it is true that the united states has vast coal and natural gas resources but again this isn’t news this is it is not news that that the united states has vast coal resources it is somewhat news that we’re able to extract new natural gas resources using new technology new drilling technology that is that is somewhat new and and unsurprisingly the us economy is transitioning to natural gas of course it is because you know oil you know a million btu in oil at a hundred dollars a barrel you know costs let’s call it 15 or 16 uh 15 or 16 dollars per million btu but a million btu in natural gas costs you know four dollars for a million btu so of course we’re going to do whatever we can to transition to natural gas it’s it’s a resource that we’re producing and that’s great you know that that’s great for that’s great for the united states so again as i’m sure you’re familiar eric everyone wants to squeeze these stories into something extreme something novel something singular you know something uh you know very epic and so forth what what is somewhat epic here is that we are going through an energy transition and an energy transition has only happened a couple times in the past couple hundred years we went from the age of wood to the age of coal during the time of adam smith in late 1700s and we went from the age of coal to the age of oil you know starting about a hundred years ago and now we’re in another energy transition so it is epic i suppose from from from that perspective um but but pretty much everyone in the world is going to have to struggle with this transition for some time for some time to come all right i’d like you to talk about a an idea that you brought up that i i found really really interesting that as price goes higher this may really benefit the asian economy because they actually get more gdp out of each gallon of oil can can you elaborate on that well i i don’t know this is a bit complex um i here here’s what happens as price goes higher the user of oil in the world who is able to use a liter of petrol more efficiently gains a curious advantage it’s not so much that they produce more gdp but the more efficient user of oil gains advantage gains a competitive advantage over the less efficient user of oil because then they become the agent if you will that is in control of this miracle energy dense uh liquid uh substance called oil and they’re able to use it um to benefit their economy now whether or not it creates more gdp i don’t know that i would i don’t know that i would say that but the price revolution exposed okay it’s sort of like you know the old idea when the tide goes out you find out who’s been swimming naked when when oil repriced we found out that in america there were tons and tons millions and millions of of users who were just wasting oil and and and how do you mean wasting oil how were they well bringing it on their flowers to using oil for for just pure pleasure using oil to just drive places to uh perform repetitive kinds of trips and and so forth and when and when price uh when price went through its revolution price basically told everyone in america look if you’re not using oil for something that you really need to do maybe it’s the time that you stopped using that oil and that’s ex and that’s exactly what’s happened i mean since since 2005 which was the peak year of u.s oil consumption u.s oil consumption has fallen by age by a huge 16 i mean eric if i had told you in 2002 that the price of oil was going to rise and it would cause u.s consumption of oil to fall by 16 i mean it it you know as the largest consume oil consuming nation in the world it just would have almost seemed you know uh like a fantastic story that couldn’t possibly be true well 16 16 drop in the master commodity demand of the master commodity in the biggest economy in the world that’s cataclysmic you would have been you know you you would have need to be you know dressed like a crazy person and muttering to yourself in the street and you would have been treated like that if you made a forecast i mean the the geopolitical complex of washington probably would have uh scratched its you know pulled on its beard and said you know um it’s one thing to get off dependence on oil but it’s another thing to have your economy lose so much access to oil we might actually suffer uh as a result of so much lost access to oil and that’s that i do think that is what happened we we did have an oil shock in 2006 through 2008 we did have a financial crisis uh the financial crisis did not have a single cause it had multiple causes and one of those causes was the oil shock um and we’ve never recovered uh in terms of our energy use since the since the oil shock for all the reasons that you know your man on the street probably understands less people going to work more people out of work and not employed especially the number of people underemployed in the united states this has had an enormous effect on u.s oil consumption so this is literally people just going to work two or three times a week is just different than people are going to work certain times that’s correct of course that’s right and and they may have lost the job that they commuted uh you know 25 or 40 miles for and they may be working a part-time lower wage job uh closer to home do you think we’ve seen the end of uh the suv i mean you said we’re going up to 2005.

uh was the really the year of the peak right i remember you know the late 90s and early 2000s that um you know the suvs got bigger and bigger and there it was even a weird cultural thing where you know people were very impressed themselves for driving small petroleum uh con consuming automobiles on petroleum built roads uh as opposed to people who had slightly larger automobiles and then the people that drove the larger automobiles suvs and eventually the hummer which was you know came from a military background um those people felt that was somehow a um a statement about who they were and their insouciance and uh etc and um you know the suv was really ascendant in the united states uh during that decade um i remember in 2008 you could not give a hummer away and you you could not acquire a prius even with the help of sexual favors and that that dynamic changed a little bit the prius became more cotidian if you will but the um hummer failed to even be uh to be sold to anybody the chinese were going to take it on which is very symbolic um and then they didn’t and so now hummer the symbol of sort of to the the millennial decades exuberance and oil waste it now doesn’t exist anymore do you see any any connection with that yeah of course i mean when i moved back from london in 1999 i went to a breakfast place with my my wife and my and my father and this was in plymouth county massachusetts and there were probably 20 cars in the parking lot and probably 19 of them were enormous suvs i’d been living in london uh petrol was a dollar a gallon at that time and i had already become very interested in oil at that point and uh i just i i knew that that was the extreme i knew that that was the extreme that was the extreme low uh in oil prices and that was certainly going to be the extreme of suv adoption and now when i go back to that same town and we’re what 13 years later okay when i go back to that same area in plymouth county and this is an area where there are very high incomes uh are there there are still some legacy suvs around however um you know the priuses and the small compacts and the and the uh minis and so forth they’ve all made um a huge return to uh to that area so yeah i mean that was that was a i have to say that was kind of a fat pitch eric that was in that was an easy one to call 10 you know at that time i remember being in washington dc and uh in georgetown and i remember the the hummer had just come out and they had the the different flavors h1 h2 and h3 and there was um you know 33 year old looked to be a wife of somebody of uh in the lobbyist trade who was driving a brand new h2 and the thing was as as big as my living room and she was trying to parallel park on m street in georgetown yeah and i looked at this and i said this is this is american society i i can’t and she she just i think she damaged three or four automobiles uh you know a team of oxen uh you know the the the the washington monument it was it was it was really tragic but um i think you know i thought of this moment as the end of like is does anyone not watching this looking how silly this this whole enterprise is yeah well you know just um just just to mention a few corollaries to this whole change look i mean u.s oil consumption is back in the vicinity of 1995 levels okay and the consumption consumption is at 1995 levels 1995 levels and we’re probably we’re still decreasing so we’re probably headed back towards 1990 levels and what’s driving that other than the fact that people aren’t well but it’s a bull market and it’s a recovery well well let me just say what it syncs up really nicely with us co2 uh you know with co2 emissions i mean what’s kind of interesting is uh you know i don’t want to get too much into this but i mean the us didn’t sign the us didn’t sign up to the kyoto um uh treaty or the protocols but actually because we’ve reduced our our oil consumption so dramatically it’s somewhat humorous i guess that we may actually hit the kyoto targets by 2020 without actually having intended to because our because our transport sector is pumping out uh you know such reduced volumes of of co2 now you mentioned um the bull market well let me say this eric um the s p 500 is a very good index of global uh corporations many of which are cited here in the united states and global corporations have enjoyed kind of a golden period in an era era of low interest rates where they’re not really hiring they’re not investing but they’re sort of um they’re sort of collecting rents um from their existing businesses on a global basis as the two billion people in the developed world stagnate but as the five billion people in the developing world continue to move forward yes there’s a slowdown in china yes india still needs to get its act together india always needs to get its act together but you know africa and other parts of southeast asia and the rest of the developing world still chucking along you know um at four and five and six percent gdp growth and that’s you know they they require power equipment um they’re consuming energy um and so you know you mentioned the bull market yes it’s a the u.s stock market is really a global stock market and it reflects the fact that here in america um you know those corporations don’t really need to hire a lot of americans unfortunately and um so you know it’s it’s very uh it’s a very weird i i think i think the word weird um is sort of the right word it’s a it’s a weird era that we’re in right now where you have the stock market as strong as it is but of course that’s set against low interest rates um and it’s really a market that’s reflecting the flow of profits on a global basis while the united states tends to stagnate absolutely and and so your final to to wrap up your response to the people that are like ha it’s bull market everything’s great and there’s tons of energy and there’s going to be even more energy i mean if you could just quickly sum up um it is possible as we as the world transitions to the power grid it is possible that we could have a brief five-year period between 2015 and 2020 where we return to a higher rate of growth than this stagnant period and and this would really uh get everyone thinking we’d return to normal however the power grid is not going to create the kind of fast-moving global economy that the oil wage created and again just to loop back to our previous discussion we’re not running we we have enough oil to continue oil-based activities we just don’t have an increase in oil supply that would fund new global growth the new global growth is on the back of the is on the back of the power grid the inputs to the power grid coal and natural gas and renewables so unfortunately eric the world gdp could see a growth spurt in that in the second half of this decade but what worries me is that we might not need you know developed world labor in order to create that growth spurt in other words the educated uh people of the united states and europe and japan may not be you know as critical to creating that growth phase so unfortunately i see more i see more pain and stagnation for oecd labor markets and that’s that’s a fancy way of saying you know people’s you know life quality um as we head into the end of this decade unfortunately so the the truth about um peak oil not existing and thus the bull market is going to be unleashed the truth there is that peak oil is still a fact because it’s a fact and the bull is not a bull market for everybody that’s right we probably got the census yeah yeah all right well uh where can people go for more insight from you on this yeah so i’m doing a monthly um ebook now uh which is uh macro coverage of global energy it’s called terra jewel dot us you can uh just find that on the internet and uh i published the first of every month um and i’ve got very good subscriber growth and a lot of readers from outside of the united states uh i was just looking recently about half my readership is from outside the united states um that’s probably a topic for another conversation why are so many uh of my readers from outside the united states probably because they’re just a little bit better in touch with reality um you know that would be my short take so yeah yeah so people can people can come get my ebook at tarajoul.us and uh i’ve got a new issue coming up august 1st it’s covering uh the big things that i think are going to happen in natural gas markets natural gas and you have a dandy data feed at peakfish.com i’ve got a i’ve got a uh data feed at peakfish.com which people uh are subscribing to and enjoying and uh you can just get really nice looking charts on uh global natural resources uh at peakfish.com excellent gregor always a pleasure to talk to you and i’ll see you again okay there eric garland here and i am with my friend the esteemed energy analyst gregor mcdonald in portland oregon how you doing gregor i’m doing quite well eric we’re having a beautiful summer in portland um you know i have a little sympathy for my friends in the east with all the humidity we’re just having as as usual very dry summer i’m riding my bike a lot it’s great so it is a time of joy for us all that’s wonderful so for the people who don’t know you and and what you do could you just explain quickly who you are yes so uh i’m an independent journalist covering uh energy issues mostly i’ve been doing this work for about five years now i have a blog i’ve got a website where i sell a monthly ebook called tarajewell.us i write for various publications um mostly uh out of london of late and um you know my my main interest is is uh i’m doing a lot of work on coal at the moment but i’m also doing a lot of research covering the renewable space so um i’m very chock full of data and ready to chat with you today excellent so the big issue i’ve had you know i’ve been reading you for several years now and one of the topics that you’re really into is what is commonly referred to as peak oil or in more general terms energy transition and that’s the one you tend to prefer and for the years that i’ve been reading people not in the traditional media space but analysts such as you chris nelder and other voices that are not represented every day on television or in some of the major newspapers you know you get a different narrative and it’s been quite fascinating it’s always usually backed up by more data and and what seems to be more balanced and complete insight and one of the things i’ve been following in your work and other people’s has been we are coming to the end of cheap oil in the way that we have come to expect it in the 20th century um and that’s commonly referred to as peak oil by by some folks and so that’s uh that’s turns out it’s one side of a debate there’s some people who say there’s peak oil and other people are more i believe the term is cornucopians there’s tons of oil everywhere the earth has got nothing but oil and we can use it as fast as we want it’s awesome i’m trying to true up a couple of things the other thing i’m reading about these days is how hey baby it’s a bull market s p 500’s post record profits dow’s back up man if things aren’t going your way i mean i just guess you know you just need a little prozac cocktail or something you gotta you gotta get your spirits back up because everything’s uh forget that 2008 stuff all this is it’s great and uh energy we get fracking the united states did you know the united states is now an energy exporter it’s true i am trying to true up the stuff i read from you and the new bulls out there that all of a sudden all those things that just seem to have so much compelling data about them they’re gone now so gregor what is this tension between peak oil or energy transition and the new abundance we apparently have an energy your thoughts yeah okay so um these are pretty big complex issues but i’ll just i’ll just make it uh let me make a few declarative statements just to uh help your listeners out here so we are there is we are not yet at peak coal okay we are not yet at peak natural gas all right um we’re not at peak uh solar or wind power okay those are all energy sources or energy technologies that are going to continue to grow in quantity and size in the years ahead um we are we are in peak oil um you know what i want to say to people is learn the difference okay learn learn the difference from when when you’re in in the domain of peak oil and you’re not in the domain of of peak coal or peak natural gas um so do some people take peak oil as a hyper depressive way of saying oh it’s peak energy and there’s not gonna be energy and we’re all gonna be trying to break the plow break the fields with john deere plows and oxen and right right i mean we have to we we have to separate all the crazy things that people may have said in the past about what the effect of peak oil would be from just the fact of of peak oil okay so what is just so to bring it down to basics what is peak oil yeah so peak oil has been the prediction for the last decade or two that the world would eventually reach a a moment or not a single moment in time but really a period of time in which the global production of oil would uh begin to flatten out okay it would begin to would begin to flatten out and in that period you would generally find that the global production of oil not the production of law in the united states or the production of oil in mexico or the production of oil in russia or saudi arabia the global production of oil you would reach a point where the volume of oil being produced on an annual basis would begin to flatten out and you might have some dips in that production you might have some increases in that production but essentially you would be hemmed in by geology and price and that’s really where we’ve been since 2005 global oil production reached above about 74.5 million barrels a day in 2005 and it’s been up and down but roughly at that ceiling um for the past seven or eight years and recently we’ve seen production levels at 75 million barrels a day 75 and a half million barrels a day but again not really on an annual basis have we seen any significant increases so well oil global oil production is roughly on this flat plateau and it dips down one or two percent uh when there’s like a financial crisis it dips up one or two percent um when the price of oil is high enough to bring on these new expensive resources so it’s i have to admit it’s it’s tedious for me i’ve sort of stopped having the debate with people about peak oil um it’s it’s not a philosophical position it’s not a political position it’s not a um you know any other sort of uh uh type of theoretical position it’s just a it’s just a fact so okay so a lot of people fight this um you know you say it’s it’s not religious or philosophical that’s right there’s people that take two sides of this and the peak oil is made out to be it’s the end of oil man it’s all going away and we’re going to be walking everywhere maybe a segway if you have batteries for it yeah um and you you’re a naturally uh you’re an expert in things that you study and you’re naturally by your disposition not a hysterical person so when you describe a flattening you’re not even talking about something bombastic even when you say it’s happening it you you know it’s it’s not a super exciting thing people fight this this notion that well we might reach a point where we just don’t necessarily produce more than we did last year people fight that like it is um you know you’re talking about the end of the color blue or the end of ketchup or something yeah well you know it’s it has been concerning to different people to different degrees now let let’s remember this still have your greater yeah i’m still here the the point i was making was that people talk about peak oil as if you’re making a cataclysmic right prediction and that it is going to be enormously disruptive to the world economy and it’s the end and there’s going to be repricing and it’s what you’re saying there’s going to be 40 a gallon gasoline that’s crazy pants you’re talking about we just don’t grow any more year over year and that might be permanent um why is there this this amount of of emotion in everything yeah so you know it it is somewhat understandable when you when oil has been the master commodity since uh uh starting in the great depression oil began to take over from coal oil was very cheap and it was a more powerful energy substance and then world war ii really accelerated the transition to oil and and really sort of um locked in the fact that we would enter on oil age so it’s understandable that if you’ve had so many decades of history and economic development it was basically on the back of oil that people would become understandably very concerned about what would happen when the production of oil would begin to um you know would begin to flatten out um but again i i i do want to point out you know in in the year 2000 at the beginning of the new millennium uh if we look at all energy sources for the entire world oil had a forty percent market share and now oil has a 32 percent okay so when people again this is it’s i i i think i need to be a little bit uh harsh here in order to make my point when you talk to people or read essays from people who either scoff at peak oil or laugh about people or dismiss it it’s amazing how uniform their message is it doesn’t have data they don’t use numbers and they’re really dismissing things that they don’t understand so the oil age is in rapid decline the 2 billion people in the developed world that’s japan u.s and europe stopped increasing their oil consumption uh over eight years ago um oil is essentially a zero-sum game so you know we we gave up a tremendous amount of oil over the past uh decade so that asia could have oil you know this is this if oil is a zero-sum game and and new users in the world are able to pay a higher price someone else has got to give up that supply so you know this is just classical economics eric price rations supply and it has done so we repriced oil from 25 dollars a barrel to a hundred dollars a barrel we basic oil basically kicked off a whole bunch of people that used to use oil and it welcomed a whole bunch of new people uh to use oil who were willing to pay the new price uh so you know that’s that’s where we that’s where we are now just to be very clear we’re never going back to an era where oil will be cheap and more plentiful than it is today could we have greater oil supply at 150 or 200 a barrel probably probably bring off on some new supply at those prices but we’re never going back to 25 oil with plenty of oil for the world just it’s it’s just not possible okay so you said there’s you’ll read um the responses to peak oil from people who have no data a lot of assumptions a fair amount of emotion i’ve read some of these that’s correct and um between you and chris elder you have some of the most amusing commenters yeah we we do and again i i when i talk about this i really like to be clear with people again as we kicked off our conversation today we’re not in the domain of peak natural gas we’re not in the domain of peak of pete cole i mean if i was someone who had a philosophical position about calling you know the peak of everything i would probably you know hop on board the train that there’s peak coal and there’s peak natural gas there isn’t um you know sadly if you’re concerned about climate this is uh very concerning um that we’re nowhere near peak coal for for example um because it means that the world will have many more decades uh to come in which you can call upon uh coal resources so um you know it’s that we’ve got we’ve got limited oil supply on one hand that’s kind of you know concerning because it means we can’t run the world at the fast speed that we used to run the world and then we’ve got um uh and then we’ve got this abundance of coal unfortunately so um we we’ve entered a new energy era we are in energy transition and i just you know at this point i shrugged my shoulders if people just don’t want to get their head around this then i guess they won’t okay so this last week i saw that the very popular website called the oil drum is shutting its doors or or reducing operations i forget exactly the story but this caused some people that have been around this space who were on the cornucopian side to say see it’s a pr it’s proof yeah there was nothing to this to begin with now i’m here’s here’s my question who gregor who are these people that are engaging in this debate that seems pretty they they very much i’ve read these arguments they cherry pick the kinds of data it’s all very very narrow data it’s like see there’s shale oil in north dakota and see there’s lots and that’s good and that’s why peak oil which is much broader i mean you guys are explaining this in much broader terms there’s none of it’s true because north dakota i mean it’s a weird argument who get who’s making these arguments who’s being paid to do this you know why do people believe this okay so look eric it’s it’s always been the case that a national media will cover its own domain um so you know london media will cover the uk energy situation much more than it covers the global energy situation and your typical uk reader will look at the coverage of the uk energy situation so for example natural gas is getting more expensive they have to import natural more natural gas from russia uh electricity rates are going up uh nuclear power plants are shutting down your typical uk reader will extend the reality of what’s happening in their country to the rest of the world that the united states is no different in this regard with the increase in u.s oil production um in the united states um you know american readers of american media are thinking well global oil production must be increasing i mean you actually see this from professional writers they’ll say you know we’ve got more oil here in the united states therefore peak oil is dead but it’s it’s sort of silly really because somewhere in the world oil production is always increasing and in other parts of the world oil production is always decreasing so there are some pretty big spots where where oil production has been decreasing um at a very rapid rate my understanding is cantorell in mexico and agawa is that in eastern saudi arabia are the some of the mega fields that are coming off very very sharply eric i have a noise issue here i don’t know if you’re picking that up do you want me to deal with that um what’s the noise on your side yeah no it’s not disturbing me okay great um yeah so uh look you know you we can divide the world between non-opec producers and opec producers okay i mean that’s just a really easy way to divide you can just cut up the world into two parts of oil production there’s opec and then there’s everybody else so it’s great for the economies of north dakota or texas that they’re producing more oil and it’s great for the united states that we’re producing more oil we’re also consuming a lot less oil but is non-opec of which the u.s is a part is non-opec producing moro not as not so much actually um in fact almost 60 percent of the new oil supply that’s coming out of the united states has been uh neutralized if you will by declines from the rest of non-opec so for example a typical story you’ll see today is opec is biting its fingernails worried about all the supply coming out of north america opec as a cartel is losing power but you look at the data there’s really nothing for opec to be worried about um the amount of oil that’s come out of non-opec over the past couple years is maybe 700 000 barrels a day it’s really just not that significant so we’re talking about uh maybe you know uh six or seven or eight tenths of one percent of new supply coming out of non-opec and as you can see has the price you’re talking about a story in in a probably a well-regarded journal of some sort oh yes especially the geopolitical journals like foreign policy and a lot of them especially this is this is especially the kind of inaccurate storytelling that that comes out of the geopolitical complex of washington dc you’ve just seen a ton of stories about energy power is swinging back to you know north america and opec is declining in power i just see no evidence for that and that’s over seven tenths of a percent in supply exactly right that’s a rounding error exactly so is this just you know and and i um i lived in washington for 11 years you know enactors inaccuracy and fantasy is a big thing there now yeah yeah right um we do we ran some delightful wars i don’t know if you saw that um so we’re not great we’re good at intelligence gathering we’re not good at intelligence analysis um and you know just in general policy may this is going to be a bit of a tangent but just i think to your quote is economists don’t do energy and foreign policy guys generally dick cheney accepted don’t do energy it’s energy is something that they know is important but it it seems like there’s a lot to learn and it’s just there’s they’re not even interested in understanding what what the real deal is and so you have people make writing articles in foreign policy or foreign affairs magazine based on six tenths of one percent swing going up north america is going to run the show yeah i mean i mean if you really want to talk about the type of power swing or power shift that’s occurred in global energy the past few years the amount of oil that americans have stopped consuming because of poor wage growth because they’re not employed you know because the economy is not growing because the price of gasoline is high that actually out distances by two to one the amount of new oil that we’re producing so i mean if if the geopolitical complex of washington wants to write a story about a pendulum swing of power back to north america the story they should really be writing is hey we’re less dependent on global oil because we’re using less i mean and and what’s funny about this eric is this was always a choice that the united states could have made at any time over the last 40 years at any time over the last 40 years the united states could have decided to raise gasoline taxes invest less in roads invest more in trains become more european and therefore become less dependent on global oil prices and global oil supply we could have we could be we could we could have been sitting here in 1983 saying isn’t it amazing what our country is doing to to wean itself off of global oil so again this really is not a supply swing this is really a much more complex set of changes that have largely occurred uh as i said because of because of price now just let me just link this to one other thing it is true that the united states has vast coal and natural gas resources but again this isn’t news this is it is not news that that the united states has vast coal resources it is somewhat news that we’re able to extract new natural gas resources using new technology new drilling technology that is that is somewhat new and and unsurprisingly the us economy is transitioning to natural gas of course it is because you know oil you know a million btu in oil at a hundred dollars a barrel you know costs let’s call it 15 or 16 uh 15 or 16 dollars per million btu but a million btu in natural gas costs you know four dollars for a million btu so of course we’re going to do whatever we can to transition to natural gas it’s it’s a resource that we’re producing and that’s great you know that that’s great for that’s great for the united states so again as i’m sure you’re familiar eric everyone wants to squeeze these stories into something extreme something novel something singular you know something uh you know very epic and so forth what what is somewhat epic here is that we are going through an energy transition and an energy transition has only happened a couple times in the past couple hundred years we went from the age of wood to the age of coal during the time of adam smith in late 1700s and we went from the age of coal to the age of oil you know starting about a hundred years ago and now we’re in another energy transition so it is epic i suppose from from from that perspective um but but pretty much everyone in the world is going to have to struggle with this transition for some time for some time to come all right i’d like you to talk about a an idea that you brought up that i i found really really interesting that as price goes higher this may really benefit the asian economy because they actually get more gdp out of each gallon of oil can can you elaborate on that well i i don’t know this is a bit complex um i here here’s what happens as price goes higher the user of oil in the world who is able to use a liter of petrol more efficiently gains a curious advantage it’s not so much that they produce more gdp but the more efficient user of oil gains advantage gains a competitive advantage over the less efficient user of oil because then they become the agent if you will that is in control of this miracle energy dense uh liquid uh substance called oil and they’re able to use it um to benefit their economy now whether or not it creates more gdp i don’t know that i would i don’t know that i would say that but the price revolution exposed okay it’s sort of like you know the old idea when the tide goes out you find out who’s been swimming naked when when oil repriced we found out that in america there were tons and tons millions and millions of of users who were just wasting oil and and and how do you mean wasting oil how were they well bringing it on their flowers to using oil for for just pure pleasure using oil to just drive places to uh perform repetitive kinds of trips and and so forth and when and when price uh when price went through its revolution price basically told everyone in america look if you’re not using oil for something that you really need to do maybe it’s the time that you stopped using that oil and that’s ex and that’s exactly what’s happened i mean since since 2005 which was the peak year of u.s oil consumption u.s oil consumption has fallen by age by a huge 16 i mean eric if i had told you in 2002 that the price of oil was going to rise and it would cause u.s consumption of oil to fall by 16 i mean it it you know as the largest consume oil consuming nation in the world it just would have almost seemed you know uh like a fantastic story that couldn’t possibly be true well 16 16 drop in the master commodity demand of the master commodity in the biggest economy in the world that’s cataclysmic you would have been you know you you would have need to be you know dressed like a crazy person and muttering to yourself in the street and you would have been treated like that if you made a forecast i mean the the geopolitical complex of washington probably would have uh scratched its you know pulled on its beard and said you know um it’s one thing to get off dependence on oil but it’s another thing to have your economy lose so much access to oil we might actually suffer uh as a result of so much lost access to oil and that’s that i do think that is what happened we we did have an oil shock in 2006 through 2008 we did have a financial crisis uh the financial crisis did not have a single cause it had multiple causes and one of those causes was the oil shock um and we’ve never recovered uh in terms of our energy use since the since the oil shock for all the reasons that you know your man on the street probably understands less people going to work more people out of work and not employed especially the number of people underemployed in the united states this has had an enormous effect on u.s oil consumption so this is literally people just going to work two or three times a week is just different than people are going to work certain times that’s correct of course that’s right and and they may have lost the job that they commuted uh you know 25 or 40 miles for and they may be working a part-time lower wage job uh closer to home do you think we’ve seen the end of uh the suv i mean you said we’re going up to 2005.

uh was the really the year of the peak right i remember you know the late 90s and early 2000s that um you know the suvs got bigger and bigger and there it was even a weird cultural thing where you know people were very impressed themselves for driving small petroleum uh con consuming automobiles on petroleum built roads uh as opposed to people who had slightly larger automobiles and then the people that drove the larger automobiles suvs and eventually the hummer which was you know came from a military background um those people felt that was somehow a um a statement about who they were and their insouciance and uh etc and um you know the suv was really ascendant in the united states uh during that decade um i remember in 2008 you could not give a hummer away and you you could not acquire a prius even with the help of sexual favors and that that dynamic changed a little bit the prius became more cotidian if you will but the um hummer failed to even be uh to be sold to anybody the chinese were going to take it on which is very symbolic um and then they didn’t and so now hummer the symbol of sort of to the the millennial decades exuberance and oil waste it now doesn’t exist anymore do you see any any connection with that yeah of course i mean when i moved back from london in 1999 i went to a breakfast place with my my wife and my and my father and this was in plymouth county massachusetts and there were probably 20 cars in the parking lot and probably 19 of them were enormous suvs i’d been living in london uh petrol was a dollar a gallon at that time and i had already become very interested in oil at that point and uh i just i i knew that that was the extreme i knew that that was the extreme that was the extreme low uh in oil prices and that was certainly going to be the extreme of suv adoption and now when i go back to that same town and we’re what 13 years later okay when i go back to that same area in plymouth county and this is an area where there are very high incomes uh are there there are still some legacy suvs around however um you know the priuses and the small compacts and the and the uh minis and so forth they’ve all made um a huge return to uh to that area so yeah i mean that was that was a i have to say that was kind of a fat pitch eric that was in that was an easy one to call 10 you know at that time i remember being in washington dc and uh in georgetown and i remember the the hummer had just come out and they had the the different flavors h1 h2 and h3 and there was um you know 33 year old looked to be a wife of somebody of uh in the lobbyist trade who was driving a brand new h2 and the thing was as as big as my living room and she was trying to parallel park on m street in georgetown yeah and i looked at this and i said this is this is american society i i can’t and she she just i think she damaged three or four automobiles uh you know a team of oxen uh you know the the the the washington monument it was it was it was really tragic but um i think you know i thought of this moment as the end of like is does anyone not watching this looking how silly this this whole enterprise is yeah well you know just um just just to mention a few corollaries to this whole change look i mean u.s oil consumption is back in the vicinity of 1995 levels okay and the consumption consumption is at 1995 levels 1995 levels and we’re probably we’re still decreasing so we’re probably headed back towards 1990 levels and what’s driving that other than the fact that people aren’t well but it’s a bull market and it’s a recovery well well let me just say what it syncs up really nicely with us co2 uh you know with co2 emissions i mean what’s kind of interesting is uh you know i don’t want to get too much into this but i mean the us didn’t sign the us didn’t sign up to the kyoto um uh treaty or the protocols but actually because we’ve reduced our our oil consumption so dramatically it’s somewhat humorous i guess that we may actually hit the kyoto targets by 2020 without actually having intended to because our because our transport sector is pumping out uh you know such reduced volumes of of co2 now you mentioned um the bull market well let me say this eric um the s p 500 is a very good index of global uh corporations many of which are cited here in the united states and global corporations have enjoyed kind of a golden period in an era era of low interest rates where they’re not really hiring they’re not investing but they’re sort of um they’re sort of collecting rents um from their existing businesses on a global basis as the two billion people in the developed world stagnate but as the five billion people in the developing world continue to move forward yes there’s a slowdown in china yes india still needs to get its act together india always needs to get its act together but you know africa and other parts of southeast asia and the rest of the developing world still chucking along you know um at four and five and six percent gdp growth and that’s you know they they require power equipment um they’re consuming energy um and so you know you mentioned the bull market yes it’s a the u.s stock market is really a global stock market and it reflects the fact that here in america um you know those corporations don’t really need to hire a lot of americans unfortunately and um so you know it’s it’s very uh it’s a very weird i i think i think the word weird um is sort of the right word it’s a it’s a weird era that we’re in right now where you have the stock market as strong as it is but of course that’s set against low interest rates um and it’s really a market that’s reflecting the flow of profits on a global basis while the united states tends to stagnate absolutely and and so your final to to wrap up your response to the people that are like ha it’s bull market everything’s great and there’s tons of energy and there’s going to be even more energy i mean if you could just quickly sum up um it is possible as we as the world transitions to the power grid it is possible that we could have a brief five-year period between 2015 and 2020 where we return to a higher rate of growth than this stagnant period and and this would really uh get everyone thinking we’d return to normal however the power grid is not going to create the kind of fast-moving global economy that the oil wage created and again just to loop back to our previous discussion we’re not running we we have enough oil to continue oil-based activities we just don’t have an increase in oil supply that would fund new global growth the new global growth is on the back of the is on the back of the power grid the inputs to the power grid coal and natural gas and renewables so unfortunately eric the world gdp could see a growth spurt in that in the second half of this decade but what worries me is that we might not need you know developed world labor in order to create that growth spurt in other words the educated uh people of the united states and europe and japan may not be you know as critical to creating that growth phase so unfortunately i see more i see more pain and stagnation for oecd labor markets and that’s that’s a fancy way of saying you know people’s you know life quality um as we head into the end of this decade unfortunately so the the truth about um peak oil not existing and thus the bull market is going to be unleashed the truth there is that peak oil is still a fact because it’s a fact and the bull is not a bull market for everybody that’s right we probably got the census yeah yeah all right well uh where can people go for more insight from you on this yeah so i’m doing a monthly um ebook now uh which is uh macro coverage of global energy it’s called terra jewel dot us you can uh just find that on the internet and uh i published the first of every month um and i’ve got very good subscriber growth and a lot of readers from outside of the united states uh i was just looking recently about half my readership is from outside the united states um that’s probably a topic for another conversation why are so many uh of my readers from outside the united states probably because they’re just a little bit better in touch with reality um you know that would be my short take so yeah yeah so people can people can come get my ebook at tarajoul.us and uh i’ve got a new issue coming up august 1st it’s covering uh the big things that i think are going to happen in natural gas markets natural gas and you have a dandy data feed at peakfish.com i’ve got a i’ve got a uh data feed at peakfish.com which people uh are subscribing to and enjoying and uh you can just get really nice looking charts on uh global natural resources uh at peakfish.com excellent gregor always a pleasure to talk to you and i’ll see you again okay