Peak Oil: Life After the Oil Crash
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  Life After the Oil CrashDeal With Reality or Reality Will Deal With You Dr. Richard Duncan: The Peak of World Oil Production and the Road to the Olduvai Gorge (PDF Format)Ultimately, the energy-intensive industrial age may be little more than a blip in the course of human history: Graph: The Energy Curve of History?Peak Oil Breaking NewsDear 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, bankers, and investors in the world. These are rational, professional, conservative individuals who are absolutely terrified by a phenomenon known as global "Peak Oil."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. Source#1 Source #2 He also predicted global production would peak around the year 2000, which it would have had the politically created oil shocks of the 1970s not delayed it for about 5-10 years.For more information:A mere 15% shortfall in oil production will spike oil prices by 550%Robert Hirsch on CNBC: Gasoline will soon be $12-to-$15 per gallon"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 of the year 2002, approximately 10 calories of fossil fuels are required to produce every 1 calorie of food eaten in the US. Source The size of this ratio stems from the fact that every step of modern food production is fossil fuel and petrochemical powered: Pesticides and agro-chemicals are made from oil;Commercial fertilizers are made from ammonia, which is made from natural gas, which is also peaking in the near future. SourceMost farming implements such as tractors and trailers are constructed and powered using oil-derived fuels.Food storage systems such as refrigerators are manufactured in oil-powered plants, distributed using oil-powered transportation networks and usually run on electricity, which most often comes from natural gas or coal. Like oil and natural gas, coal too is peaking in the near future. SourceIn 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. SourceA recent article published by CNN documented just how much fossil fuel energy is used to produce our food. Emphasis added: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 growthin global oil demand over the years ahead, along with, conservatively, athree-percent natural decline in production from existing reserves. That means by 2010 we will need an additional 50 million barrels per day.Source 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, if it hasn't already. Source Many industry insiders think the decline rate will far higher than Cheney anticipated in 1999. Andrew Gould, CEO of the giant oil services firm Schlumberger, for instance, recently stated that "An accurate average decline rate of 8% is not an unreasonable assumption." Source Some industry analysts are anticipating decline rates as high as 13% per year. Source A 13% yearly decline rate would cause gobal production to drop by 75% in less than 11 years.If a 5% drop in production caused prices to triple in the 1970s, what do you think a 50% or 75% drop is going to do? Estimates coming out of the oil industry indicate that this drop in production has already begun. Source The consequences of this are almost unimaginable. As we slide down the downslope slope of the global oil production curve, we may find ourselves slipping into something best described as a "post industrial stone age." Source 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. Do 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 really 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 UnocalJune 2006: Andarko proposes buying Kerr McGeeJuly 2007: BP-Shell "Mega Merger" rumoredWhile 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: 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 an a switchover to alternative sources of energy, these extreme prices will severely hamstring if not - completely cripple - the ability of the market to handle these problems. The economic fallout from high prices will almost certainly geopolitical tensions (i.e. war) thereby futher hampering the development of large-scale alternative sources of energy. Worse still, in a global environment characterized by massive energy-wars, the bulk of the world's financial capital is likely to be disproportionately invested in weapons technologies over alternative energy technologies.For more information, see:Big Banks preparing for Peak Oil by investing in weapons-makersThe markets begin facing Peak OilOur highly-efficient economy is highly-susceptible to catastropheFundamental errors of free market ideology in regards to energyIt 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. SourceCommentator 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. SourceIn 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: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 from interest rates, pension funds, insurance, to stock markets is predicated on growth, the social and economic consequences may be cataclysmic. SourceIf you want to understand just how cataclysmic these consequences might be, consider the current crisis in the UK as a "preview of coming attractions." The London Telegraph recently 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. SourceIn May 2007 the London Times published excerpts from a study about the future of Britain's electrical grid. According to the study, fears of a catastrophic energy crisis occuring within the next 10 years can no longer be dismissed as "apoclyptic fantasies", emphasis added:Across Britain, cities are plunged into darkness. In London, the Underground grinds to a halt, leaving panicked commuters stranded in oppressively hot carriages. In office blocks, lifts stop operating and the air-conditioning shuts down. Employees swelter in stifling conditions. This is not the postapocalyptic vision of some film-maker, but a realistic scenario as Britain grapples with a looming energy crisis. The statistics are frightening. In only eight years, demand for energy could outstrip supply by 23% at peak times, according to a study by the consultant Logica CMG. The loss to the economy could be £108 billion each year. SourceThe severe consequences of these shortfalls 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. For example, US News and World Report recently published a six page article documenting the nightmarish scenarios soon to unfold across North America. According to the normally conservative publication, people in the northeastern US could soon 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. SourceFor more information:The age of technological revolution is coming to an endPentagon physicist: "We are entering a dark age of innovation""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 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 carless 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. SourceJournalist Jonathan Gatehouse summarized the conclusions of Oxford trained geologist Jeremy Leggett, author of The Empty Tank: Oil, Gas, Hot Air, and the Coming Financial Catastrophe, in a 2006 Macleans article as follows, emphasis added:. . . when the truth can no longer be obscured, the price will spike, the economy nosedive, and the underpinnings of our civilization will start tumbling like dominos. "The price of houses will collapse. Stock markets will crash. Within a short period, human wealth -- little more than a pile of paper at the best of times, even with the confidence about the future high among traders -- will shrivel." There will be emergency summits, diplomatic initiatives, urgent exploration efforts, but the turmoil will not subside. Thousands of companies will go bankrupt, and millions will be unemployed. "Once affluent cities with street cafés will have queues at soup kitchens and armies of beggars. The crime rate will soar. The earth has always been a dangerous place, but now it will become a tinderbox."By 2010, predicts Leggett, democracy will be on the run . . . economic hardship will bring out the worst in people. Fascists will rise, feeding on the anger of the newly poor and whipping up support. These new rulers will find the tools of repression -- emergency laws, prison camps, a relaxed attitude toward torture -- already in place, courtesy of the war on terror. And if that scenario isn't nightmarish enough, Leggett predicts that "Big Oversight Number One" -- climate change -- will be simultaneously making its presence felt "with a vengeance." On the heels of their rapid financial ruin, people "will now watch aghast as their food and water supplies dwindle in the face of a climate going awry." Prolonged droughts will spread, decimating harvests. SourceIf you are focusing solely on the price at the pump, buying a hybrid car, or getting some of those energy efficient light bulbs, you aren’t seeing the bigger picture.For more information, see:Peak Oil: The biggest event of the century is now upon usThe most important thing you don't know about "Peak Oil"The unspoken role of Peak Oil in the current financial crisisA permanent energy crisis is rapidly developing. . . there will be an average of two-percent annual growth in global oil demand over the years ahead, along with, conservatively, a three-percent decline in production from existing reserves. That means by 2010 we will need on the order of an additional 50 million barrels a day. SourceTo 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 85 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. SourceIn 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 explains:"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. SourceNot 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." SourceOne 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. SourceWhen 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. Source 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 the 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, emphasis added: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 "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 has been completely off-the-grid since 2002. The ranch is 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 is unfolding. If they were honest with the country, half the nation would refuse to believe them while the other half would likely panic.For more information, see:Dick Cheney's banker sees market collapseWhy did Dick Cheney change his mind about invading Iraq?Former Director of the CIA: "Peak Oil will produce economic horrors"Secret report by Chase Manhattan Bank on Peak Oil published in 1956"How do I know this isn't just fear mongering by loony-environmentalists and 'the end is nigh' types?"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 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. SourceOn 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 September 2005 report from the U.S. Army Corps of Engineers entitled "Energy Trends and Their Implications for U.S. Army Installations." The report explains:. . . 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 . . . SourceA 2007 report commissioned by the Pentagon details the amount of fuel necessary to run modern military operations:In World War II, the United States consumed about a gallon of fuel per soldier per day, according to the report. In the 1990-91 Persian Gulf War, about 4 gallons of fuel per soldier was consumed per day. In 2006, the US operations in Iraq and Afghanistan burned about 16 gallons of fuel per soldier on average per day, almost twice as much as the year before. SourceThe report went on to explain the magnitude of the problem at hand, emphasis added:Weaning the military from fossil fuels quickly, however, would be a herculean task -- especially because the bulk of the US arsenal, the world's most advanced, is dependent on fossil fuels and many of those military systems have been designed to remain in service for at least several decades. Moving to alternative energy sources on a large scale would "challenge some of the department's most deeply held assumptions, interests, and processes," the report acknowledges. SourceAccording to the December 26, 2005 issue of Fortune Magazine, Richard Rainwater, a multi-billionaire investor and friend of George W. Bush, reads this website regularly. 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.. SourceThe 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. Source"Are Western governments preparing for the effects of this?"Yes.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 within the United States. The camps are ostensibly being built to house and process an "emergency influx of immigrants", which is exactly what the U.S. will be facing between 2008 and 2012 as Mexico's oil production collapses. See also: "Oil Depletion and Illegal Immigration"This "emergency influx of immigrants" will almost certainly inflame domestic groups, leading to vigilantism and balkanization within the U.S. The expectation of this unraveling may be at least partially responsible for the Bush administration's drive to pass draconian police-state style legislation.In June 2007, the UK Register reported that the Pentagon has been running "war games on the grandest scale" to simulate how billions of people will react to food and fuel shortages, including shortages on the US homeland: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. SourceAccording 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. SourceIn 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? It's suppossed to be huge." Chevron's recent find in the Gulf of Mexico, nicknamed "Jack 2", is estimated to hold between 3 billiion and 15 billion barrels of oil. Source 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 yearAs 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. SourceThe 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. Source"What About the Oil Sands in Canada?"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 optimistic reports anticipate a peak production of 4 million barrels per day of oil coming from the oil sands around 2020. Source Even if the optimists are correct, a peak of 4 mbd in the context of global demand that is already 85 mbd and growing at a rate of 2-to-5 mbd per year is not going to do much to offest the coming decline.For more information, see:Oil Sands Production Costs SkyrocketOil Sands Production Costs up 55%"What About the Oil Shale in the American West?"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 5 mbpd by 2030. SourceDisinterested 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. SourceThis 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. Plenty of money, however, will likely be thrown at attempts to develop the oil shale as most investors are as energy-illiterate as the general population.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. SourceThis will, of course, make some money for the companies producing the oil but given the fact global supply will be dropping by 2.5 million barrels per day (or more) per year once the decline really gets under way, a couple hundred thousand barrels per day won't make much difference to the overall market.To put 200,000 barrels a day in perspective, consider the fact the world now uses 1,000 barrels per second. Source What this means is that even in the most opitmistic scenario the Bakken oil shale might provide the world with about 200 seconds - or just over 3 minutes - of additional oil per day. That commentators such as Jerorme Corsi have hailed it as a "bonanza" and "proof that oil supplies are nowhere near peaking" (Source) should tell you more about their motives than anything else. "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 RecordAs 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. SourceB.EIA Admits Cooking Its BooksIn 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 need, 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. SourceThe 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. SourceWhile 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 dramatically revise its oil reserve estimates upwards. (If they had not done so, the Reagan adiministration would have withdrawn their military protection 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.For more information, see:Is there fraud in the House of Saud?Saudi Arabia's oil production in a nosediveSaudi Arabia's oil production close to collapsingKuwait's reported oil reserves overstated by 50%OPEC's shocking reserve boondoggle"If the environmentalists 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:Reason #1. According of the Department of Energy, drilling in ANWR will only lower oil prices by less than fifty cents;Reason #2. ANWR contains 10 billion barrels of oil - or about the amount the US consumes in a little more than a year.Reason #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?"Generally, when a commodity becomes scarce the price goes up. This causes people to use less of the commodity and begin look for alternatives for it. Unfortunately, energy is not just any commodity. As it is the very basis for all economic activity, including the generation of alternative sources of energy, it is nowhere near as "elastic" as most commodities. Economist Andrew McKillop explains: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, tends to be bolstered by "high" oil and gas prices until and unless "extreme" prices are attained. Source"Why isn't media sounding the alarm about this?"For several reasons:A. Most journalists are simply not aware of the magnitude of the problemEven in the financial press, most people and institutions are simply not aware of the size or imminence of the problem. Investment banker Adam Cohen explains:. . . Wall Street and the financial media are made up of human beings that are just no more interested in the Peak Oil issue than most people that you know. In my personal experience working with energy companies on stock and bond offerings during the last three years, I never heard any energy company employee or energy investment banker use the phrase "Peak Oil." The few times I mentioned the phrase privately to bankers, the response was "What’s that?" . . . no major financial services company or media outlet would long tolerate any voice loudly proclaiming "Peak Oil! The economy is doomed!" because it would be pretty tough to market other investments or advertising alongside that shrill voice. SourceIt's worth noting that most of the major mainstream media outlets are owned, in whole or in part, by large energy conglomerates or real estate investors. Some examples include:NBC, CNBC, and MSNBC are owned by General Electric. SourceCBS is owned by Westinghouse. SourceFox News is owned in part by the Saudi Holding Company. SourceThe L.A. Times is owned by billionaire real-estate mogul Sam Zell. SourceMost of the advertisements in any issue of the Wall Street Journal, New York Times or Washington Post are for large automobiles, large suburban homes, or high-priced [discretionary] consumer items.The financial interests of these companies and individuals would be severely impacted should any significant portion of the public come to understand the magnitude of the crisis at hand.B. The handfull of journalists who are aware can't "go public" without creating a panic and/or losing their jobs: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. Market analyst Steven Laguvulin explains:Should the oil markets themselves begin to 'connect these dots', then all our lives are going to be impacted violently and immediately. This is why you'll never see "Peak Oil" covered by a respected media outlet. As soon as it is recognized that for all practical purposes the situation is upon us, then a viscious "resource grab" will be initiated. The price of oil in the markets will begin to rise dramatically. This will initiate a circular hedging/hording mentality in large end-users, governments, and multi-nationals. This will then have a myriad of devastating effects, but all average Joe Consumer is going to notice is that the price at the pump will experience a brief and dramatic blip upward, gas lines will form for a short time at the corner-stations, and then suddenly the corner gas-stations will go dry for good.Gasoline will simply not be available to individual drivers, as precedence is given to heating oil, critical government and commercial uses, public transportation, transport of food and goods, etc. How the situation unfolds after that you can imagine just as well as I can . . . If this scenario sounds over-dramatic, keep in mind that what I'm talking about is a dawning recognition of something that many analysts have already come to realize: that the "oil grab" is in fact already on. SourceC. The automotive and aviation industries would be destroyed by acknowledging the truth or any large scale mitigation program:Most of the steps we need to take to deal with this, such as driving less or buying fewer consumer items, 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 10 jobs in the US is either directly or indirectly dependent on the manufacture of new automobiles. Source Each job in the automotive industry creates between 2 and 9 jobs in other industries. SourceWith automotive giants GM and Ford already on the ropes, any aggressive program of conservation would likely so blunt the demand for new cars that the two automotive giants spiraling into bankruptcy. This would produce devastating knock-off effects throughout the domestic economy and would almost certainly lead to the rise of extremists political movements not unlike those that arose in Germany during the 1920s when its economy collapsed.A similar problem exists when it comes to the aviation industry. According to the International Air Transport Association, aviation is a $400 billion dollar industry that indirectly generates $1.3 trillion dollars in economic activity. Source Overall, it accounts for 9% of global GDP. Source Thus any plan to aggressively reduce air travel is likely to produce the same sort of unintended consequences that would be produced by an aggressive plan to reduce automobile travel: severe economic dislocations, followed by massive social unrest.For more information, see:The Wall Street Journal won't dare utter the words "Peak Oil"Oil, the Iron Triangle and the "Enron Effect"Click Here to Go to Page Two of LATOCTopics Covered on Page Two Include: Alternative Energy, Solar, Wind, Geothermal, Wave, Hydrogen, Nuclear, Coal, Ethanol, Biodiesel, Thermal Depolymerization, Solar-Nanotechnology, Space-Based Solar Arrays, Hybrid Vehicles, Conservation and Energy Efficiency, Jevon's Paradox, Wars in Iraq, Iran, Syria, and Venezuela, Possible Solutions and Ways to Prepare.High-Quality Mountain House Freeze Dried Storable Food at Great Prices from LATOC Affiliate Nitro-Pak: . . . the US Department of Defense may already be creating a copy of you in an alternate reality to see how long you can go without food or water, or how you will respond to televised propaganda.Called the Sentient World Simulation (SWS), the program replicates financial institutions, utilities, media outlets, and street corner shops. By applying theories of economics and human psychology, its developers believe they can predict how individuals and mobs will respond to various stressors.Yank a country's water supply. Stage a military coup. SWS will tell you what happens next. Homeland Security is already using SWS to simulate crises on the US mainland. SourceThe Pentagon has also developed an "energy islanding" strategy in which the armed services and/or private contractors will seize large-scale domestic renewable energy installations once the crisis hits. Journalist Michael Kane explains:The DoD plans to act in consort with utilities to implement "islanding strategies" for their domestic installations to deal with emergencies and fuel shortages. Think of this as an "energy island" that the military is on and you are not. When big wind and solar farms come online they are placed on the Pentagon’s map, and when that energy is eventually neede for one of their installations or industrial producers they will simply take it through a well-orchestrated alliance with gigantic private energy firms. SourceThe British government appears to be making similar preparations. According to a military report leaked to the press in April 2007, the British government is preparing to control middle class citizen "flash mobs" as the economy collapses under the combined pressures of resource shortages and climate change:For more information, see:Energy-fascism will effect nearly every person on the planetPentagon says climate change could produce global anarchyPentagon plans to turn US cities into "Combat Zones That See"NORTHCOM preparing for large-scale domestic military operationsBritain's fuel riots offer chilling preview of America's futureNSA facing catastrophic electricity shortages"How is the oil industry reacting to this?"If you want to know the 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:Information chips implanted in the brain. Electromagnetic pulse weapons. The middle classes becoming revolutionary [and turning into] "flashmobs". Groups rapidly mobilised by criminal gangs or terrorists groups. This is the world in 30 years' time envisaged by the Ministry of Defence. SourceIf 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? orQuestion #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. SourceFor more information, see:Despite record prices, Big Oil faces serious threats to oil supplyBig Oil companies hold secret meeting to discuss Peak Oil crisisOil companies face devastating rise in production costs |
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