I know that it is getting harder all the time to believe that there really is a “peak oil crisis” lurking out there waiting to engulf our civilization and create all sorts of havoc. Nearly every day now oil and gasoline prices are falling. We are forever told that America is on the verge of independence from foreign energy sources; that the world has decades of whatever we are burning left to burn; and climate change is something for the great-great-grandchildren to worry about. In the last five months, oil prices have fallen 40 dollars a barrel so that we Americans now have about $800 million dollars more each day to spend on something other than oil products. To top it all off, those folks whose governments don’t like us very much — Russia, Iran, Venezuela for example — are really hurting as they slide into deeper economic troubles.

Leaving aside for the moment the possibility that some exotic and as yet not fully understood source of energy will emerge in the near future, saving us from climate change, reviving the global economy, and allowing us to fly further into space, the evidence is very strong that we are still on the verge of a crisis. In fact we probably are already in it and just don’t recognize it for what it is. It is a lot easier to blame troubles on high taxes or government regulation than to admit that shortages of natural resources are driving up prices and/or cutting growth.

It is now generally accepted by those actually studying the issue that production of “conventional oil,” which is what the early “peakists” were talking about 10 or 15 years ago, really did stop growing back in about 2005-2008. Since then official “oil” production numbers have continued to climb slowly, but included in the “official” numbers as put out by the US and international agencies is not all your grandfather’s oil. Instead the compilers of our oil statistics have learned to lump all sorts of liquid hydrocarbons of varying utility together and tell us that oil in the form of “all liquids” continues to grow. Now these hydrocarbons such as natural gas liquids, biofuels, tar sands, and shale oil have uses, but they either cost considerably more to produce than conventional oil, or do not have the same energy content as conventional oil. In at least one case, “refinery gains” (which are sort of like whipping up a pint of cream into gallons of whipped cream) have no additional energy in their expanded state at all. They simply fill more barrels and let us pretend we have more energy to use than we actually do.

While the financial press continues to chatter endlessly about the technological breakthroughs that have brought us millions of barrels of new shale oil, sadly they have the basics of the story wrong. It is the high prices that “oil” has been selling for in the last ten years — not the decades-old fracking technology that has allowed very expensive shale oil to be produced — that is new. Even with the recent $40 per barrel price decline, oil is still selling for four times what it was going for 12 or 13 years ago. It is the surge in prices to circa $100 a barrel has allowed very expensive oil such as that from fracked shale wells, the Canadian tar sands, and deep offshore oil wells to be produced; now with oil selling for closer to $70 a barrel the question is how long oil that is no longer economic to produce will keep being extracted. The other question is just how much of our oil supply is in danger of being mothballed until prices climb again, as they surely will.

The reason for the current fall in prices is still in debate. The “oil” supply has continued to creep up in recent years, but starting last June the demand for $100+ oil was no longer there. While demand in the “rich” OECD countries has been down since the 2008 oil price spike, this year it seems to be the slowing Chinese economy and its reduced demand for raw materials that has been behind the sinking demand. Many of the developing economies have been growing and using more oil each year due to growing trade with the Chinese.

Someday conventional wisdom will conclude that oil at circa $100+ a barrel was simply too much to sustain high rates of economic growth and so the growth fell, taking oil demand along with it. As nearly every action has a reactive feedback, we now are likely to see some sort of economic revival in those countries that have had to import a large share of their energy during the time of higher prices. Conversely, the many states that have benefited from having large quantities of excess oil to export will not be doing so well for a while.

Where we are going from here is of course the question of the day. It currently looks as if oil prices will continue to fall a bit more. The Saudis say they expect $60 a barrel will be the equilibrium place. If this happens in the next few months, then we clearly will see a reduction in the drilling for high-cost-to-produce oil. In the case of fracked shale oil, which requires constant drilling just to keep production even, this means we could see a reduction in output next year despite the protestations of many shale oil drillers that this will not happen.

Should US shale oil production actually fall next year, then global “all liquids” production could fall too. A few astute analysts are already mulling whether just perhaps 2014 will someday be recognized as the all-time high for global oil production, or in other words, “peak oil.” It is still years too early to pronounce that an all-time peak in what we now call “all liquids” has occurred, but it is an interesting thought. The situation may just be worse than it seems.

Originally published at Falls Church News Press.

Oil peak image via shutterstock.