Life After the Oil Crash
"Deal With Reality or Reality Will Deal With You"
Dr. Richard Duncan: The Peak of World Oil Production and the Road to the Olduvai Gorge
Ultimately, the energy-intensive industrial age may be little more than a blip in the course of human history:
Civilization as we know it is coming to an end soon. This is not the wacky proclamation of a doomsday cult, apocalypse bible prophecy sect, or conspiracy theory society. Rather, it is the scientific conclusion of the best paid, most widely-respected geologists, physicists, and investment bankers in the world. These are rational, professional, conservative individuals who are absolutely terrified by a phenomenon known as global "Peak Oil."
"Are We 'Running Out'? I Thought There Was 40 Years of the Stuff Left"
Oil will not just "run out" because all oil production follows a bell curve. This is true whether we're talking about an individual field, a country, or on the planet as a whole.
Oil is increasingly plentiful on the upslope of the bell curve, increasingly scarce and expensive on the down slope. The peak of the curve coincides with the point at which the endowment of oil has been 50 percent depleted. Once the peak is passed, oil production begins to go down while cost begins to go up.
In practical and considerably oversimplified terms, this means that if 2000 was the year of global Peak Oil, worldwide oil production in the year 2020 will be the same as it was in 1980. However, the world’s population in 2020 will be both much larger (approximately twice) and much more industrialized (oil-dependent) than it was in 1980. Consequently, worldwide demand for oil will outpace worldwide production of oil by a significant margin. As a result, the price will skyrocket, oil-dependant economies will crumble, and resource wars will explode.
Peak Oil is also called "Hubbert's Peak," named for the Shell geologist Dr. Marion King Hubbert. In 1956, Hubbert accurately predicted that US domestic oil production would peak in 1970. He also predicted global production would peak in 1995, which it would have had the politically created oil shocks of the 1970s not delayed the peak for about 10-15 years.
"Big deal. If gas prices get high, I’ll just drive less. Why should I give a damn?"
Because petrochemicals are key components to much more than just the gas in your car. As geologist Dale Allen Pfeiffer points out in his article entitled, "Eating Fossil Fuels," approximately 10 calories of fossil fuels are required to produce every 1 calorie of food eaten in the US.
The size of this ratio stems from the fact that every step of modern food production is fossil fuel and petrochemical powered:
1. Pesticides are made from oil;
2. Commercial fertilizers are made from ammonia, which is made from natural gas, which will peak about 10 years after oil peaks;
3. With the exception of a few experimental prototypes, all farming implements such as tractors and trailers are constructed and powered using oil;
4. Food storage systems such as refrigerators are manufactured in oil-powered plants, distributed across oil-powered transportation networks and usually run on
electricity, which most often comes from natural gas or coal;
5. In the US, the average piece of food is transported almost 1,500 miles before it gets to your plate. In anada, the average piece of food is transported 5,000 miles from where it is produced to where it is consumed.
In short, people gobble oil like two-legged SUVs.
It's not just transportation and agriculture that are entirely dependent on abundant, cheap oil. Modern medicine, water distribution, and national defense are each entirely powered by oil and petroleum derived chemicals.
In addition to transportation, food, water, and modern medicine, mass quantities of oil are required for all plastics, all computers and all high-tech devices.
Some specific examples may help illustrate the degree to which our technological base is dependent on fossil fuels:
1. The construction of an average car consumes the energy equivalent of approximately 20 barrels of oil , which equates to 840 gallons, of oil. Ultimately, the construction of a car will consume an amount of fossil fuels equivalent to twice the car’s final weight.
2. The production of one gram of microchips consumes 630 grams of fossil fuels. According to the American Chemical Society, the construction of single 32 megabyte DRAM chip requires 3.5 pounds of fossil fuels in addition to 70.5 pounds of water.
3. The construction of the average desktop computer consumes ten times its weight in fossil fuels.
4. The Environmental Literacy Council tells us that due to the "purity and sophistication of materials (needed for) a microchip, . . . the energy used in producing nine or ten computers is enough to produce an automobile."
When considering the role of oil in the production of modern technology, remember that most alternative systems of energy — including solar panels/solar-nanotechnology, windmills, hydrogen fuel cells, biodiesel production facilities, nuclear power plants, etc. — rely on sophisticated technology.
In fact, all electrical devices make use of silver, copper, and/or platinum, each of which is discovered, extracted, transported, and fashioned using oil-powered machinery. For instance, in his book, The Lean Years: Politics of Scarcity, author Richard J. Barnet writes:
To produce a ton of copper requires 112 million BTU's or the equivalent of 17.8 barrels of oil. The energy cost component of aluminum is twenty times higher.
Nuclear energy requires uranium, which is also discovered, extracted, and transported using oil-powered machinery.
Most of the feedstock (soybeans, corn) for biofuels such as biodiesel and ethanol are grown using the high-tech, oil-powered industrial methods of agriculture described above.
In short, the so called "alternatives" to oil are actually "derivatives" of oil. Without an abundant and reliable supply of oil, we have no way of scaling these alternatives to the degree necessary to power the modern world.
"Is the Modern Banking System Entirely Dependent on Ever-Increasing Amounts Cheap Oil?"
The global financial system is entirely dependent on a constantly increasing supply of oil and natural gas. The relationship between the supply of oil and natural gas and the workings of the global financial system is arguably the key issue to understanding and dealing with Peak Oil. In fact this relationship is far more important than alternative sources of energy, energy conservation, or the development of new energy technologies, all of which are discussed in detail on page two of this site.
Dr. Colin Campbell presents an understandable model of this complex (and often difficult to explain) relationship:
It is becoming evident that the financial and investment community begins to accept the reality of Peak Oil, which ends the first half of the age of oil. They accept that banks created capital during this epoch by lending more than they had on deposit, being confident that tomorrow’s expansion, fuelled by cheap oil-based energy, was adequate collateral for today’s debt. The decline of oil, the principal driver of economic growth, undermines the validity of that collateral which in turn erodes the valuation of most entities quoted on Stock Exchanges. The investment community however faces a dilemma. It desires to protect its own fortunes and those of its privileged clients while at the same time is reluctant to take action that might itself trigger the meltdown. It is a closely knit community so that it is hard
for one to move without the others becoming aware of his actions.
The scene is set for the Second Great Depression, but the conservatism and outdated mindset of institutional investors, together with the momentum of the massive flows of institutional money they are required to place, may help to diminish the sense of panic that a vision of reality might impose. On the other hand, the very momentum of
the flow may cause a greater deluge when the foundations of the dam finally crumble. It is a situation without precedent.
Commentator Robert Wise explains the connection between energy and money as follows:
It's not physics, but it's true: money equals energy. Real, liquid wealth represents usable energy. It can be exchanged for fuel, for work, or for something built by the work of humans or fuel-powered machines. Real cost reflects the energy cost of doing something; real value reflects the energy expended to build something.
Nearly all the work done in the world economy -- all the manufacturing, construction, and transportation -- is done with energy derived from fuel. The actual work done by human muscle power is miniscule by comparison. And, the lion's share of that fuel comes from oil and natural gas, the primary sources of the world's wealth.
In October 2005, the normally conservative London Times acknowledged that the world's wealth may soon evaporate as we enter a technological and economic "Dark Age." In an article entitled "Waiting for the Lights to Go Out" Times reporter Bryan Appleyard wrote the following:
Oil is running out; the climate is changing at a potentially catastrophic rate; wars over scarce resources are brewing; finally, most shocking of all, we don't seem to be having enough ideas about how to fix any of these things.
Almost daily, new evidence is emerging that progress can no longer be taken for granted, that a new Dark Age is lying in wait for ourselves and our children.
. . . growth may be coming to an end. Since our entire financial order — interest rates, pension funds, insurance, stock markets — is predicated on growth, the social and economic consequences may be cataclysmic.
If you want to understand just how cataclysmic these consequences might be, consider the current crisis in the UK as a "preview of coming attractions." On October 23, 2005 the London Telegraph reported:
The Government has admitted that companies across Britain might be forced to close this winter because of fuel shortages. "The balance between supply and demand for
energy is uncomfortably tight. I think if we have a colder -than-usual winter given the supply shortages, certain industries could suffer real difficulties." The admission was made after this newspaper revealed that Britain could be paralysed by energy shortages if the winter is colder than average.
The Met Office says there is a 67 per cent likelihood of prolonged cold this year after almost a decade of mild winters. That, coupled with high fuel prices, raises the fear that industry will not be able to cope.
The severe consequences of these relatively small shortfalls between supply and demand (less than 5%) have prompted the UK government to look into draconian energy conservation measures that would be enforced via house-to-house searches by a force of "energy-police."
Parts of the US are facing similarly dire possibilities. In December 2005, US News and World Report published a six-page article documenting some potentially nightmarish scenarios about to descend on the US in the coming years According to the normally conservative publication, people in the northeastern US could be facing massive layoffs, rotating blackouts, permanent industrial shutdowns, and catastrophic breakdowns in public services as a result of shortages of heating oil and natural gas.
This is happening despite the fact we are probably at least a few years away from seeing the peak in either oil or natural gas production. You have to ask yourself, "what's going to happen when the 'real problems' start showing up?"
"What Does All of This Mean for Me?"
What all of this means, in short, is that the aftermath of Peak Oil will extend far beyond how much you will pay for gas. To illustrate: in a July 2006 special report published by the Chicago Tribune, Pullitzer Prize winning journalist Paul Salopek described the consequences of Peak Oil as follows:
. . . the consequences (if true) would be unimaginable.
Permanent fuel shortages would tip the world into a generations-long economic depression. Millions would lose their jobs as industry implodes. Farm tractors would be idled for lack of fuel, triggering massive famines. Energy wars would flare. And car-less suburbanites would trudge to their nearest big-box stores--not to buy Chinese-made clothing transported cheaply across the globe, but to scavenge glass
and copper wire from abandoned buildings.
If you are focusing solely on the price at the pump, more fuel-efficient forms of transportation, or alternative sources of energy, you aren’t seeing the bigger picture.
"Are George Bush and Dick Cheney Aware of this Situation?"
Of course they are.
As mentioned previously, Dick Cheney made the following statement in late 1999:
By some estimates, there will be an average of two-percent annual growth in global oil demand over the years ahead, along with, conservatively, a three-percent natural decline in production from existing reserves. That means by 2010 we will need on the order of an additional 50 million barrels a day.
To put Cheney’s statement in perspective, remember that the oil producing nations of the world are currently pumping at full capacity but are struggling to produce much more than 84 million barrels per day. Cheney’s statement was a tacit admission of the severity and imminence of Peak Oil as the possibility of the world raising its production by such a huge amount is borderline ridiculous.
A report commissioned by Cheney and released in April 2001 was no less straightforward:
The most significant difference between now and a decade ago is the extraordinarily rapid erosion of spare capacities at critical segments of energy chains. Today, shortfalls appear to be endemic. Among the most extraordinary of these losses of spare capacity is in the oil arena.
In light of this information, Cheney knew the only way for Western oil majors to stay oil majors was to use force to grab what's left in the Middle East and then give the contracts to pump that oil to the oil majors. Four years after the invasion of Iraq, this is exactly what is happening. U.K. Independent journalist Geoffrey Lean writes:
"So where is this oil going to come from?" Cheney asked. His answer: the Middle East was "where the prize ultimately lies".
Lest there be any doubt about what was at stake, the man who was to become one of the most powerful proponents of the invasion of Iraq went on: "Oil is unique because it is so strategic in nature. We are not talking about soapflakes or leisurewear ... The Gulf War was a reflection of that reality."
Well, seven years on, Mr Cheney's solution to the impending oil crisis is well on its way to being implemented. In the aftermath of another war, Iraq's Council of Ministers is today expected to throw open the doors to the country's oil reserves - the third-largest in the world - to private companies, the first time a major Middle Eastern producer has ever done so.
Not surprisingly, George W. Bush has echoed Dick Cheney’s sentiments. In May 2001, Bush stated, "What people need to hear loud and clear is that we’re running out of energy in America."
One of George W. Bush's energy advisors, energy investment banker Matthew Simmons, has spoken at length about the impending crisis. For instance, in an August 2003 interview Simmons was asked if it was time for Peak Oil to become part of the public policy debate. He responded:
It is past time. As I have said, the experts and politicians have no Plan B to fall back on. If energy peaks, particularly while 5 of the world’s 6.5 billion people have little or no use of modern energy, it will be a tremendous jolt to our economic well-being and to our health — greater than anyone could ever imagine.
When asked if there is a solution to the impending natural gas crisis, Simmons responded:
I don’t think there is one. The solution is to pray. Under the best of circumstances, if all prayers are answered there will be no crisis for maybe two years. After that it’s a certainty.
In May 2004, Simmons explained that in order for demand to be appropriately controlled, the price of oil would have to reach $182 per barrel. Simmons explained that with oil prices at $182 per barrel, gas prices would likely rise to $7.00 per gallon.
If you want to ponder just how devastating oil prices in the $200/barrel range will be for the US economy, consider the fact that one of Osama Bin-Laden's primary goals has been to force oil prices into the $200 range.
Oil prices that far north of $100/barrel would almost certainly trigger massive, last-ditch global resource wars as the industrialized nations of the world scramble to grab whatever oil is remaining. This may explain why the director of the Selective Service recently recommended the military draft be expanded to include both genders, ages 18-to-35.
A March 2005 report prepared for the US Department of Energy confirmed dire warnings of the investment banking community. Entitled "The Mitigation of the Peaking of World Oil Production," the report observed:
Without timely mitigation, world supply/demand balance will be achieved through massive demand destruction (shortages), accompanied by huge oil price increases, both
of which would create a long period of significant economic hardship worldwide.
Waiting until world conventional oil production peaks before initiating crash program mitigation leaves the world with a significant liquid fuel deficit for two decades or longer.
The report went on to say:
The problems associated with world oil production peaking will not be temporary, and past 'energy crisis' experience will provide relatively little guidance. The challenge of oil peaking deserves immediate, serious attention, if risks are to be fully understood and mitigation begun on a timely basis.
. . . the world has never faced a problem like this. Without massive mitigation more than a decade before the fact, the problem will be pervasive and will not be temporary.
Previous energy transitions were gradual and evolutionary.
Oil peaking will be abrupt and revolutionary.
As one commentator recently observed, the reason our leaders are acting like desperados is because we have a desperate situation on our hands.
If you've been wondering why the Bush administration has been spending money, cutting social programs, and starting wars like there's no tomorrow, now you have your answer: as far as they are concerned, there is no tomorrow.
In 2003, the BBC filmed a three-part, relatively apolitical, documentary entitled "The War for Oil" about the role the Bush administration's knowledge of Peak Oil played in their decision to invade and occupy Iraq. As the documentary explains, in private the Bush administration sees the war in Iraq as "a fight for survival." From a purely Machiavellian standpoint, they are probably correct in their thinking.
For what it's worth, Bush's Crawford ranch is completely off-the-grid and equipped with the latest in energy saving and renewable power systems. It has been described as an "environmentalist's dream home." The fact a man as steeped in the petroleum industry as Bush would own such a home should tell you something.
On a similar note, Dick Cheny's personal investments indicate he (or more accurately, whoever handles his money) is expecting economic collapse.
Neither Bush or Cheney (or really, any administration) can be honest with the American people about the severity of what we're facing. If they were honest with the people, half would refuse to believe them while the other half would likely panic. The markets would then crash and this would serve the interests of no one.
"How Do I Know This Isn't Just Fear-Mongering by Loony-Environmentalists?"
If you think what you are reading on this page is the product of a loony-left nut, consider what Representative Roscoe Bartlett (Republican, Maryland) has had to say in speeches to Congress or what billionaire investor Richard Rainwater has had to say in the pages of Fortune Magazine.
On March 14, 2005 Bartlett gave an extremely thorough presentation to Congress about the frightening ramifications of Peak Oil. During his presentation Representative Bartlett, who may be the most conservative member of Congress, quoted from this site extensively, citing the author (Matt Savinar) by name on numerous occasions, while employing several analogies and examples originally published on this site. You can read the full congressional record of Representative Bartlett's presentation by clicking here. You can view a video of Bartlett recommending the article you are now reading to Resources for the Future, an extremely influential DC think tank, by clicking here.
On April 19, 2005 Representative Bartlett was interviewed on national television. Again, he referenced the article you are now reading:
One of the writers on this, by the way, starts his article by saying, 'Dear Reader, Civilization as we know it will end soon.' Now your first impulse is to put down the article. This guy's a nut. But if you don't put it down and read through the article, you're hard-pressed to argue with his conclusions.
On May 12, 2005 Representative Bartlett gave another presentation about Peak Oil on the floor of the House of Representatives, stating that this website "galvanized" him. On July 19, 2005 he had the following to say:
Mr. Speaker, if you go to your computer this evening and do a Google search for peak oil, you will find there a large assortment of articles and comments. Like every issue, you will find a few people who are on the extreme, but there will be a lot of mainstream observations there.
One of the articles that you will find there was written by Matt Savinar. Matt Savinar is not a technical person. He is a lawyer, a good one, and he does what lawyers do. He goes to the sources and builds his case.
Matt Savinar could be correct when he said, "Dear Reader, civilization as we know it is coming to an end soon.'' I would encourage you, Mr. Speaker, to pull up his article and read it. It is really very sobering.
In subsequent speeches, Representative Bartlett read large excerpts of this site verbatim into the official US Congressional record. He has also frequently quoted a surprisingly frank September 2005 report from the U.S. Army Corps of Engineers entitled "Energy Trends and Their Implications for U.S. Amry Installations." The report candidly explains among other things, that:
. . . energy consumption is indispensable to our standard of living and a necessity for the Army to carry out its mission. However, current trends are not sustainable. The impact of excessive, unsustainable energy consumption may undermine the very culture and activities it supports . . .
Bartlett isn't the only prominent conservative extremely concerned about these matters. According to the December 26, 2005 issue of Fortune Magazine, Richard Rainwater, a multi-billionaire investor and friend of George W. Bush, reads this site and its news alerts daily. In an article entitled "Energy Prophet of Doom" Fortune reporter Oliver Ryan writes:
"Rainwater," the voice on the phone announces. "Now, type L-A-T-O-C into Yahoo, and scroll down to the seventh item."
Rainwater doesn't use e-mail. Rather, he uses rapid-fire phone calls to spread the gospel he discovers every morning on the web. One day it might be the decline of arable land in Malaysia. The next it could be the Olduvai theory of per capita energy consumption. "L-A-T-O-C" stands for LifeAfterTheOilCrash.net, a blog edited by Matt Savinar, 27, of Santa Rosa, Calif.
The Fortune article goes on to quote Rainwater as saying:
The world as we know it is unwinding with respect to Social Security, pensions, Medicare. We're going to have dramatically increased taxes in the U.S. I believe we're going into a world where there's going to be more hostility. More people are going to be asking, 'Why did God do this to us?'
Whatever God they worship. Alfred Sloan said it a long time ago at General Motors, that we're giving these things during good times. What happens in bad times? We're going to have to take them back, and then everybody will riot. And he's right.
Apparently, Richard Rainwater and Alfred Sloan aren't the only people expecting large scale civil unrest in the foreseeable future. In January 2006, the Department of Homeland Security gave Halliiburton subsidiary Kellog, Brown, & Root a $400 million dollar contract to build vast new domestic detention camps. While the camps are ostensibly being built to house and process an "emergency influx of immigrants", one can't help but suspect they will be used to house domestic citizens who respond to the economic fallout of declining oil production by taking to the streets.
"How is the Oil Industry Reacting to This?"
If you want to know the harsh truth about the future of oil, simply look at the actions of the oil industry. As a recent article in M.I.T.'s Technology Review points out:
If the actions - rather than the words - of the oil business's major players provide the best gauge of how they see the future, then ponder the following. Crude oil prices have doubled since 2001, but oil companies have increased their budgets for exploring new oil fields by only a small fraction.
Likewise, U.S. refineries are working close to capacity, yet no new refinery has been constructed since 1976. And oil tankers are fully booked, but outdated ships are being decommissioned faster than new ones are being built.
Some people believe that no new refineries have been built due to the efforts of environmentalists. This belief is silly when one considers how much money and political influence the oil industry has compared to the environmental movement. You really think Ronald Reagan and George H. Bush were going to let a bunch of pesky environmentalists get in the way of oil refineries being built if the oil companies had wanted to build them?
The real reason no new refineries have been built for almost 30 years is simple: any oil company that wants to stay profitable isn't going to invest in new refineries when they know there is going to be less and less oil to refine.
In addition to lowering their investments in oil exploration and refinery expansion, oil companies have been merging as though the industry is living on borrowed time:
December 1998: BP and Amoco merge;
April 1999: BP-Amoco and Arco agree to merge;
December 1999: Exxon and Mobil merge;
October 2000: Chevron and Texaco agree to merge;
November 2001: Phillips and Conoco agree to merge;
September 2002: Shell acquires Penzoil-Quaker State;
February 2003: Frontier Oil and Holly agree to merge;
March 2004: Marathon acquires 40% of Ashland;
April 2004: Westport Resources acquires Kerr-McGee;
July 2004: Analysts suggest BP and Shell merge;
April 2005: Chevron-Texaco and Unocal merge;
June 2005: Royal Dutch and Shell merge;
July 2005: China begins trying to acquire Unocal
June 2006: Andarko proposes buying Kerr McGee
While many people believe talk of a global oil shortage is simply a conspiracy by "Big Oil" to drive up the prices and create "artificial scarcity," the rash of mergers listed above tells a different story. Mergers and acquisitions are the corporate world's version of cannibalism. When any industry begins to contract/collapse, the larger and more powerful companies will cannibalize/seize the assets of the smaller, weaker companies.
(Note: for recent examples of this phenomenon outside the oil industry, see the airline and automobile industries.)
If you suspect the oil companies are conspiring amongst themselves to create artificial scarcity and thereby artificially raise prices, ask yourself the following questions:
1. Are the actions of the oil companies the actions of friendly rivals who are conspiring amongst each other to drive up prices and keep the petroleum game going?
2. Are the actions of the oil companies the actions of rival corporate desperados who, fully aware that their source of income is rapidly dwindling, are now preying upon each other in a game of "last man standing"?
You don't have to contemplate too much, as recent disclosures from oil industry insiders indicate we are indeed "damn close to peaking" while independent industry analysts are now concluding that large oil companies believe Peak Oil is at our doorstep.
As the Bulletin of Atomic Scientists recently observed, even ExxonMobil is now "sounding the silent Peak Oil alarm." In their 2005 report entitled, "The Outlook for Energy", ExxonMobil suggests that increased demand be met first through greater fuel efficiency. The fact that ExxonMobil - one of the largest oil companies in the world - is now recommending increased fuel efficiency should tell you how imminent a crisis is at this point.
Equally alarming is the fact that Chevron has now started a surprisingly candid campaign to publicly address these issues. While the campaign fails to mention "Peak Oil" or explain how a drastically reduced oil supply will affect the average person, it does acknowledge that, while it took 125 years to burn through the first trillion barrels of oil, it will only take 30 years to burn through the next trillion.
"How Do I Know Peak Oil Isn't Big Oil Propaganda That is Being Used To Create Artificial Scarcity & Justify Gouging Us at the Pump?"
If Peak Oil is "Big Oil propaganda" (as some claim), why did Sonoma State University's Project Censored declare it one of the most censored stories of 2003-2004? Surely, if "Peak Oil is Big Oil propaganda", Big Oil would have found a way to get it off the pages of under-funded publications like Project Censored and onto the pages of the mainstream papers and into the 24/7 cable news cycle years ago.
Likewise, if "Peak Oil is a myth propagated by the greedy oil companies to justify high prices", why didn't any of the greedy oil company CEOs offer "the peaking of world oil production" as a partial justification for high gas prices when they testified before Congress about high gas prices?
Yet "Peak Oil" was never mentioned during the hearings by either the executives or the Senators questioning them. Given the obvious importance of the issue, any reasonable person can't help but to ask, "Why the heck not?"
The answer is simple: the true consequences of Peak Oil cannot be acknowledged in such a highly public forum without crashing the financial markets or begging the obvious yet politically-dangerous and "patriotically-incorrect" question:
"Is the war in Iraq really a war for the world's last remaining significant sized deposits of oil?"
Although the answer to this question should be obvious, broaching the issue in such a highly public forum would bring more skeletons out of Dick Cheney's energy task force closet than any sane member of the Senate, Republican or Democrat, would ever want to face. (Would you?)
Finally, if Peak Oil was just "Big Oil" propaganda, why is Exxon Mobil (one of the biggest oil companies in the world) spending millions of dollars on its anti-Peak Oil advertising campaign?
The answer is simple if you understand how publicly traded oil comapnies work. An oil company's share value is dictated first and foremost not by the price of oil but by how much oil that company reports having in reserve. A company can't admit its reserves are peaking or it risks seeing its share price drop relative to other companies who report more abundant reserves. Big Oil companies are thus motivated to over - not under - report how much oil they have in reserve.
Shell, for instance, is now being fined $500 million for having grossly over-reported its reserves. On a similar note, Kuwait is believed to have over-reported their reserves by as much as 50 billion barrels while many believe Saudi Arabia has overreported its reserves by as much as 200 billion barrels.
If claims that "peak oil is just oil company propaganda to promote artificial scarity" were true these companies and nations would have been under-reporting instead over-reporting their reserves all along. They over-reported because they wanted to convey an atmosphere of abundance as this is conducive both to getting the public to keep on buying and to attracting investors. If people knew the truth, they would likely begin drastically curtailing their consumption of oil, which would drive the price down. Consumers are unlikely to take such actions so long as they perceive the current price spikes as just "more of the same old-same old" and are confident about the future.
"Can't We Just Explore More for Oil?"
Global oil discovery peaked in 1962 and has declined to virtually nothing in the past few years. We now consume 6 barrels of oil for every barrel we find.
According to an October 2004 New York Times article entitled "Top Oil Groups Fail to Recoup Exploration Costs:"
. . . the top-10 oil groups spent about $8bn combined on exploration last year, but this only led to commercial discoveries with a net present value of slightly less than $4bn. The previous two years show similar, though less dramatic, shortfalls.
In other words, significant new oil discoveries are so scarce that looking for them is a monetary loser. Consequently, many major oil companies now find themselves unable to replace their rapidly depleting reserves. A June 2006 report indicated the world's biggest five oil companies are now "focusing on developing existing reserves." That's a nice way of saying "there aren't enough significant sized oil fields left to find to make it worth our time and money to look for them."
Take a look at the above chart. During the 1960s, for instance, we consumed about 6 billion barrels per year while finding about 30-60 billion per year. Given those numbers, it is easy to understand why fears of "running out" were so often dismissed as unfounded.
Unfortunately, those consumption/discovery ratios have nearly reversed themselves in recent years. We now consume close to 30 billion barrels per year but find less than 4 billion per year.
In light of these trends, it should come as little surprise that the energy analysts at John C Herold Inc. - the firm that foretold Enron's demise - recently confirmed industry rumors that we are on the verge of an unprecedented crisis.
"What About that Giant Oil Find in the Gulf of Mexico? I Heard It's Huge."
Chevron's recent find in the Gulf of Mexico, nicknamed "Jack 2", is estimated to hold between 3 billion and 15 billion barrels of oil. Let's assume, for the sake of illustration, Chevron's most optimistic estimate of 15 billion barrels is the most accurate estimate. A fifteen billion barrel field puts the global peak (the halfway mark) off by 7.5 billion barrels. This is less than a four month supply at current rates of consumption. At projected rates of oil consumption for the year 2015 it's less than a three month supply.
This does not even account for the fact this "huge find" is almost 6 miles below the ocean and thus much more expensive to develop than traditional oil fields where the oil typically bubbles up to ground level when first discovered.
The truth is the Jack 2 field is really a sign of how desperate Big Oil companies are getting when it come to replacing their rapidly dwindling reserve base. There is no reason to look for oil 270 miles off the coast and 6 miles below the ocean surface unless cheaper and easier to extract sources have already been exhausted. This is the whole point Peak Oil "chicken littles" have been making for nearly 50 years: once the peak is reached oil will still be available but only at a tremendous energetic and financial cost.
"How Can I Be Sure This Isn't Just More 1970s Doom-and-Gloom?"
The oil shocks of the 1970s were created by political events. In 1973, OPEC cut its production in retaliation for US support of Israel. In 1979, Iran cut its production in hopes of crippling "the great Satan." In both cases, the US was able to turn to other oil producing nations such as Venezuela to alleviate the crisis. Once global production peaks, there won't be anybody to turn to. The crisis will just get worse and worse with each passing year.
The evidence of an imminent peak in global oil production is now overwhelming:
1.Ninety-nine percent of the world's oil comes from 44 oil producing nations. At least 24 of these nations are past their peak and now in terminal decline.
2.The entire world - with the exception of the Middle East peaked in 1997. The US peaked in 1970, Russia in 1987, the UK in 1999. Even Saudi Arabia - the famed "producer for all seasons" may be on the verge of seeing it production collapse.
3.Global production of conventional oil has essentially plateaued since the year 2000.
As far as "doom-and-gloom" consider what widely respected Deutsche Bank had to say about Peak Oil in a recent report entitled, Energy Prospects After the Petroleum Age:
The end-of-the-fossil-hydrocarbons scenario is not therefore a doom-and-gloom picture painted by pessimistic end-of-the world prophets, but a view of scarcity in the coming years and decades that must be taken seriously.
The Australian Financial Review echoed the sentiments of Deutsche Bank in a January 2005 article entitled, "Staring Down the Barrel of a Crisis":
The world's oil production may be about to reach its peak, forever. Such apocalyptic prophecies often surface in the middle of the northern hemisphere winter. What is unusual is that this time the doomsday scenario has gained serious credibility among respected analysts and commentators.
Given the credentials of those sounding the alarm the loudest, it is extremely unwise for you to causally dismiss this as just more "1970s doom-and gloom."
"What About the Oil Sands in Canada and the Oil Shale in the American West?"
The good news is that we have a massive amount of untapped "non conventional" oil located in the oil sands up in Canada.
The bad news is that, unlike conventional sources of oil, oil derived from these oil sands is extremely financially and energetically intensive to extract. Whereas conventional oil has enjoyed a rate of "energy return on energy invested" (EROEI) of about 30 to 1, the oil sands rate of return hovers around 1.5 to 1.
This means that we would have to expend 20 times as much energy to generate the same amount of oil from the oil sands as we do from conventional sources of oil.
Where to find such a huge amount of capital is largely a moot point because, even with massive improvements in extraction technology, the oil sands in Canada are projected to only produce a paltry 2.2 million barrels per day by 2015. This doesn't even account for any unexpected production decreases or cost overruns, both of which have been endemic to many of the oil sands projects.
More optimistic reports anticipate 4 million barrels per day of oil coming from the oil sands by 2020. Even if the optimists are correct, 4 million barrels per day isn't that much oil when you consider our colossal and ever-growing demand in conjunction with the small amount of time we have left before the global peak:
1.We currently need 83.5 million barrels per day.
2.We are projected to need 120 million barrels per day by 2020.
3.We will be losing over 1 million barrels per day of production per year, every year, once we hit the backside of the global oil production curve.
4.The general consensus among now disinterested scientists is that oil production will peak by 2010 at the latest.
The huge reserves of oil shale in the American west suffer from similar problems. While Shell Oil has an experimental oil shale program, even Steve Mut - the CEO of their Unconventional Resources Unit - has sounded less than optimistic when questioned about the ability of oil shale to soften the coming crash. According to journalist Stuart Staniford's coverage of a recent conference on Peak Oil:
In response to questions, Steve guesstimated that oil shale production would still be pretty negligible by 2015, but might, if things go really well, get to 5mbpd by 2030.
Disinterested observers are even less optimistic about oil shale. Geologist Dr. Walter Youngquist points out:
The average citizen . . . is led to believe that the United States really has no oil supply problem when oil shales hold "recoverable oil" equal to "more than 64 percent of the world's total proven crude oil reserves." Presumably the United States could tap into this great oil reserve at any time. This is not true at all. All attempts to get this "oil" out of shale have failed economically. Furthermore, the "oil"
(and, it is not oil as is crude oil, but this is not stated) may be recoverable but the net energy recovered may not equal the energy used to recover it. If oil is "recovered" but at a net energy loss, the operation is a failure.
This means any attempt to replace conventional oil with oil shale will actually make our situation worse as the project will consume more energy than it will produce, regardless of how high the price goes.
Further problems with oil shale have been documented by economist Professor James Hamilton who writes:
A recent Rand study concluded it will be at least 12 years before oil shale reaches the production growth phase. And that is a technological assessment, not a reference to the environmental review process. If it takes 15 years to get an oil refinery built and approved, despite well known technology and well understood environmental issues, viewing oil shale as something that could make major contributions to world energy supplies in the immediate future seems highly unrealistic.
"What About So Called 'Reserve Growth'"?
In recent years, the USGS and other agencies have revised their estimates of oil reserves upwards. Peak Oil "deniers" often point to this revisions as proof that fears of a global oil shortage are unfounded. Unfortunately, these upwards revisions are best classified as "paper barrels", meaning they exist on paper only, not in the real world:
A.USGS Poor Track Record
As recently as 1972, the USGS was releasing circulars that estimated US domestic oil production would not peak until well into the 21st century, and possibly not until the 22nd century. (See Theobald, Schweinfurth & Duncan, U.S. Geological Survey Circular 650)
This was despite the fact US production had already peaked in 1970, just as Hubbert had predicted. Richard Heinberg reminds us, "in 1973, Congress demanded an investigation of the USGS for its failure to foresee the 1970 US oil production peak."
In March 2000 the USGS released a report indicating more "reserve growth." Colin Campbell responded to the report by reminding us of the ludicrous estimates put out by the USGS in the 1960s and early 1970s:
Let us not forget that McKelvey, a previous director of the USGS, succumbed to government pressure in the 1960s to discredit Hubbert’s study of depletion, which was
subsequently vindicated in the early 1970’s after US production actually peaked as Hubbert had predicted. It did so . . . in a very damaging report . . . that successfully misled many economists and planners for years to come.
These deeply flawed upward estimates were released because the USGS is a political organization and optimistic estimates are looked upon favorably by both politicians and the markets.
B.EIA Admits Cooking Its Books
In 1998, the EIA released a report showing significant oil reserve growth. In a footnote to report, the EIA explained:
These adjustments to the estimates are based on non-technical considerations that support domestic supply growth to the levels necessary to meet projected demand
levels. (EIA, Annual Energy Outlook 1998, p.17)
In other words, they predicted how much they think we're going to use, and then told us, "Guess what, nothing to worry about - that's how much we've got!"
C.OPEC's "Spurious Revisions" AKA "Cooking the Books"
During the 1980s, several OPEC countries issued some rather "interesting" upwardly revised estimates of their proven reserves of petroleum. Ron Swenson, proprietor of the website HubbertsPeak.com explains:
Many OPEC countries have been announcing reserve numbers which are frankly very strange. Either their reported reserves remain the same year after year, suggesting that new discoveries exactly match production, or they have suddenly increased their reported reserves by unfeasibly large amounts.
The table 1/2 way down this page graphically illustrates Swenson's points. How were such large increases in reserve size possible without correspondingly large discoveries? The answer is quite fascinating as it connects to the Reagan administration's amazingly simple strategy to collapse the Soviet Union: bring down the price of oil. Professor Richard Heinberg explains:
Soon after assuming office in 1981, the Reagan Administration abandoned the established policy of pursuing détente with the Soviet Union and instead instituted a
massive arms buildup; it also fomented proxy wars in areas of Soviet influence, while denying the Soviets desperately needed oil equipment and technology. Then, in the mid-1980s, Washington persuaded Saudi Arabia to flood the world market with cheap oil. Throughout the last decade of its existence, the USSR pumped and sold its oil at the maximum possible rate in order to earn income with which to keep up in the arms race and prosecute its war in Afghanistan. Yet with markets awash with cheap Saudi oil, the Soviets were earning less even as they pumped more.
Two years after their oil production peaked, the economy of the USSR crumbled and its government collapsed. (See also, Victory: The Reagan Administration's Secret Strategy to Hasten the Collapse of the Soviet Union by Peter Schweizer)
While Reagan's strategy to collapse the Soviets was as simple as it was effective, it came with a catch: the amount of oil an OPEC nation such as Saudi Arabia could pump was tied to the amount of proven reserves it reported as compared to the other OPEC nations. The only way Saudi Arabia could continue to flood the market in support of Reagan's strategy was to revise its oil reserve estimates upwards. (If they had not done so, the Reagan adiministration would have withdrawn their military support of the Saudi Royal family.)
In order to stay competitive under OPEC's proportional export rule, the other OPEC nations issued similarly bogus upward estimates. Thus most, if not all, of the so-called "reserve growth" in the Middle East is only on paper, not in the ground.
Update 1/23/2006: Kuwait's reported reserves cut by 50%
Update 8/01/2006: Major bombshell regarding Saudi Arabia's oil production and reserve status disclosed at ASPO conference.
"If the Environmentalists Would Get Out of the Way, Can't We Just Drill in ANWR?"
While some folks desperately cling to the belief that oil is a renewable resource, others hold on to the equally delusional idea that tapping the Arctic National Wildlife Reserve will solve, or at least delay, this crisis. While drilling for oil in ANWR will certainly make a lot of money for the companies doing the drilling, it won't do much to help the overall situation for three reasons:
1. According of the Department of Energy, drilling in ANWR will only lower oil prices by less than fifty cents;
2. ANWR contains 10 billion barrels of oil - or about the amount the US consumes in a little more than a year.
3. As with all oil projects, ANWR will take about 10 years to come online. Once it does, its production will peak at 875,000 barrels per day - but not till the year 2025. By then the US is projected to need a whopping 35 million barrels per day while the world is projected to need 120 million barrels per day.
The issue is not one of "running out" so much as it is not having enough to keep our economy running. In this regard, the ramifications of Peak Oil for our civilization are similar to the ramifications of dehydration for the human body. The human body is 70 percent water. The body of a 200 pound man thus holds 140 pounds of water. Because water is so crucial to everything the human body does, the man doesn't need to lose all 140 pounds of water weight before collapsing due to dehydration. A loss of as little as 10-15 pounds of water may be enough to kill him.
In a similar sense, an oil-based economy such as ours doesn't need to deplete its entire reserve of oil before it begins to collapse. A shortfall between demand and supply as little as 10-15 percent is enough to wholly shatter an oil-dependent economy and reduce its citizenry to poverty.
The effects of even a small drop in production can be devastating. For instance, during the 1970s oil shocks, shortfalls in production as small as 5% caused the price of oil to nearly quadruple. The same thing happened in California a few years ago with natural gas: a production drop of less than 5% caused prices to skyrocket by 400%.
Fortunately, those price shocks were only temporary.
The coming oil shocks won't be so short-lived. They represent the onset of a new, permanent condition. Once the decline gets under way, production will drop (conservatively) by 3% per year, every year.
That estimate comes from numerous sources, not the least of which is Vice President Dick Cheney himself. In a 1999 speech he gave while still CEO of Halliburton, Cheney stated:
By some estimates, there will be an average of two-percent annual growth in global oil demand over the years ahead, along with, conservatively, a three-percent natural decline in production from existing reserves.That means by 2010 we will need on the order of anadditional 50 million barrels a day.
Cheney's assesement is supported by the estimates of numerous non-political, retired, and now disinterested scientists, many of whom believe global oil production will peak and go into terminal decline within the next five years. Many industry insiders think the decline rate will far higher than Cheney predicted in 1999. Andrew Gould, CEO of the giant oil services firm Schlumberger, for instance, recently explained:
An accurate average decline rate is hard to estimate, but an overall figure of 8% is not an unreasonable assumption.
An 8% yearly decline would cut global oil production by a whopping 50% in under nine years. If a 5% cut in production caused prices to triple in the 1970s, what do you think a 50% cut is going to do?
Other experts are predicting decline rates as high as 10%-to-13%. Some geologists expect 2005 to be the last year of the cheap-oil bonanza, while many estimates coming out of the oil industry indicate "a seemingly unbridgeable supply-demand gap opening up after 2007," which will lead to major fuel shortages and increasingly severe blackouts beginning around 2008-2012. As we slide down the downslope slope of the global oil production curve, we may find ourselves slipping into what some scientists are already calling the coming "post-industrial stone age."
"What About this Theory that Oil is Actually a Renewable Resource?"
A handful of people believe oil is actually a renewable resource continually produced by an "abiotic" process deep in the Earth. As emotionally appealing as this theory may be, it ignores most common sense and all scientific fact. While many of the people who believe in this theory consider themselves "mavericks,"respected geologists consider them crackpots.
Moreover, the oil companies don't give this theory the slightest bit of credence even though they are more motivated than anybody to find an unlimited source of oil as each company's shareholder value is based largely on how much oil it holds in reserve. Any oil company who wants to make a ridiculous amount of money (which means all of them) could simply find this unlimited source of oil but refuse to bring it to the market. Their stock value would skyrocket as a result of the huge find while they could simultaneously maintain artificial scarcity by not bringing it to the market.
Even if the maverick/crackpot theories of "unlimited oil" are true, they aren't doing us much good out here in the real world as production is declining in pretty much every nation outside the Middle East.
It certainly isn't doing us any good here in the United States. Our domestic oil production peaked in October 1970 at 10 million barrels per day. It has since declined a little bit each year and now stands at about 5 million barrels per day. This is despite the fact that the US oil exploration companies have more money, more muscle, and more motivation to find oil than anybody other than God. If oil is a renewable resource, why isn't it renewing itself here in the good ole' US of A? (See "Show Me the Oil")
Furthermore, if oil fields really do refill themselves, why aren't advocates of the abiotic oil theory hiring themselves out to independent oil exploration firms? They could becoming fabulously wealthy by helping these firms locate and profit from the magically refilling fields. Perhaps the reason abiotic-oil advocates aren't hiring themselves out to oil companies is because the abiotic-oil theory is little more than clever oil company propaganda. Journalist Paula Hay explains:
If millions of people got the picture that Peak Oil is imminent, they would surely begin to take steps to protect themselves and their families—to powerdown—and decline
would be slowed as a result of all those peoples’ aggregate actions. It would be a classic market response to new information.
Big Oil cannot allow this to happen if it intends to keep its profits sky-high. If people believe that oil is abundant forever; that they are being screwed by Big Oil; and that the government will step in any moment to save them, they have no incentive to powerdown.
Abiotic oil propaganda, coupled with finger-pointing at the oil industry, is a perfect ruse to ensure people don’t start powering down. Peak Oil is not the oil industry’s propaganda. Abiotic oil is the oil industry’s propaganda.
Interestingly enough, five of the seven policy recommendations made by outspoken abiotic oil advocate Jerome Corsi in his book "Black Gold Stranglehold" sound like taxpayer funded giveaways to Big Oil: (commentary in italics added)
1. Promote scientific research to investigate alternative theories.
2. Expedite leases offshore and in Alaska to encourage oil exploration. (Who benefits from this?)
3. Provide tax credits for deep-drilling oil exploration.(Who benefits from this?)
4. Create an oil research institute to serve as a clearinghouse of oil industry information. (Who benefits?)
5. Develop a public broadcasting television series devoted to the oil industry. (Who benefits from this?)
6. Reestablish a gold-backed international trade dollar.
7. Establish tax incentives for opening new refineries in the U.S. (Who benefits from this?)
With the exception of numbers one & six, Corsi's policy recommendations read as though they came from an oil-industry wishlist. That Corsi would so vigorously advocate tax breaks for the oil industry should come as little surprise: in 2004, he coauthored the "Swift Boat Veterans for Truth" attack book that many believe helped the tax cut-obsessed and oil industry-backed Bush administration stay in office.
In his book, Corsi cites the Eugene Island 330 oilfield as proof that oil fields refill themselves. Apparently he or his research staff failed to do a google images search for "Eugene Island 330." If he had performed such a search, he would have come across the following graph which plainly shows Eugene Island 330's oil production in decline for the past 25 years. Corsi's primary example of a "refilling field" is only producing about 1/6 the amount of oil it produced at its peak:
"Won't the Market and the Laws of Supply and Demand Address This?"
Not enough to prevent an economic meltdown.
As economist Andrew Mckillop explains in a recent article entitled, "Why Oil Prices Are Barreling Up," oil is nowhere near as "elastic" as most commodities:
One of the biggest problems facing the IEA, the EIA and a host of analysts and "experts" who claim that "high prices cut demand" either directly or by dampening economic growth is that this does not happen in the real world.
Since early 1999, oil prices have risen about 350%. Oil demand growth in 2004 at nearly 4% was the highest in 25 years. These are simple facts that clearly conflict with received notions about "price elasticity". World oil demand, for a host of easily-described reasons, tends to be bolstered by "high" oil and gas prices until and unless "extreme" prices are attained.
As mentioned previously, this is exactly what happened during the oil shocks of the 1970s - shortfalls in supply as little as 5% drove the price of oil up near 400%. Demand did not fall until the world was mired in the most severe economic slowdown since the Great Depression.
While many analysts claim the market will take care of this for us, they forget that neoclassic economic theory is besieged by several fundamental flaws that will prevent the market from appropriately reacting to Peak Oil until it is too late. To illustrate, as of April 2005, a barrel of oil costs about $55. The amount of energy contained in that barrel of oil would cost between $100-$250* dollars to derive from alternative sources of energy. Thus, the market won't signal energy companies to begin aggressively pursuing alternative sources of energy until oil reaches the $100-$250 mark.
"This does not even account for the amount of money it would take to locate and refine the raw materials necessary for a large scale conversion, the construction and deployment of the alternatives, and finally the retrofitting of the world's $45 trillion dollar infrastructure to run on these alternative sources.
Once they do begin aggressively pursuing these alternatives, there will be a 25-to-50 year lag time between the initial heavy-duty research into these alternatives and their wide-scale industrial implementation.
However, in order to finance an aggressive implementation of alternative energies, we need a tremendous amount of investment capital - in addition to affordable energy and raw materials - that we absolutely will not have once oil prices are permanently lodged in the $200 per barrel neighborhood.
While we need 25-to-50 years to retrofit our economy to run on alternative sources of energy, we may only get 25-to-50 days once oil production peaks.
Within a few months of global oil production hitting its peak, it will become impossible to dismiss the decline in supply as a merely transitory event. Once this occurs, you can expect traders on Wall Street to quickly bid the price up to, and possibly over, the $200 per barrel range as they realize the world is now in an era of permanent oil scarcity.
With oil at or above $200 per barrel, gas prices will reach $10 per gallon inside of a few weeks. This will cause a rapid breakdown of trucking industries and transportation networks. Importation and distribution of food, medicine, and consumer goods will grind to a halt.
The effects of this will be frightening. As Jan Lundberg, founder of the Lundberg Survey, aka "the bible of the oil industry" recently pointed out:
The scenario I foresee is that market-based panic will, within a few days, drive prices up skyward. And as supplies can no longer slake daily world demand of over 80 million barrels a day, the market will become paralyzed at prices too high for the wheels of commerce and even daily living in "advanced" societies. There may be an event that appears to trigger this final energy crash, but the overall cause will
be the huge consumption on a finite planet.
The trucks will no longer pull into Wal-Mart. Or Safeway or other food stores. The freighters bringing packaged techno-toys and whatnot from China will have no fuel. There will be fuel in many places, but hoarding and uncertainty will trigger outages, violence and chaos. For only a short time will the police and military be able to maintain order, if at all.
Once the seriousness of situation is generally acknowledged, a panic will spread on the markets and bring down the entire house of cards even if production hasn't actually peaked. For this reason, the mainstream media cannot discuss this issue without largely whitewashing the dire consequences for the average person. If they told the truth, people would panic and the markets would crash.
In summary, we are a prisoner of our own dilemma:
1.Right now, we have no economically scalable alternatives to oil. (Emphasis placed on economic scalability, not technical viability.)
2.We won't get motivated to aggressively pursue economically scalable alternatives until oil prices are sky high;
3.Once oil prices are sky-high, our economy will be shattered, and we won't be able to finance an aggressive switch-over to whatever modest alternatives are available to us.
4.An aggressive conservation program will bring down the price of oil, thereby removing the incentive to pursue alternatives until it is too late.
5.The raw materials (silicon, copper, platinum) necessary for many sources of alternative energy are already in short supply. Any attempt to secure enough of these resources to power a large scale transition to alternative energies is likely to be met with fierce competition, if not outright warfare, with China.
6.The media and government can't tell the public the truth without creating a panic and crash of the Stock Market.
7.Most of the steps we need to take to deal with this, such as driving less, would severely hurt large sectors of the US economy. For instance, an aggressive fuel conservation program would lower the demand for new vehicles as people would be driving less, thereby increasing the life of their vehicles. This sounds like a perfectly reasonable and common sense mitigation plan until you realize that
approximately one out of every six jobs in the US is either directly or indirectly dependent on the manufacture of new automobiles.
With GM and Ford already on the ropes, any aggressive program of conservation would likely send them spiraling into bankruptcy. This would have devastating effects on
the domestic economy and could quite possibly lead to the rise of extremists political movements not unlike what happened to Germany in the 1920s when its economy
A similar problem exists when it comes to the aviation industry. Air travel consumes an incredible amount of oil. At first, cutting back on air travel seems a logical
first step to dealing with a global oil shortage. According to the International Air Transport Association the aviation is a $400 billion dollar industry that generates $1.3 trillion dollars in economic activity. Overall, it accounts 8% of global GDP. Thus any plan to aggressively reduce air travel is likely to severely damage the global economy, eliminate jobs, heighten geopolitical tensions, meet with severe
resistance from established interests, and so forth.
"What About All the Various Alternatives to Oil? Can't We Find Replacements?"
Many politicians and economists insist that there are alternatives to oil and that we can "invent our way out of this."
Physicists and geologists tell us an entirely different story.
The politicians and economists are selling us 30-year old economic and political fantasies, while the physicists and geologists are telling us scientific and mathematical truth. Rather than accept the high-tech myths proposed by the politicians and economists, its time for you to start asking critical questions about the so called "alternatives to oil" and facing some hard truths about energy.
While there are many technologically viable alternatives to oil, there are none (or combination thereof) that can supply us with anywhere near the amount of net-energy required by our modern monetary system and industrial infrastructure.
People tend to think of alternatives to oil as somehow independent from oil. In reality, the alternatives to oil are more accurately described as "derivatives of oil." It takes massive amounts of oil and other scarce resources to locate and mine the raw materials (silver, copper, platinum, uranium, etc.) necessary to build solar panels, windmills, and nuclear power plants. It takes more oil to construct these alternatives and even more oil to distribute them, maintain them, and adapt current infrastructure to run on them.
Each of the alternatives is besieged by numerous fundamental physical shortcomings that have, thus far, received little attention:
"What About Green Alternatives like Solar, Wind, Wave, and Geothermal?"
Solar and wind power suffer from four fundamental physical shortcomings that prevent them from ever being able to replace more than a tiny fraction of the energy we get from oil: lack of energy density, inappropriateness as transportation fuels, energy intermittency, and inability to scale.
I. Lack of Energy Density/Inability to Scale
Few people realize how much energy is concentrated in even a small amount of oil or gas. A barrel of oil contains the energy-equivalent of almost 25,000 hours of human labor. A single gallon of gasoline contains the energy-equivalent of 500 hours of human labor. Most people are stunned to find this out, even after confirming the accuracy of the numbers for themselves, but it makes sense when you think about it. It only takes one gallon of gasoline to propel a three ton SUV 10 miles in 10 minutes. How long would it take you to push a three ton SUV 10 miles?
Most people drastically overestimate the density and scalability of solar, wind, and other renewables. Some examples should help illustrate the limited capacity of these energy sources as compared to fossil fuels:
According to author Paul Driessen, it would take all of California's 13,000 wind turbines to generate as much electricity as a single 555-megawatt natural gas fired
According to the European Wind Energy Association's Wind Force 12 report issued in May of 2004, the United States has 6,361 megawatts of installed wind energy. This means that if every wind turbine in the United States was spinning at peak capacity, all at the exact same time, their combined electrical output would equal that of six coal fired power plants. Since 3.wind turbines typically operate at about 30% of their rated capacity, the combined output of every wind turbine in the US is actually equal to less than two coal fired power plants.
The numbers for solar are ever poorer. For instance, on p.191 of his book The End of Oil: On the Edge of a Perilous New World, author Paul Roberts writes:
" . . . if you add up all the solar photovoltaic cells now running worldwide (2004), the combined output - around 2,000 megawatts - barely rivals the output of two coal-fired power plants."
Robert's calculation assumes the solar cells are operating at 100% of their capacity. In the real world, the average solar cell operates at about 20% of its
rated capacity. This means that the combined output of all the solar cells in the world is equal to less than 40% of the output of a single coal fired power plant.
In order to offset a 10% reduction in U.S. petroleum consumption, the amount of installed solar and wind energy systems would have to be increased by 2,200%. (Similar numbers apply worldwide.) Graph provided by the Energy Information Agency:
According to ExxonMobil, the amount of energy distributed by a single gas station in a single day is equivalent to the amount of energy that would be produced by four Manhattan sized city blocks of solar equipment.
4. With 17,000 gas stations just in the United States, you don't need to be a mathematician to realize that solar power is incapable of meeting our urgent need for a new energy source that - like oil - is dense, affordable, and transportable.
According to Dr. David Goodstien, professor of physics at Cal Tech University, it would take close to 220,000 square kilometers of solar panels to power the global
economy via solar power. This may sound like a marginally manageable number until you realize that the total acreage covered by solar panels in the entire world right now is a paltry 10 square kilometers.
5.According a recent MSNBC article entitled, "Solar Power City Offers 20 Years of Lessons:" By industry estimates, up to 20,000 solar electricity units and 100,000 heaters have been installed in the United States — diminutive numbers compared to the
country’s 70 million single-family houses.
This means that even if the number of American households equipped with solar electricity is increased by a factor of 100, less than two million American
households will be equipped with solar electric systems. Assuming we are even capable of scaling the use of household solar electric systems by that huge a
factor, we must ask ourselves two questions: A.What do the other 68 million households do? What about the millions of companies, nations, and industries around the world on which we in the industrialized world are dependent?
B.Since oil, not electricity, is our primary transportation fuel (providing the base for over 90% of all transportation fuel) what good will this do us when it comes to keeping our global network of cars,trucks, airplanes, and boats going?
II. Energy Intermittency
Unlike an oil pump, which can pump all day and all night under most weather conditions, or coal fired/natural gas fired power plants which can also operate 24/7, wind turbines and solar cells only produce energy at certain times or under certain conditions. This may not be that big of a deal if you simply want to power your household appliances or a small scale, decentralized economy, but if you want to run an industrial economy that relies on airports, airplanes, 18-wheel trucks, millions of miles of highways, huge skyscrapers, 24/7 availability of fuel, etc., an intermittent source of energy will not suffice.
While promising work is being done to counteract the intermittency of wind and solar energy, most of this work is still in the developmental stage and won't be ready or cost effective on a large scale for several decades at the earliest.
Without a cost-effective and scalable storage technology to provide power when the wind is not blowing or the sun is not shining, large scale solar/wind farms must be backed up by things like oil pumps or natural gas/coal fired powered plants. For this reason, the expansion of renewables like wind power actually requires an expansion in the supply of fossil fuels. Journalist Michael Kane writes:
Europe is light-years ahead of America in wind energy, and Germany leads the world. The German numbers are painting a dismal picture for wind’s capacity. E.ON Netz – one of the world’s largest private energy providers – owns over 40% of Germany’s wind generating capacity. They released a report titled "WIND REPORT 2004" stating that wind energy require "shadow stations" of traditional energy on back-up reserve
in case the wind forecast is wrong. They state that reserve capacity needs to be 60% to 80% of the total wind capacity! So as more wind comes on line, it is all but certain that more hydrocarbon reserve capacity will be required, further demonstrating how renewable energy is used to supplement over-consumption.
Here is the real kicker: these shadow stations cannot just be turned on and off at will. In order to be ready to produce electricity when the wind is not blowing or the sun is not shining, they must be fed a constant supply of natural gas or coal.
III. Inappropriateness as Transportation Fuels
Approximately 2/3 of our oil supply is used for transportation. Over ninety percent of our transportation fuel comes from petroleum fuels (gasoline, diesel, jet-fuel). Thus, even if you ignore the challenges catalogued above, there is still the problem of how to use the electricity generated by the solar cells or wind turbines to run fleets of food delivery trucks, oceanliners, airplanes, etc.
Unfortunately, solar and wind cannot be used as industrial-scale transportation fuels unless they are used to crack hydrogen from water via electrolysis. Hydrogen produced via electrolysis is great for small scale, village level, and/or experimental projects. However, in order to power a significant portion of the global industrial economy on it, we would need the following:
1.Hundreds of trillions of dollars to construct fleets of hydrogen powered cars, trucks, boats, and airplanes.
2.Hundreds, if not thousands, of oil-powered factories to accomplish number one.
3.The construction of a ridiculously expensive global refueling and maintenance network for number one.
4.Mind-boggingly huge amounts of platinum, silver, and copper, and other raw materials that have already entered permanent states of scarcity.
IV. Painfully Low Starting Point
Finally, most people new to this issue drastically overestimate the amount of energy we will be able to realistically derive from these sources inside of the next 5-25 years. If the previous examples didn't convince you that solar and wind are incapable of replacing oil and gas on more than a small scale/supplemental level, consider the following, easily verifiable facts:
In 2003, the US consumed 98 quadrillion BTU's of energy. A whopping .171 quadrillion came from solar and wind combined. Do the math (.171/98) and you will see that a total of less then one-sixth of one percent of our energy appetite was satisfied with solar and wind combined. Thus, just to derive a paltry 2-3 percent of our current energy needs from solar and wind, we would need to double the percentage of our energy supply derived from solar/wind, then double it again, then double it again, and then double it yet again.
Unfortunately, the odds of us upscaling our use of solar and wind to the point where they provide even just 2-3 percent of our total energy supply are about the same as the odds of Michael Moore and Dick Cheney teaming up to win a 5K relay race. Despite jaw-dropping levels of growth in these industries, coupled with practically miraculous drops in price per kilowatt hour (95% drop in two decades), along with increased interest from the public in alternative energies, the percentage of our total energy supply derived from solar and wind is projected to grow by only 10 percent per year.
Since we are starting with only one-sixth of one percent of our energy coming from solar and wind, a growth rate of 10 percent per year isn't going to do much to soften a national economic meltdown. Twenty-five years from now, we will be lucky if solar and wind account for one percent of our total energy supply.
While other alternative energy sources, such as wave and geothermal power, are fantastic sources of energy in and of themselves, they are incapable of replacing more than a fraction of our petroleum usage for the same reasons as solar and wind: they are nowhere near as energy dense as petroleum and they are inappropriate as transportation fuels. In addition, they are also limited by geography - wave power is only technically viable in coastal locations. Only a handful of nations, such as Iceland, have access to enough geothermal power to make up for much of their petroleum consumption.
This is by no means reason not to invest in these alternatives. We simply have to be realistic about what they can and can't do. On a household or village scale, they are certainly worthy investments. But to hope/expect they are going to power more than a small fraction of our forty-five trillion dollar per year (and growing) global industrial economy is woefully unrealistic.
On a related note, even if solar, wind, and other green alternatives could replace oil, we still wouldn't escape the evil clutches of so called "Big Oil." The biggest maker of solar panels is British Petroleum with Shell not too far behind. Similarly, the second biggest maker of wind turbines is General Electric, who obtained their wind turbine business from that stalwart of corporate social responsibility, Enron. As these examples illustrate, the notion that "Big Oil is scared of the immerging renewable energy market!" is silly. "Big Oil" already owns the renewable energy market.
"What About the Hydrogen Economy?"
Hydrogen isn't the answer either. As of 2003, the average hydrogen fuel cell costs close to $1,000,000. Unlike other alternatives, hydrogen fuel cells have shown little sign of coming down in price. Unfortunately, hydrogen and/or hydrogen fuel cells will never power more than a handful of cars due to the following reasons:
I. Astronomical Cost of Fuel Cells
With the fuel cell powered cars themselves costing $1,000,000 a piece, replacing 210 million cars (about 1/4 of the world's fleet) with fuel cell powered cars is going to cost $210,000,000,000,000 (two-hundred and ten trillion dollars).
Furthermore, as a recent article in EV World points out, the average fuel cell lasts only 200 hours. Two hundred hours translates into just 12,000 miles, or about one year’s worth of driving at 60 miles per hour. That's not much of a deal for a car with a million-dollar price tag.
That doesn't even begin to address the cost of replacing a significant portion of the millions upon millions of oil-powered airplanes, boats, trucks, tractors, trailers, etc., with fuel cells nor the construction of a worldwide system to maintain all of these new technologies.
II. Platinum Supply
A single hydrogen fuel cell requires approximately 20-50 grams of platinum. Let's say we want to replace 1/4 of the world's petroleum powered cars with hydrogen fuel cell powered cars. Twenty-to-fifty grams of platinum per fuel cell x 210 million fuel cells equals between 4.2 billion and 10.5 billion grams of platinum required for the conversion. Unfortunately, world platinum production is currently at only about 240 million grams per year, most of which is already earmarked for thousands of indispensable industrial processes.
If the hydrogen economy was anything other than a total red herring, such issues would eventually arise as 80 percent of the world’s proven platinum reserves are located in that bastion of geopolitical stability, South Africa.
Even if an economically affordable and scalable alternative to platinum is immediately located and mined in absolutely massive quantities, the ability of hydrogen to replace even a small portion of our oil consumption is still handicapped by several fundamental limitations, some of which are detailed below. NASA, which fuels the space shuttle with hydrogen, may be able to afford to get around the following challenges, but there is a big difference between launching a single space shuttle and running a global economy with a voracious and constantly growing appetite for energy.
III. Inability to Store Massive Quantities at Low Cost:
Hydrogen is the smallest element known to man. This makes it virtually impossible to store in the massive quantities and to transport across the incredibly long distances at the low costs required by our vast global transportation networks. In her February 2005 article entitled "Hydrogen Economy: Energy and Economic Blackhole," Alice Friedemann writes:
Hydrogen is the Houdini of elements. As soon as you’ve gotten it into a container, it wants to get out, and since it’s the lightest of all gases, it takes a lot of effort to keep it from escaping. Storage devices need a complex set of seals, gaskets, and valves. Liquid hydrogen tanks for vehicles boil off at 3-4% per day.
While some research into hydrogen storage technologies looks promising, it is still in the experimental stages and decades (at the earliest) from being ready to scale on an industrial level.
IV. Massive Cost of Hydrogen Infrastructure:
A hydrogen economy would require massive retrofitting of our entire global transportation and fuel distribution networks. At a million dollars per car, it would cost $350,000,000,000,000 to replace half of our current automotive fleet (700 million cars world wide) with hydrogen fuel cell powered cars.
That doesn't even account for replacing a significant fraction of our oil-powered airplanes or boats with fuel cells.
The numbers don't get any prettier if we scrap the fuel cells and go with straight hydrogen. According to a recent article in Nature, entitled "Hydrogen Economy Looks Out of Reach:"
Converting every vehicle in the United States to hydrogen power would demand so much electricity that the country would need enough wind turbines to cover half of California or 1,000 extra nuclear power stations.
Unfortunately, even if we managed to get this ridiculously high number of wind turbines or nuclear power plants built, we would still need to build the hydrogen powered cars, in addition to a hydrogen distribution network that would be mind-boggingly expensive. The construction of a hydrogen pipeline network comparable to our current natural gas pipeline network, for instance, would cost 200 trillion dollars. That's twenty times the size of the US GDP in the year 2002.
How such capital intensive endeavors will be completed in the midst of massive energy shortages is anybody's guess.
V. Hydrogen's "Energy Sink" Factor:
As mentioned previously, solar, wind, or nuclear energy can be used to "crack" hydrogen from water via a process known as electrolysis. The electrolysis process is a simple one, but unfortunately it consumes more energy than it produces. This has nothing to do with the costs and everything to do with the immutable laws of thermodynamics. Again, Alice Friedemann weighs in:
The laws of physics mean the hydrogen economy will always be an energy sink. Hydrogen’s properties require you to spend more energy to do the following than you get out of it later: overcome waters’ hydrogen-oxygen bond, to move heavy cars, to prevent leaks and brittle metals, to transport hydrogen to the destination. It doesn’t matter if all of the problems are solved, or how much money is spent. You will use more energy to create, store, and transport hydrogen than you will ever get out of it.
Even if these problems are ignored or assumed away, you are still faced with jaw-dropping costs of a renewable derived hydrogen economy. In addition to the 200 trillion dollar pipeline network that would be necessary to move the hydrogen around, we would need to deploy about 40 trillion dollars of solar panels. If the hydrogen was derived from wind (which is usually more efficient than solar) the cost might be lowered considerably, but that's not saying much when you are dealing with numbers as large as $40 trillion.
As far as how much you as the consumer would pay for hydrogen fuel derived from renewable resources, Joseph Romm, author of The Hype About Hydrogen, estimates you will have to pay $10-$20 per gallon of gasoline equivalent. That's assuming you can even find a renewable-hydrogen filling station.
Even if the costs of these projects are cut in half, that makes little difference over the course of a generation, as our economy doubles in size approximately every 25-30 years. In other words, by the time we will have made any real headway in constructing a "hydrogen economy", the problem will have already compounded itself.
If the "hydrogen economy" is such a hoax, why then do we hear so much about it? The answer is simple when you "follow the money" and ask "who benefits?" (Hint: GM, Shell, et al.)
"What About Nuclear Energy?"
Nuclear energy requires uranium, which is problematic because as David Petch explains in his article "Peak Oil and You", even in the most optimistic scenarios, uranium will soon be in short supply:
Currently, uranium production falls incredibly short of the demand. As oil resources become scarce, uranium will have more pressure put upon it as a resource. All three different scenarios have a similar course until around 2013, where they part trails. By 2020, there is a serious uranium shortage.
Let's assume a Pollyanna position and assume that uranium deposits can be doubled up in the coming decade. Figure 3 illustrates the 3 different scenarios, depending on the net increase in consumption per year. Rather than 2013 being a focal year, it is stretched out by 3 years to 2016.
Uranium supply issues aside, nuclear energy (like solar and wind) is not an economically or energetically feasible transportation fuel. Put simply, you can't power your car with a nuclear reactor in the trunk.
Even if these problems are assumed away, a large scale switch over to nuclear power is still not going to do all that much to solve our problems due to the cost and time frames involved in the construction of nuclear power plants. It would take 10,000 of the largest nuclear power plants to produce the energy we get from fossil fuels. At $3-5 billion per plant, it's not long before we're talking about "real money" - especially since the $3-5 billion doesn't even include the cost of decommissioning old reactors, converting the nuclear generated energy into a fuel source appropriate for cars, boats, trucks, airplanes, and the not-so-minor problem of handling nuclear waste.
Speaking of nuclear waste, it is a question nobody has quite answered yet. This is especially the case in countries such as China and Russia, where safety protocols are unlikely to be strictly adhered to if the surrounding economy is in the midst of a desperate energy shortage. It may also be true in the case of the US because, as James Kunstler points out in his recent book, The Long Emergency:
. . . reactors may be beyond the organizational means of the society we are apt to become in the future, mainly one with much weaker central authority, less police power, and reduced financial resources . . . in the absence of that (cheap) oil we can't assume the complex social organization needed to run nuclear energy safely.
Assuming we find answers to all questions regarding the cost and safety of nuclear power, we are still left with the most vexing question of all:
Where are we going to get the massive amounts of oil necessary to build hundreds, if not thousands, of these reactors, especially since they take 10 or so years to build
and we won't get motivated to build them until after oil supplies have reached a point of permanent scarcity?
Remember, once we get the reactors built, we still have the not-so-inexpensive task of retrofitting a significant portion of the following to run on nuclear-derived electricity:
1. 700 million oil-powered cars traversing the world's roads;
2. Millions of oil-powered airplanes crisscrossing the world's skies;
3. Millions of oil-powered boats circumnavigating the world's oceans.
Scientists have made some progress in regards to nuclear fusion, but the road from success in tabletop laboratory experiments to use as an industrial scale replacement for oil is an extremely long one that, even in the most favorable of circumstances, will take decades to traverse.
"What About Biofuels Such as Ethanol and Biodiesel?"
Biofuels such as biodiesel, ethanol, methanol etc. are great, but only in small doses. Biofuels are all grown with massive fossil fuel inputs (pesticides and fertilizers) and suffer from horribly low, sometimes negative, EROEIs. The production of ethanol, for instance, requires six units of energy to produce just one. That means it consumes more energy than it produces and thus will only serve to compound our energy deficit.
In addition, there is the problem of where to grow the stuff, as we are rapidly running out of arable land on which to grow food, let alone fuel. This is no small problem as the amount of land it takes to grow even a small amount of biofuel is quite staggering. As journalist Lee Dye points out in a July 2004 article entitled "Old Policies Make Shift From Foreign Oil Tough:"
. . . relying on corn for our future energy needs would devastate the nation's food production. It takes 11 acres to grow enough corn to fuel one automobile with ethanol for 10,000 miles, or about a year's driving, Pimentel says. That's the amount of land needed to feed seven persons for the same period of time.
And if we decided to power all of our automobiles with ethanol, we would need to cover 97 percent of our land with corn, he adds.
Biodiesel is considerably better than ethanol, (and probably the best of the biofuels) but with an EROEI of three, it still doesn't compare to oil, which has had an EROEI of about 30.
While any significant attempt to switch to biofuels will work out great for giant agribusiness companies (political campaign contributors) such as Archer Daniels Midland, ConAgra, and Monsanto, it won't do much to solve a permanent energy crisis for you.
The ghoulish reality is that if we wanted to replace even a small part of our oil supply with farm grown biofuels, we would need to turn most of Africa into a giant biofuel farm, an idea that is currently gaining traction in some circles. Obviously many Africans - who are already starving - would not take kindly to us appropriating the land they use to grow their food to grow our fuel. As journalist George Monbiot points out, such an endeavor would be a humanitarian disaster.
Some folks are doing research into alternatives to soybeans such as biodiesel producing pools of algae. As with every other project that promises to "replace all petroleum fuels," this project has yet to produce a single drop of commercially available fuel. This hasn't prevented many of its most vocal proponents from insisting that algae grown biodiesel will solve our energy problems. The same is true for other, equally ambitious plans such as using recycled farm waste, switchgrass, etc. These projects all look great on paper or in the laboratory. Some of them may even end up providing a small amount of commercially available energy at some undetermined point in the future. However, in the context of our colossal demand for petroleum and the small amount of time we have remaining before the peak, these projects can't be expected to be more than a "drop in the bucket."
Tragically, many well-meaing people attempting to develop solutions don't even understand this. As Dr. Ted Trainer explains in a recent article on the thermodynamic limitations of biomass fuels:
This is why I do not believe consumer-capitalist society can save itself. Not even its "intellectual" classes or green leadership give any sign that this society has the wit or the will to even think about the basic situation we are in. As the
above figures make clear, the situation cannot be solved without huge reduction in the volume of production and consumption going on.
The current craze surrounding biodiesel is a good example of what Dr. Trainer is talking about. While folks who have converted their personal vehicles to run on vegetable oil should certainly be given credit for their noble attempts at reducing our reliance on petroleum, the long-term viability of their efforts is questionable at best. Once our system of food production collapses due to the effects of Peak Oil, vegetable oil will likely become far too precious/expensive a commodity to be burned as transportation fuel for anybody but the super-rich. As James Kunstler points out in an April 2005 update to his blog "Cluster Fuck Nation", many biodiesel enthusiasts are dangerously clueless as to this reality:
Over in Vermont last week, I ran into a gang of biodiesel enthusiasts. They were earnest, forward-looking guys who would like to do some good for their country. But their expectations struck me as fairly crazy, and in a way typical of the bad thinking at all levels of our society these days.
For instance, I asked if it had ever occurred to them that biodiesel crops would have to compete for farmland that would be needed otherwise to grow feed crops for working animals. No, it hadn't. (And it seemed like a far-out suggestion to them.) Their expectation seemed to be that the future would run a lot like the present, that bio-diesel was just another ingenious, innovative, high-tech module that we can "drop into" our existing system in place of the previous, obsolete module of regular oil.
Kunstler goes on to explain that when policies or living/working arrangements are set up around such unexamined expectations, the result is usually a dangerous deepening of our reliance on cheap energy and "easy motoring."
Biodiesel advocates can get downright nasty when somebody points out any of the above described limitations of their favorite fuel. For instance, in a December 2005 article entitled, "The Most Destructive Crop on Earth No Solution to the Energy Crisis," well known progressive journalist George Monbiot, recounted his experiences attempting to point out the limits of biodiesel:
The last time I drew attention to the hazards of making diesel fuel from vegetable oils, I received as much abuse as I have ever been sent for my stance on the Iraq war. The biodiesel missionaries, I discovered, are as vociferous in their denial as the executives of Exxon.
If biofuels such as biodiesel and ethanol are such poor substitutes for oil, why then do you hear about them so much? The answer becomes obvious once you follow the money: the vast majority of the biofuels produced in this country are (as mentioned earlier) produced by giant agribusiness conglomerates such as Archer Daneiles Midland. Investigative reporter Mike Ruppert points out:
Archer Daniels Midland laughs all the way to the bank. With a price to earnings (P/E) ratio of 17:1, every dollar of net profit thrown into their coffers by politicians or investment advisors selling the snake oil of alternative fuels generates $17 in stock value which ADM will happily sell off before all markets succumb to Peak Oil. That $17 came out of your pocket whether you invested or not.
"What About Synthetic Oil From Coal?"
Coal can be used to make synthetic oil via a process known as gasification. Unfortunately, synthetic oil will be unable to do all that much to soften the coming energy crash for the following reasons:
I. Insufficiency of Supply/"Peak Coal":
The coal supply is not as great as many assume. According to a July 2004 article published by the American Institute of Physics:
If demand remains frozen at the current rate of consumption, the coal reserve will indeed last roughly 250 years. That prediction assumes equal use of all grades of
coal, from anthracite to lignite. Population growth alone reduces the calculated lifetime to some 90−120 years. Any new uses of coal would further reduce the supply. . . .The use of coal for conversion to other fuels would quickly reduce the lifetime of the US coal base to less than a human lifespan.
Even a 50-75 year supply of coal is not as much as it sounds because coal production, like oil production, will peak long before the total supply is exhausted. Were we to liquefy a large portion of our coal endowment in order to produce synthetic oil, coal production would likely peak within 2 decades.
II. Falling "Energy Profit Ratio":
As John Gever explains in his book, Beyond Oil: The Threat to Food and Fuel in Coming Decades, the production of coal will be in energy-loser within a few decades:
. . . the energy profit ratio for coal slips to 20 in 1977, comparable to that of domestic petroleum. While an energy profit ratio of 20 means that only 5 percent of coal's gross energy is needed to obtain it, the sharp decline since 1967 is
alarming. If it continues to drop at this rate, the energy profit ratio of coal will slide to 0.5 by 2040.
In other words, with an EPR of .5, it will take twice as much energy to produce the coal than the coal actually contains. It will thus be of no use to us as an energy source.
III. Issue of Scale and Environmental Catastrophe:
The environmental consequences of a huge increase in coal production would be truly catastrophic. Caltech physics professor Dr. David Goodstein explains:
We use now about twice as much energy from oil as we do from coal, so if you wanted to mine enough coal to replace the missing oil, you’d have to mine it at a much higher rate, not only to replace the oil, but also because the conversion process to oil is extremely inefficient. You’d have to mine it at levels at least five times beyond those we mine now—a coal-mining industry on an absolutely unimaginable scale.
In his book, Out of Gas:The End of the Oil Age, Dr. Goodstein tells us that a large scale switch to coal could produce such severe global warming that life on planet Earth would cease to exist.
"Can't We Use a Combination of the Alternatives to Replace Oil?"
Absolutely. Despite their individual shortcomings, it is still possible for the world economy to run on a basket of alternative sources of energy - so long as we immediately get all of the following:
1.A few dozen technological breakthroughs;
2.Unprecedented political will and bipartisan cooperation;
3.Tremendous international collaboration;
4.Massive amounts of investment capital;
5.Fundamental reforms to the banking system;
6.No interference from the oil-and-gas industries;
7.About 25-50 years of general peace and prosperity to retrofit the world's $45 trillion dollar per year economy, including transportation and telecommunication
networks, manufacturing industries, agricultural systems, universities, hospitals, etc., to run on these new sources of energy.
8.A generation of engineers, scientists, and economists trained to run a global economy powered by new sources of energy.
9.Rational elected officials and capable government appointees to manage the generation long transition.
If we get all of the above, we might be able to get the energy equivalent of 3-5 billion barrels of oil per year from alternative sources.
That's a tremendous amount of oil - about as much as the entire world used per year during the 1950s, but it's nowhere near enough to keep our currently mammoth-sized yet highly volatile global economic system going. The world currently requires over 30 billion barrels/1.2 trillion gallons of oil per year to support economic growth. That requirement will only increase as time goes on due to population growth, debt servicing, and the industrialization of nations such as China and India.
So even if the delusionally optimistic 8-step scenario described above is somehow miraculously manifested, we're still facing a 70-90% reduction in the amount of energy available to us. A 70-90% reduction would be extremely painful, but not the "end of the world" if it wasn't for the fact that, as explained above, the monetary system will collapse in the absence of a constantly increasing energy supply. If a shortfall between demand and supply of 5% is enough to send prices up by 400%, what to you think a shortfall of 70-90% is going to do?
To make matters worse, even if the all of the above obstacles are assumed away, we are still faced with the problem of "economic doubling time." If the economy grows at a healthy clip of 3.5% per year, it doubles in size every 20 years. That growth must be fueled by an energy supply that doubles just as quickly. Thus, our total "energy debt" will have compounded itself by the time we have made any major strides in switching to alternative sources of energy.
"What About Amazing New Technologies Such As Thermal Depolymerization, Solar Nanotech, Space Based Solar Arrays, and other 'Energy-Miracles'?"
I. Thermal Depolymerization
Thermal depolymerization is an intriguing solution to our landfill problems, but since most of the feedstock (such as tires and turkey guts) requires high-grade oil to make in the first place, it is more "high-tech recycling" than it is a solution to a permanent oil shortage.
While the following analogy is certainly a bit disgusting, it should clearly illustrate why thermal depolymerization won't do much to soften the coming collapse:
Expecting thermal depolymerization to help solve our long term energy problems makes as much sense as expecting the consumption of our own feces to help solve a long-term
In both cases, the energy starved party is simply recycling a small portion of the energy they had previously consumed.
On a less grotesque note, the technology is besieged by several fundamental shortcomings that those desperately hoping for a techno-messiah tend to overlook:
First, there is the problem of production costs. According to a recent article in Fortune Magazine, a barrel of oil produced via the thermal depolymerization process costs $80 to produce as of January 2005. To put that figure in perspective, consider the fact that oil pulled out of the ground in Saudi Arabia costs less than $2.50 per barrel, while oil pulled out of the ground in Iraq costs only $1.00 per barrel.
This means that with spot oil prices in the $50/barrel range, a barrel of oil produced via thermal depolymerization in January 2005 would have to sell for between $1,600-$4,000 per barrel to have a return on investment comparable to oil produced from Saudi Arabia or Iraq.
Oil prices of $1,600-$4,000 per barrel would put gas prices at roughly $80-$200 per gallon.
If the technology was the miracle many people are desperately hoping for, the company would likely not have needed a grant from the Department of Energy to keep its head above water. Nor would it have been the subject of an April 2005 Kansas City Star article appropriately entitled, "Innovative Turkey-to-Oil Plant Eats Money, Spits Out Fowl Odor."
Sky-high production costs and horrific odor problems aside, a look at the history of thermal depolymerization tends to show it will never amount to more than a tiny drop in the giant barrel that is our oil appetite.The technology was first developed for commercial use in 1996. Here we are, ten years later and there is only one thermal depolymerization plant online and it is producing less than 500 barrels of oil per day, despite record high oil prices. Even if oil production from thermal depolymerization is upscaled by a factor of 1,000, and the cost of production brought down by a factor of 10, it will still only be producing 500,000 barrels of oil per day. While that may make a tremendous amount of money for the company, it won't make much difference in our overall situation as the global need for oil is projected to reach 120,000,000 barrels per day by 2020.
If thermal depolymerization sounded "too good to be true" when you first heard about it, now you know why. Again, as with other alternatives, we shouldn't let these challenges discourage continued research, development, and investment into the technology. However, we have to be realistic about what the technology can and can't do. If you're a big agribusiness or energy company, you may want to look into thermal depolymerization. If, on the other hand, you're just a regular person trying to figure out how you're going to acquire things like food, water, and shelter in a post-cheap oil world, you may as well forget about thermal depolymerization. It is never going to make a discernable contribution to your standard of living.
II. Space Based Solar Arrays
As disappointing as thermal depolymerization has been to those hoping for a techno-savior, at least it has produced a small amount of commercially available energy. The same cannot be said for space-based solar arrays, which according to NASA, are plagued by "major technical, regulatory and conceptual hurdles" and won't see the light of day for several decades.
Even if these major hurdles are somehow cleared inside of 5 years instead of 50 years, there is still the not-so-minor problem of rewiring all of industrial civilization - including agriculture, communications, transportation, defense, health care, education, industry, government, finance/banking, etc. . . to run on space-derived solar energy.
Of course, before the global rewiring can begin, we have to find the energy, raw materials, political willingness, financial capital, etc. to get such a project off the ground.
We also have to find a way to prevent China's million man standing army from snapping up all the raw materials necessary to make the transition.
III. Solar Nanotechonology
While there are some promising technological advancements in solar-nanotechnology, even Dr. Richard Smalley, the scientist at the forefront of these technologies, admits we need a series of "miracles" to prevent a total collapse of industrial civilization.
In the February 2005 issue of Discover Magazine, Dr. Smalley gave the following prognosis:
There will be inflation as billions of people compete for insufficient resources. There will be famine. There will be terrorism and war.
He went on to say that it will take "presidential leadership" to inspire us to pursue technologies that might alleviate this crisis.
In other words, the chances of technology saving you from the coming economic collapse are about the same as the chances of another virgin-birth taking place.
For you or any other "average" person to expect high-tech solutions to save you from the economic effects of Peak Oil is akin to a person living in sub-Saharan Africa to expect high-tech medical treatments to save their community from the effects of AIDS. These treatments are only available and affordable for super-wealthy people like Magic Johnson, not the average people in Africa.
Likewise, many of the recent technological advancements in energy production and efficiency may be available and affordable to extraordinarily wealthy people or agencies like the Department of Defense, but they aren't going to be available or affordable to the rest of us.
"What About Super Fuel Efficient and/or Electric Cars?"
Hybrids or so called "hyper-cars" aren't the answer either because the construction of an average car consumes the energy equivalent of approximately 27-54 barrels (1,110-2,200 gallons) of oil. Thus, a crash program to replace the 700 million internal combustion vehicles currently on the road with super fuel-efficient or alternative fuel-powered vehicles would consume the energy equivalent of approximately 18-36 billion barrels of oil, which is the amount of oil the world currently consumes in six-to-twelve months. Consequently, such a program (while well-intentioned) would actually bring the collapse upon us even sooner.
II. Electric Vehicles
Electric vehicles are incapable of replacing more than a small fraction (5 or maybe 10%) of the 700 million internal combustion engine powered cars on the road due to the limits of battery technology. Dr. Walter Youngquist explains:
. . . a gallon of gasoline weighing about 8 pounds has the same energy as one ton of conventional lead-acid storage batteries. Fifteen gallons of gasoline in a car's tank are the energy equal of 15 tons of storage batteries.
Even if much improved storage batteries were devised, they cannot compete with gasoline or diesel fuel in energy density. Also, storage batteries become almost useless in very cold weather, storage capacity is limited, and batteries need to be replaced after a few years use at large cost.
There is no battery pack which can effectively move heavy farm machinery over miles of farm fields, and no electric battery system seems even remotely able to propel a
Boeing 747 14 hours nonstop at 600 miles an hour . . .
Some promising research into new battery technlogies using lithium is being performed, but even the scientists at the forefront of this research admit, "We've got a long way to go."
Assuming these problems away, the construction of an average car also consumes 120,000 gallons of fresh water. Unfortunately, the world is in the midst of a severe water crisis that is only going to get worse in the years to come. Scientists are already warning us to get ready for massive "water wars."
Thus, the only way for us to replace our current fleet of gas-guzzling SUVs with fuel-efficient hybrids or electric vehicles is to seize control of the world's reserves of both oil and fresh water and then divert those resources away from the billions of people who already rely on them.
Even if we are willing to undertake such an endeavor, the problem will still not be solved due to a phenomenon known as "Jevon's Paradox," whereby increases in energy efficiency are obliterated by corresponding increases in energy consumption.
The US economy is a good example of Jevon's Paradox in action. Since 1970, we have managed to cut in half the amount of oil necessary to generate a dollar of GDP. At the same time, however, our total level of oil consumption has risen by about fifty percent while our level of natural gas and coal consumption have risen by even more. Thus, despite massive increases in the energy efficiency over the last 35 years, we are more dependent on oil than ever. This trend is unlikely to be abated in a market economy, where the whole point is to make as much money (consume as much energy) as possible.
"What About Large-Scale Efforts at Conserving Energy or Becoming More Energy Efficient?"
Amazingly, such efforts will actually make our situation worse. This probably makes absolutely no sense unless you understand how the modern day banking and monetary system works. To illustrate, let's revisit Jevon's Paradox, explained above, with an example:
Pretend you own a computer store and that your monthly energy bill, as of December 2004, is $1,000. You then learn about the coming energy famine and decide to do your part by conserving as much as possible. You install energy efficient lighting, high quality insulation, and ask your employees to wear sweaters so as to minimize the use of your store's heating system.
After implementing these conservation measures, you manage to lower your energy bill by 50% - down to $500 per month.
While you certainly deserve a pat-on-the-back and while your business will certainly become more profitable as a result of your conservation efforts, you have in no way helped reduce our overall energy appetite. In fact, you have actually increased it.
At this point, you may be asking yourself, "How could I have possibly increased our total energy consumption when I just cut my own consumption by $500/month? That doesn't seem to make common sense . . .?"
Well think about what you're going to do with that extra $500 per month you saved. If you're like most people, you're going to do one of two things:
1. You will reinvest the $500 in your business. For instance, you might spend the $500 on more advertising. This will bring in more customers, which will result in more computers being sold. Since, as mentioned previously, the average desktop computer consumes 10X it's weight in fossil-fuels just during its construction, your individual effort at conserving energy has resulted in the consumption of more energy.
2. You will simply deposit the $500 in your bank account where it will accumulate interest. Since you're not using the money to buy or sell anything, it can't possibly be used to facilitate an increase in energy consumption, right?
Wrong. For every dollar a bank holds in deposits, it will loan out between six and twelve dollars. These loans are then used by the bank's customers to do everything from starting businesses to making down payments on vehicles to purchasing computers.
Thus, your $500 deposit will allow the bank to make between $3,000 and $6,000 in loans - most of which will be used to buy, build,or transport things using fossil fuel energy.
Typically, Jevon's Paradox is one of the aspects of our situation that people find difficult to get their minds around. Perhaps one additional example will help clarify it:
Think of our economy as a giant petroleum powered machine that turns raw materials into consumer goods which are later turned into garbage:
Petroleum In > Garbage Out >
If you remove the machine's internal inefficiencies, the extra energy is simply reinvested into the petroleum supply side of the machine. The machine then consumes petroleum and spits out garbage at an even faster rate.
The only way to get the machine to consume less petroleum is for whoever owns/operates the machine to press the button that says "slow-down." However, since we are all dependent on the machine for jobs, food, affordable health care, subsidies for alternative forms of energy, etc., nobody is going to lobby the owners/operators of the machine to press the "slow-down" button until it's too late.
Eventually (sooner than later) the petroleum plug will get pulled and the machine's production will sputter before grinding to a halt. At that point, those of us dependent on the machine (which means all of us) will have to fight for whatever scraps it manages to spit out.
To be clear: conservation will benefit you as an individual. If, for instance, you save $100/month on your energy bills, you can roll that money into acquiring skills or resources that will benefit you as we slide down the petroleum-production downslope. But since your $100 savings will result in a net increase in the energy consumed by society as a whole, it will actually cause us to slide down the downslope faster. (Note: for examples of Jevon's Paradox in action in other areas, click here.)
"What's Going to Happen to the Economy?"
The US economy is particularly vulnerable to the coming oil shocks as we consume a greater proportion of the world's oil than any other nation. The unparalleled prosperity experienced in this country during the last 100 years was built entirely on cheap oil. Until the late 19th century, the US economy was primarily agrian in nature. Oil was discovered in 1859 but did not become a truly important industrial fuel until Henry Ford began mass producing automobiles in the early 1900s. The mass production of automobiles became a cornerstone of the US economy while allowing people to move out of the cities and into the suburbs.
The expansion of the suburbs fueled the real estate and housing booms of the 20th century, which in turn fueled the US steel, copper, construction, etc. industries. A system of finance sprung up that facilitated these booms while simultaneously becoming dependent on them.
These trends are still driving the US economy here in the 21st. Consider for instance, the following factoids about the U.S.
1. According to the American Automobile Manufacturers Association, one out of every seven jobs in the US is dependent on automobile manufacturing.
2. According to an August 2005 report by Merrill Lynch, half of the new jobs created in the US since 2001 are dependent on housing construction.
3. Most of the automobile and home purchases in this country are made with interest-bearing loans which, absent a hyperinflationary monetary policy, can only be paid back en masse if the economy grows. Amazingly, the US economy, at least in its current incarnation, can only grow if people can afford to drive more. As researcher Stuart Staniford has shown in a series of graphs originally published on The Oil Drum, a strong causal (if not virtually direct) relationship exists between miles driven and economic growth:
In short, the US has built it's entire infrastructure and way of life under the assumption oil would always be cheap and plentiful. Moreover, it has made next to no rational prepartions for the day when oil is either too scarce or too expensive to be consumed at such prodigious rates. We are thus, as a society, wholly unprepared for what awaits us.
As far as what the specific economic effects will be, consider the conclusions a group of top officials came to when they gathered in Washington D.C. to conduct "Oil Shockwave", a simulation exercise aimed at examining how the US economy would be effected by a small (3.5 mbd) disruption in the global oil supply. Professor Michael Klare, author of Resource Wars: The New Landscape for Global Conflict summarizes their conclusions as follows:
A 3.5 mbd reduction in supply would cause:
1.Global oil prices exceeding $150 per barrel.
2.Gasoline prices of $5.00 or more per gallon.
3.A spike in the consumer price index of more than 12%.
4.A decline of over 25% in the Standard & Poor’s 500 stock index.
5.A crisis with China over Taiwan.
6.Increased friction with Saudi Arabia over US policy toward Israel.
Remember, the simulation involved the removal of only 3.5 million barrels per day of oil from the global market. For a global economy that consumes 83 million barrels per day, this is a reduction in supply of only 4.2%. What's going to happen when the supply is reduced by that much or more every year?
Given that any large scale plan to mitigate these problems would need to have been initiated on a global scale at least 20 years ago, it is hard to envision the economy not collapsing as a result of these trends.
How Are People Likely to React to This?
As the US economy begins to disintegrate, civil unrest may become increasingly violent and widespread. Each faction of the American body-politic will likely rally around reactionary political demagogues/movements who promise to bring back the good days by eliminating whatever domestic or foreign group(s) they have decided to scapegoat. Liberals will blame "Bush, Big-Oil and the Hard Right Neocons" while conservatives will blame "Bin-Laden, Big-Government, and the Extreme Left Environmentalists." Mexican immigrants, conservative Christians, gays, and other groups may also be scapegoated.
The anticipation of massive unrest may be the real reason why the Department of Homeland Security recently contracted with a subsidiary of Halliburton to build massive new domestic detenetion camps.
In 1985, the authors of Beyond Oil: The Threat to Fuel and Food in the Coming Decades, warned us of such possiblities:
A stagnant or shrinking economy will have a major effect on society’s expectations. With few exceptions, each generation in the United States has become materially better off than the preceding one. This pattern of increasing wealth has become an indelible part of the American Dream; a higher standard of living than our parents is practically a birthright.
These expectations are the standard against which actual performance is judged. During times of failed expectations, a society is especially vulnerable to a person or philosophy promising to restore it to its former glory. The fall of the Weimar Germany is probably the best example.
As commentator Robert Freeman pointed out in 2004, the end of oil may result in the end of America as we know it.
"Are Governments Planning For This?"
If their recent actions are any indicator, the answer is "absolutely."
The US government has been aware of Peak Oil since at least 1977 when the CIA prepared a report on it. As Professor Richard Heinberg has commented:
The 1977 CIA document shows clear and detailed awareness of oil issues, including depletion, extraction technologies, pipelines, areas of likely new discovery, the quality of existing reserves, and the dynamics of the global oil market.
The CIA has obviously been studying oil very carefully for some time and must therefore understand the issue of global oil peak.
In 1982, the State Department released its own report which stated:
. . . world petroleum production will peak in the 1990-2010 interval at 80-105 million barrels per day, with ultimate resources estimated at 2,100 billion barrels.
In short, the US government has been aware of and actively planning for this crisis for over 30 years. Three decades of careful, plotting analysis has yielded a comprehensive, sophisticated, and multi-faceted plan in which military force will be used to secure and control the globe's energy resources. This plan is simplistically, but not altogether inaccurately - known as "Go to War to Get Oil."
This strategy was publicly announced in April 2001, when a report commissioned by Dick Cheney was released. According to the report, entitled Strategic Energy Policy Challenges For The 21st Century, the US is facing the biggest energy crisis in history and that the crisis requires "a reassessment of the role of energy in American foreign policy."
That's a diplomatic way of saying we are going to be fighting oil wars for a very long time.
James Woolsey, the former Director of the CIA, practically admitted as much at a recent conference on renewable energy:
I fear we're going to be at war for decades, not years . . .Ultimately we will win it, but one major component of that war is oil.
Recent statements by Henry Kissinger echo those of Woolsey. In a June 2005 Financial Times article entitled, "Kissinger Warns of Energy Conflict," Kissinger was quoted as saying:
The amount of energy is finite, up to now in relation to demand, and competition for access to energy can become the life and death for many societies.
Kissinger distinguished these energy conflicts from previous conflicts such as the Cold War:
When nuclear weapons spread to 30 or 40 countries and each conducts a calculation, with less experience and different value systems, we will have a world of permanent
The war in Iraq, which has been 23 years in the making, is just the beginning of a worldwide war that "will not end in our lifetime." The reason our leaders are telling us the "war on terror will last 50 years" and that the U.S. engagement in the Middle East is now a "generational commitment" is two-fold:
1. All the countries accused of harboring terrorists - Iraq, Iran, Syria, West Africa, Saudi Arabia - also happen to harbor large oil reserves.
2. Within 40-50 years, even these countries will see their oil reserves almost entirely depleted. At that point, the "war on terror" will come to an end.
While the Middle East countries find themselves targets in the "war on terror", China, Russia, and Latin America find themselves targets in the recently declared and much more expansive "war on tyranny." Whereas the "war on terror" is really a war for control of the world's oil reserves, this newly declared "war on tyranny" is really a war for control of the world's oil distribution and transportation chokepoints.
This type of large-scale, long-term warfare may require a massive expansion of the military draft. It's probably not a coincidence that the director of the Selective Service recently gave a presentation to Congress in which he recommended the military draft be extended to both genders, ages 18-35.
The strategy - as distasteful as it may be - is characterized by a Machiavellian logic. Given the thermodynamic deficiencies of the alternatives to oil, the complexity of a large scale switch to these new sources of energy, and the wrenching economic and social effects of a declining energy supply, you can see why our leaders view force as the only viable way to deal with the coming crisis.
"Is there Any Reason to Remain Hopeful?"
As far as the fate of society or the world as a whole, the most honest answer is "no." Our political processes are entirely controlled by massive corporations in the petroleum, defense, automotive, agribusiness, construction, and media industries. Most of the responses to this situation that would be favorable to you or me (such as mass transit and large scale urban gardens) would be at odds with the interests of these corporations. Thus, there is little realistic hope they will ever be aggresively pursued. The end result is likely to be a large scale societal collapse not unlike what happened to the Roman, Viking, and Mayan societies.
(See Collapse: How Societies Choose to Succeed or Fail by Jared Diamond or The Collapse of Complex Societies by Joseph Tainter for more information on previous societes which collapsed.)
As far as the fate of you and your family, that is a different story. Assumming you are willing to stay flexible, work hard, and encounter some good luck along the way, yes there is still hope you can carve a satisfactory existence out of some very unfavorable circumstances.
"What Can I do to Prepare?"
What you can or will do to prepare for this situation will depend on your age, health, marital status, geographic location, financial situation and other factors too numerous to mention. The best advice I can offer that applies to the widest number of people is to do the following to the best of your ability:
1. Relocate to an area as least vulnerable to these issues as possible, if doing so is economically feasible for you. If doing so is not economically feasible for you, then simply figure out how you might do best in your current location. As far as what to look for when relocating, consider the following: A) Access to fresh water,
B) Arable land on which to grow food C) Access to timber for heating, D) Moderate climate, E) Friendly population
2. Reallocate your financial assets so that you are as best positioned to handle these issues as you can realistically hope to be. Books by Stephen Leeb and the website http://www.financialsense.com are good places to start if you're looking for financial advice on these matters.
3. Relocalize your lifestyle as much as possible so that you are as least dependent on far-flung, petroleum-powered transportation and distribution networks as possible.
4. Strengthen your body so that you are as least dependent on our petroleum-dependent system of health care as possible.
5. Solidify any skills and/or social networks you have that might prove valuable in light of these changes.
6. If you're in shock and want to interact with others about these issues, check out the LATOC forum on emotional issues. Understand that being in shock is pretty much "par-for -the course" when it comes to learning about these issues. Trust me when I say it subsides after a while.
7. If you want to discuss personal preparation with others, check out the discussion forums at Savinar Solar and at the LATOC forum one self-sufficiency.
8. If you feel the need to tell friends or family, be forewarned that most people don't take too kindly to this information. Your best bet, in my opinion, is either send them an email with a link to this site and some of the other excellent Peak Oil websites or give them a copy of the documentary End of Suburbia.
There are endless ways you can begin preparing for these matters. What I've listed above are just some things to get you started. I encourage you to check some of the forums/discussion groups listed above so as to discuss these matters with others.
Best of luck,
Mattthew David Savinar, Esq.
Originally published: January 2004; Last revised: December 2005
The above article is excerpted from The Oil Age is Over: What to Expect as the World Runs Out of Cheap Oil 2005-2050, by Matthew David Savinar, Esq.; Copyright, Matthew David Savinar, Esq. 2004, 2005; All rights reserved.