The Oil Drum: $100 a Barrel Quickens the Beat

This Web community focuses on a new energy future and is a place where scientists gather.

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After the price of oil hit $100, I checked in with The Oil Drum, a Web-based community founded a couple of years ago to discuss energy and the future. The folks who gather at the Oil Drum, by and large, agree that we're at or near "peak oil"—the moment when petroleum production will begin its inexorable decline.

This is not a site where people spout opinions on a world running out of oil. This is where geologists, physicists, and even social scientists post detailed charts and graphs and analyses on a world running out of oil. Here, you can read a technical paper on the state of depletion of Saudi Arabia's Ghawar, the world's largest oil field, or read periodic statistical updates on the status of worldwide production and how that has squared with the predictions.

You can also read postings on why the denial of an energy crisis is a conditioned response. And there's peak-oil humor, as when a cartoon of a smiling pitcher serving up Kool-Aid accompanies one of the many examinations of the predictions of Cambridge Energy Resource Associates (CERA), the widely respected oil industry consulting firm, which has often issued assurances that petroleum supplies are adequate and that prices would ease.

I spoke with one of the Oil Drum's editors, Nate Hagens, who worked at Salomon Brothers, Lehman Brothers, and ran a hedge fund ("I traded commodities but was oblivious to the greater energy picture") until about four years ago, when he read several books about resource depletion that persuaded him to change paths. He quit the finance world and is now finishing up his Ph.D. in natural resources at the University of Vermont.

The Oil Drum averages about 40,000 page views a day, but Hagens says traffic is, "as you might guess, highly correlated with the price of oil." He says, "It's interesting—$100 is just 1 percent higher than $99, but all of the sudden, it gets people's attention." Here are excerpts of my conversation with Hagens.

Tell me about the founding of the Oil Drum.


It was started by two professors, who still are known only by the pseudonyms, who met at an energy conference. They said this issue has to be discussed. But all the sites on the Internet discussing peak oil are kind of doom and gloom and "head for the hills and buy guns and tuna." We host an empirical discussion based on facts, based on research, based on referenced literature, and then open it up to the community. We do it for free, because no one else is doing it. There's now four editors and 24 contributors, the majority Ph.D.'s, and every person has volunteered their time. Some of them, 30 hours a week. It's our hope that a grass-roots, community-based discussion on the Internet is potentially a new viral model for dissemination of information, because things are happening so fast, and there's so much information. Traditional academia can't keep pace, and newspapers just gloss over some of the real core issues, especially if they're uncomfortable ones. So that's what we're trying to do, because time is also a limited resource. Two years ago we said, "You can't wait until $100 oil to start doing something." Now that warning obviously has to change to something else.

A recurring Oil Drum topic is the poor record of the oft-quoted oil forecasters, like CERA and the government's Energy Information Administration. What do you think they are doing wrong?


I think the main problem underpinning our system is the belief in infinite resources and substitutes for those resources. So until as recently as 1998, the EIA had their supply estimates published based on the demand estimates. (Peak oilers point to a note on assumptions last included in EIA's Annual Energy Outlook for 1998, a statement that its estimates were based on "nontechnical considerations that support domestic supply growth to the levels necessary to meet projected demand levels," found at the bottom of page 82 of this document.) I mean, think about that. This is what we think 20 years from now supply will be because that matches up with our demand! So clearly, on a finite planet, that can't continue—neither exponential growth, nor the perception of it.

Cambridge Energy Research Associates—they're very famous, but they've been extremely wrong. What they focus on, and I think what some of these other agencies focus on, is productive capacity—how much oil, literally the physical substance, is under the earth. They don't focus on what can actually be recovered at an economic and an energetic profit. And they also don't focus on the flow rate.

Think of a can of Coca-Cola. You can drink that with a straw, no problem. But if you had a swimming pool and a straw, it doesn't matter that you've got all that water in the swimming pool, you can only get out as much as your straw can suck out at one time. That is a big problem right now. In the face of peak oil, even if there is enough oil to meet future demand—which I don't think there is—what matters is how fast can we get it out to productive society.

It's not surprising that the Oil Drum talks a lot about geology, but why do you bring in topics like neuroscience and evolutionary biology?


It has to do with how our evolved neural wiring gets hijacked by the stimuli and all the novelty items we have in modern energy-powered society. Someone might argue that in the 1960s, we used half the oil we did now, and we were really happy then, so let's just go back and use half the oil, no problem. But studying addiction and habituation, you begin to understand that people get used to a certain condition or stimuli. Basically, we have to be aware of our own history on the planet. And if we're going to change, we have to be consistent with the constraints of who we are as evolved organisms. How do you respond to oil economists, who say that the price we're seeing today for a barrel of oil is not due to geological depletion but to factors above ground, like geopolitics and new players in the future markets?


I'd expect an economist would say this, of course. We've gone up nine of the last 10 years in oil. At $100, we're up 900 percent from mid-1999. Clearly, the market is signaling there is a problem with supply. For someone to rationalize and say it's only due to above-ground factors is pretty ignorant. This week's rally might have been due to bombings in Africa. But the broad trend is that there are geologic limits. The United States peaked in 1970, and basically we've been in decline every year since. When the United States peaked, we had other countries to go to for oil, but the problem now is a great number of other countries have already peaked and are already in decline. The ones that have not peaked yet are mostly not real friends of ours.

Can you give me some examples of the impact you think the Oil Drum has had?


We get E-mails from people who have left or changed their jobs to better prepare for a world of high energy prices. Some people have downsized, or moved to the country and tried to grow some of their own food. Cities like Portland [Ore.] are scaling up renewable energy and creating local task forces on how the city's going to deal with the oil and gas situation. And still, there's a great deal of resistance to a message that we need to use less energy.


I really don't think that people understand the magnitude of the energy lottery that we won 150 years ago or so. One barrel of oil has the amount of joules, or energy, of up to 25,000 hours of human labor. And at 40 hours a week, that's 12.5 years of labor for one barrel of oil. And the average American uses 25 barrels. That's 300 years of labor from an energy slave, just from the oil. At $20 per hour, that's $500,000 per barrel, but it's selling for under $100. That total amount of energy in BTUs is very hard to replace. There are alternative sources—solar, wind, geothermal—but none of them are liquid fuels and none of them have the transportability and energy density that oil does. So it's not just a plug-and-play, BTU-engineering problem.

You came from Wall Street—do you see more people in that world tuned in to the question of peak oil?


There's an Association for the Study of Peak Oil. At the last few ASPO conferences, a good percentage of the participants were from hedge funds. Some came up to [co-editor] Stuart [Staniford] and said, "Thank you so much for all your work on the Oil Drum. We've made a fortune on your information." You know, it's a pat on the back, but it feels a little bit like an insult too, because Stuart's never made a dime off any of this. He's doing it, as we all are, to further public knowledge and accelerate change. Who we're trying to reach is the smart, civically minded person that you went to high school with, that is just not getting this information by normal channels. If they understand and get a grasp on the wider issues, they get vocal and active in their local community, and that kind of change swells upward toward the top. That's what I'm hoping for.

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Soon after Hagens and I talked, as the price of oil receded somewhat and the presidential primary coverage soon took over the headlines and airwaves, the Oil Drum released its official take: "The $100 a barrel price is a sign that times will never be the same again," reads the statement. "The world is entering a new era, where the supply of energy will come to dominate the political landscape in a way that is currently not recognized by any of the leading candidates."