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,bankers, and investors 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 2005 was the year of global Peak Oil, worldwide oil production in the year 2030 will be the same as it was in 1980. However, the world’s population in 2030 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: Dr. C.J. Campbell/Petroconsultants)
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.
With the exception of a few experimental prototypes, all farming implements such as tractors and trailers are constructed and powered using oil;
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;
In the US, the average piece of food is transported almost 1,500 miles before it gets to your plate. Source In Canada, the average piece of food is transported 5,000 miles from where it is produced to where it is consumed. Source
According to the Organic Trade Association, the production of one pair of regular cotton jeans takes three-quarters of a pound of fertilizers and pesticides. Source
"Are all forms of modern technology actually petroleum products?"
Yes.
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:
Automobiles:
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 thecar’sfinal weight.
It's also worth nothing that the construction of an average car consumes almost 120,000 gallons of fresh water, which is also rapidly depleting and happens to be crucial to the petroleum refining process. Source
Microchips:
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. Source
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." Source
Computers:
The construction of the average desktop computer consumes ten times its weight in fossil fuels. Source
"What about alternative energy systems like solar panels and wind turbines? Are they also manufactured using petroleum and petroleum derived resources?"
Yes.
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. all rely on sophisticated technology and mettalurgy.
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.
(Note: alternatives to oil are discussed in depth on Page Two)
"Is the modern banking system entirely dependent on ever-increasing amounts of cheap oil?"
Yes.
The global financial system is entirely dependent on a constantlyincreasing 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 issueto 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 as follows:
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 to 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. War, terrorism, extreme weather and other "above ground" geopolitical factors will likely push the effective decline rate past 10% per year, thus cutting the total supply by 50% in 7 years. (Source)
These 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 n additional 50 million barrels per 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?
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.
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.)
The Big Oil companies have also been (quitely) buying back their own stock at an alarming rate. According to an Bloomberg News article dated October 1st, 2007:
If Chevron Corp. keeps buying back its stock at the current
rate, the company will have liquidated all its shares by about
2023. Exxon Mobil is buying back about $30 billion of its
shares each year. If that continues, Exxon will have
repurchased all its stock by about 2024.
By 2011 or so, these companies, including Royal Dutch Shell
Plc and BP Plc in the U.K., France's Total SA and Conoco
Phillips in the U.S., will no longer be able to increase their
production . . .
By 2014, their output will begin a long decline, says Maxwell,
who has been involved in the industry for 50 years, mostly
as an analyst. "They'll be in liquidation,'" he says. Source
If you suspect the oil companies are conspiring amongst themselves to create "artificial scarcity" and thereby artificially raise prices, ask yourself the following questions:
Question #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?
or
Question #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
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 ask yourself:
A. Why is Exxon Mobil spending millions of dollars to convince
The answers to these questions are 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.
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. Source
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. The only thing that alleviated the economic crisis was the discovery of the world's last few "elephant" sized oil fields in the North Sea and Alaska as well as increased production from nations like Venezuela and Saudi Arabia. Once global oil production peaks (if it hasn't already) turning to new sources of supply won't be an option.
As affordable oil is necessary to power any serious attempt at at a global switchover to alternative sources of energy, these "extreme" prices will severely hamstring the ability of the market to handle these problems. The economic fallout from such high prices will likely raise geopolitical tensions (i.e. war) thereby futher hampering the development of large-scale alternative sources of energy.
"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.
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. Journalists Paula Hay explains:.
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 withou precedent. Source
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. Source
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 columnist Bryan Appleyard reported:
