Solutions to peak oil – part II: Consequences and myths

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Posted by Herve | Posted in Global issues | Posted on 03-01-2011

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A potential scenario for post

In our previous post about peak oil I introduced the concept of finite resources which may be a limit to growth, and described how important oil has become to our civilisation. What will happen if dramatic actions are not taken in order to address the increasingly limited availability of oil and other fossil fuels? The consequences of scarcity of oil will be dire. Basic market laws of supply and demand indicates that the decrease in production will lead to higher oil prices, and therefore higher price on all of the goods and service which heavily depend on oil, as I detailed in one my precedent posts.

As cost will keep rising and consumer’s disposable income will keep decreasing, we will witness slower growth at first, followed by foreclosures, recession, depression, inverted rural flight and a potential collapse of governments and financial systems.

The Hirsh1 report in 2005 established that:

  • World’s GDP growth and oil production are roughly proportional. Decrease in oil production will lead to negative growth
  • 4% global oil shortfall will lead to an oil price to ~$160 per barrel (from $45 or so at the time of the study)
  • 4% global oil shortfall will plunge the US economy goes into recession and millions of job will be lost
  • Waiting until production peaks would leave the world with a liquid fuel deficit for 20 years.

Robert Hirsch is a former senior energy program adviser for Science Applications International Corporation, ex manager of Exxon’s synthetic fuels research laboratory and of Exxon’s Petroleum Exploratory Research, and a consultant in energy. While the report itself is maybe a bit outdated, the idea of systemic implications to peak oil production has been widely developed since.

We’ve already seen the oil peaking at about $145 in 2008, recession in the US economy and unemployment at record levels. High oil price have been around since 2004-2005, when it started to grow faster than inflation

Long-term oil prices, 1861-2008 (orange line adjusted for inflation, blue not adjusted).

Prix du pétrole sur le long terme, 1861-2008 (la courbe orange est ajustée a l’inflation).

(click on the graph on the right for inflation-corrected prices) so the likelihood that the high oil price is one of the major causes of the financial crisis of the recent years is very high. Recently, the British energy secretary admitted that we may have a repeat of the 70s oil shock with a doubling of the price of petrol2

There is another debated theory around, called the Olduvai theory3, which defines industrial civilisation as the period when per capita energy production is above 37% of its eventual peak value. In this theory, the double pressure of population growth and decreasing fossil fuel resources will bring an end to the industrial civilisation (when the average energy per person decreases again and goes below 37%) unless alternative sources are brought on line sufficiently rapidly to mitigate the decline and eventually bring a new age of prosperity and growth4. Although the initial 1989 version of the Olduvai theory predicted the years 2000-2011 to be the start of a sliding decline towards a post-industrial stone age, the revised 2008 version of this theory show that there is hope if considerable financial and political pressure is exerted towards building alternative energy infrastructures. Unfortunately neither exists.

In a well-documented study on peak oil consequences, Tariel Mórrígan from the University of California, summarises the consequences as detailed in extensive studies on the subject. His analysis and that of David Korowic5 and others6 reach the conclusion that our civilisation and population are threatened with a collapse without equivalent in the history of our world. Tariel is the principal research associate of Global Climate Change, Human Security & Democracy (GCCHSD) and a member of its Global Academic Council. He points out that the analysis of peak oil consequences is difficult and often narrow-minded because all of the components involved in a collapse are interrelated and any of the mechanisms it will trigger will increase or trigger other mechanisms. His key points are:

  • Declining oil and energy flows will increase economic costs and reduce global economic production. Reduced global production will undermine society’s ability to produce goods and services, to trade, and to produce and use energy, which will further reduce economic production
  • Credit forms the basis of the monetary system. In a growing economy debt and interest can be repaid. In a declining economy the burden of interests cannot be repaid. Therefore, declining energy flows cannot maintain the economic production required to service debt. When outstanding debt cannot be repaid, the world’s economy will collapse.
  • Society’s welfare has become very dependent on hyper-integrated globalized supply-chains dependent on cheap petrol. In developed and industrialized societies, regional and local economies will breakdown since few goods and services are produced locally, but rather are imported and outsourced from the global economy. Therefore, the more complex and globalized modern societies are, the more are they at risk from a systemic collapse.
  • The system-wide functioning of global supply-chains is supported by monetary confidence and bank intermediation. When the economy will be destabilized, the banking system as a whole will become insolvent since their assets (i.e., loans) cannot be repaid.
  • The global economy and supply-chains are also highly dependent on the operation of highly co-dependent critical infrastructure such as energy and water distribution, transportation, waste disposal, food, finance, telecommunications, and Internet technologies. Those infrastructures depend on continual re-supply of energy, materials and short-lifetime components, large economies of scale and the operation of the monetary and financial system. The interdependence of the infrastructures is likely to cause rapidly increasing risks of systemic failure. Systemic failure in one infrastructure may cause cascading failure in the others.
  • Peak oil will induce the failure of our food production and distribution system, create extremely high inflation on food and water which will strip customers of their purchasing power. This will greatly exacerbate the economic crisis. Entire sectors of the economy such as leisure, tourism, recreational goods, fashion and so on will become irrelevant and will be devastated.
  • The ability to develop new energy production and maintain existing energy infrastructure will likely be severely compromised. Assuming business as usual (meaning no peak oil), gas, coal and uranium are set to peak within the next 20 years.
    Global primary energy production is running at about 11,000 million tonnes oil equivalent (MTOE) per year. The share of renewables is barely significant at 50 MTOE - it is the skinny red line marked by the big red arrow at the top.

    Global primary energy production is running at about 11,000 million tonnes oil equivalent (MTOE) per year. The share of renewables is barely significant at 50 MTOE – it is the skinny red line marked by the big red arrow at the top.

    However peak oil will bring about general peak energy much sooner as mining and distribution of all related commodities will be seriously hampered. Insolvency amongst banks from a magnitude not yet experienced and widespread sovereign defaults will render any new investment in new energy technologies impossible. In particular, switching the whole economy to renewable energies – which would cost several trillion dollars – will be abandoned.
  • Given that many nations and their citizens are insolvent and on the brink of debt default, the next oil price shock and/or permanent increase in oil prices may push the global economy into complete insolvency and collapse.
  • Systemic collapse will likely result in widespread confusion, fear, human security risks, human rights abuses, and social break down. We will probably witness political instability, revolutions, failed states, social unrest, riots and civil wars, increased crime, military action, and other conflicts in some areas.
  • Oil producing countries will ban exports and will have their economies going longer than the others. Non oil-producing countries will have to face earlier and faster decline and their economy could stop quite abruptly.
  • Effective mitigation of peak oil will be dependent on the implementation of mega-projects and mega-changes at the maximum possible rate with at least one or two decades lead time. With adequate, timely mitigation, the costs of peaking can be minimized, but systemic collapse cannot be avoided without the very rapid introduction of some radical new advanced technologies.
  • The human carrying capacity of the Earth will be greatly reduced, potentially going back to pre-industrial times (less than 1 billion people world-wide).

When dealing with an issue of this importance, we really need to keep our feet on earth and not to delusion ourselves. Here are some commonly heard objections to peak oils, which I believe are myths.

  • We will never run out of oil, we will just have to pay more for it.

    This is actually true. The myth is that this is an argument used to brush the issue away without a very thorough argument. The reason that we will never run out of oil is that the economy won’t be able to sustain the price of oil scarcity and will either collapse or adapt without before we consume the last drop. “We’ll have to pay more” is not good enough, if “more” means three or ten times current price. And by the way, it is not only petrol which will increase in price, everything else will.

  • The world will stop overnight.

    No. Peak oil is simply the time when the most oil is being produced7. That means that we have still at least a few years, maybe a few decades left to act. Panic is not a good advisor, neither is burying one’s head in sand. After the peak, the world will not stop, but we will go from recessions to depressions with a few episodes of regained growth as mitigation solutions are adopted. The speed of the decline in oil production will condition the success from a switch from oil economy to non oil economy.

  • We will just drive less and drive an electric car

    A crash plan to switch the world over to electric car will take over ten years with prime political focus and untold amounts of money. And since running cars is far from being the only use for petrol, that won’t be enough to advert a crisis – you still need tyres, plastic and asphalt. Besides, current political will is failing and the money is just not there – everything has already been given to rogue bankers.

  • There is plenty of oil left in the Canadian bituminous sand, in the deep-sea oil field near Brazil…

    Now it is getting a bit technical with distinction between total oil reserves and recoverable reserves, and the notion of net energy. Overall, at current technologies, it is estimated that the Tupi oil field off the coast of Rio de Janeiro, considered to be Western Hemisphere’s largest oil discovery of the last 30 years, can provide about 3 month worth of global supply8. Besides, it is located a whole 30% deeper under the sea than the infamous Macondo Prospect9 where the Gulf of Mexico oil spill happened last summer, and lies below a thick crust of semi-solid salt which creates a lot of troubles to oil companies10.
    Likewise, the bitumen sands of Canada may be able to provide about 5 years worth of consumption11 if we do not consider their environmental costs. And that cost is huge. Those tar sand have been dubbed the “The World’s Most Destructive Project”12. By 2020, the oil extraction from those sand in the Alberta region will have created tailing ponds of toxic sludge that cover more than one billion cubic meters. Birds that land on these ponds will die in minutes. Benzene, one of the most lethal human carcinogens, is released by Alberta’s Tar Sands into the atmosphere at a rate of 100 tonnes per year; it could be as high as 800 tonnes per year by 2015, if planned expansions occur. Fish are being found there covered with tumours and mutations. Arsenic could be as much as 453 times the acceptable levels in moose meat from the region. Communities living downstream from the Tar Sands have seen unusual cancer clusters… the list goes on and on. Are an additional five years of oil addiction and a few billion dollars worth all of this?

  • We will survive on corn ethanol.

    No we won’t. The case for corn ethanol is artificial and the net energy it produces may not always be positive, which means that you have to spend a gallon of petrol to get a little above from a gallon of ethanol. Some studies even suggests that you have to spend more energy making a gallon of ethanol than the energy you get out of this gallon13 which would mean that corn ethanol is a loser’s game. Besides, the amount of fertile land it requires to get corn ethanol are enormous: if all the automobiles in the United States were fuelled with 100 percent ethanol, a total of about 97 percent of U.S. land area would be needed to grow the corn

  • Oil is a renewable resource and is constantly produced abiotically deep into the earth.

    This is unproved fringe theory which one can sometime find coming from fans of conspiracy theories14. The opinion of virtually all respected geologists is that oil is finite and is fully explainable by normal biogenic processes. If a little bit of hydrocarbon may be produced as the result of non-organic process, it is unlikely to be in any sort of commercial amounts.

Our next post on Peak oil will look into what we can do about it on an individual level to prepare ourselves, and another future post will discuss about large-scale actions which need to be taken at institutional level.

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