interesting read.............Dear Reader,
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.
Graph: World Oil Production 1950-2050
Source: Dr. C.J. Campbell
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 have to deplete its entire reserves 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 3-6% per year, every year.
Almost all independent estimates from now disinterested scientists indicate global oil production will peak and go into terminal decline within the next five years.
Many geologists expect that 2005 will be the last year of the cheap-oil bonanza, while 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.
The long term ramifications of Peak Oil on our way of life are nothing short of mind blowing. As we slide down the downslope slope of the global oil production curve, we may find ourselves slipping into what some scientists are calling a "post-industrial stone age."
Graph: The Energy Curve of History?
Source: Community Solution
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 get one of those hybrid cars. 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 is also about to peak.
3. Farming implements such as tractors and trailers are constructed
and powered using oil;
4. Food distribution networks are entirely dependant on oil. In the US,
the average piece of food is transported 1,500 miles before it gets to
your plate;
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.
Most of the consumer goods you buy are made with plastic, which is derived from oil.
All manufacturing processes consume voracious amounts of oil. For instance, the average car - including hybrids - consumes the energy contained in 25-50 barrels (or about 1,200-2,400 gallons) of oil during its construction, while the average computer consumes 10 times its weight in fossil fuels during its construction.
All electrical devices - including solar panels and windmills - make use of silver, copper, and/or platinum, all of which are discovered, extracted, transported, and fashioned using oil-powered machinery.
Nuclear energy requires uranium, which is also discovered, extracted, and transported using oil-powered machinery. Nuclear power plants also consume a tremendous amount of oil during their initial construction and continued maintenance.
Most importantly, the modern banking and international monetary system is entirely dependent on a constantly increasing supply of oil. Since as explained above, all modern economic activity from transportation to food production to manufacturing is dependent on oil supplies, money is really just a symbol for oil.
Consequently, a declining supply of oil must be accompanied by either a declining supply of money or by hyperinflation. In either case, the result for the global banking system is the same: total collapse. This may be what led Stephen Roach, the chief economist for investment bank Morgan Stanley, to recently state, "I fear modern day central banking is on the brink of systemic failure."
Most people new to the idea of Peak Oil tend focus on finding alternatives to oil, while wholly ignoring the more fundamental issue: the ramifications of Peak Oil on our monetary system.
Due to the intricate relationship between oil supplies and the global financial system, the aftermath of Peak Oil will extend far beyond how much you will pay for gas. 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.
"Can't We Just Look Harder for the Stuff?
What About the Oil Sands up in Canada
& Oil Shale over in the American West?"
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.
As Professor Michael Klare points out, many major oil companies now find themselves unable to replace their rapidly depleting reserves.
Oil Discovery: (3 Year Average, Past and Projected)
Source: Association for the Study of Peak Oil
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" for short - of about 30 to 1, the oil sands rate of return hovers around 1.5 to 1.
This means that we would have to spend 15 times as much money 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 2.6 million barrels per day by 2015, not accounting for any unexpected production decreases or cost overuns, both of which have been endemic to many of the oil sands projects.
Even if the projects produce as hoped, 2.2 million barrels per day isn't that much oil considering we currently need 83.5 million barrels per day, are projected to need 120 million barrels per day by 2020, and 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.
The huge reserves of oil shale in the American west suffer from similar problems. Although high oil prices have prompted the US government to take another look at oil shale, it is not the savior many people are hoping for. As 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.
"How is the Oil Industry Reacting to Peak Oil?"
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 a bit silly when one considers how much money and political influence the oil industry has compared to the environmental movement. If the oil companies wanted to build new refineries, they clearly have the money and political clout (H. Bush in the White House 1980-1992, W. Bush from 2000-2008) to get them built.
The real reason no new refineries have been built for almost 30 years has more do with simple good business practices than the efforts of environmentalists. No oil company worth its salt is going to seek to build 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 production, 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-Amoco and Shell merge;
April 2005: Chevron-Texaco and Unocal merge;
What do you think could possibly be motivating these companies to take such drastic actions?
You don't have to contemplate too much, as recent disclosures from oil industry insiders indicate we are indeed "damn close to peaking" while industry analysts are now concluding that large oil companies believe Peak Oil is at our doorstep.
In March 2005, the energy analysts at John C Herold Inc. - the firm that that foretold Enron's demise - confirmed industry rumors that we are on the verge of an unprecedented crisis.
"Is the Bush Administration Aware of Peak Oil?"
Yes.
In late 1999, Dick 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 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 unable to produce much more than 80 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 disturbing:
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.
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. Simmons is a self-described “lifelong Republican.” His investment bank, Simmons and Company International, is considered the most reputable and reliable energy investment bank in the world.
Given Simmons’ background, what he has to say about the situation is truly terrifying. For instance, in an August 2003 interview with From the Wilderness publisher Michael Ruppert, 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. 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 range will be for the US economy, consider the fact that one of Osama Bin-Laden’s goals has been to force oil prices into the $200 range.
A recent report prepared for the US Department of Energy has confirmed Mr. Simmons' dire warnings. 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 tormorrow.
Are There Any Conservative Members
of Congress Speaking Out About This?
Yes.
On March 14, 2005 Representative Roscoe Bartlett (Republican, Maryland) gave an extremely thorough presentation about the frightening ramifications of Peak Oil.
Representative Bartlett, who may be the most conservative member of Congress, quoted from this site extensively, citing the author (Matt Savinar) by name on several 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.
"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 only 5 million barrels per day.
If oil a renewable resource, why isn't it renewing itself here in the good ole' US of A?
"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.
"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 November 2004, a barrel of oil costs about $45. 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 the $200 per barrel range as they realize the world is now in a state of permanent oil scarcity.
With oil at $200 per barrel, gas prices will hit about $10 per gallon virtually overnight. 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 former oil industry insider Jan Lundberg 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.
The collapse will be hastened by the fact that the US national debt will become completely unsustainable once the price of oil gets into the $100 range. Once this mark is passed, the nations of the world will have no choice but to pull their investments out of the US while simultaneously switching from the dollar to the euro as the reserve currency for oil transactions. Along with the breakdown of domestic transportation networks, the global financial shift away from the dollar will wholly shatter the US economy.
If you're wondering why the mainstream media is not covering an issue of this magnitude 24/7, now you know. 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.
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
alternative sources of energy are available to us. Without cheap oil,
and without economically scalable alternatives, we will basically be
"dead in the water."
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. Any attempt to secure the energy and raw materials necessary to
power a large-scale transition to renewable forms of energy is likely
to be met with fierce competition, if not outright warfare, with China,
which has a million man standing army fully-indoctrinated to hate the
US.
"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.