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.
Graph: The Energy Curve of History?
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. 1. Pesticides are made from oil; 2. Commercial fertilizers are made from ammonia, which is made from 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,
In short, people gobble oil like two-legged SUVs.
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.
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."
"Can't We Just Look Harder for the Stuff?
What About the Oil Sands up in Canada
& Oil Shale over in the American West?"
Oil Discovery: (3 Year Average, Past and Projected)
The bad news is that oil derived from these oil sands is extremely financially and energetically intensive to extract and thus suffers from a horribly slow extraction rate. 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 2.2 million barrels per day by 2015. That's not much oil considering we currently need 83.5 million barrels per day, are projected to need 120 million barrels per day by 2020. 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. 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. 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
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."
"Is the Bush Administration Aware of Peak Oil?"
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.
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.
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. 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 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.
Are There Any Conservative Members
of Congress Speaking Out About This?
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?"
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.
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.
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.
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.
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 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.
In summary, we are a prisoner of our own dilemma:
(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 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." 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.