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If we don't change our course, we'll end up where we're headed. — Chinese proverb
Down one road lies disaster, down the other utter catastrophe. Let us hope we have the wisdom to choose wisely. — Woody Allen
Excellent overview of the Peak Oil issue. Charts referenced were not available at the time of this posting.
[From the US Congressional Record - March 14, 2005: The SPEAKER pro tempore (Mr. Daniel E. Lungren of California). Under the Speaker's announced policy of January 4, 2005, the gentleman from Maryland (Mr. Bartlett) is recognized for 60 minutes as the designee of the majority leader.]
Mr. BARTLETT of Maryland. Mr. Speaker, in this first chart we have some headlines from The Washington Post just a month or so ago. These are headlines from just one day in The Washington Post. The Dow drops 174 points driven, the article says, by economic damage from rising oil prices, the plunging dollar, and growing worries about consumer spending. It goes on to say that a recent oil price rise of 20 percent is continuing to crunch the profits of struggling airlines and is believed to be a factor in disappointing retail sales.
Another headline: ``Dollar Slides Against the Euro and the Yen.'' And another headline: ``Consumer Confidence Slips in February.''
Now, should we have had any indication that these were going to be the kinds of headlines that we have been reading in our paper recently? We need to go back a few years, as indicated on this next chart. Let us go back to the 1940s and the 1950s when a scientist by the name of M. King Hubbert, a geologist, was working for the Shell Oil Company. He was watching the discovery and the exploitation and final exhaustion of individual oil fields. He noticed that every oil field followed a very typical pattern. It was a little slow getting the oil out at first, and then it came very quickly and reached a maximum, and then it tailed off as it became more difficult to get the oil out of the ground.
This followed a bell curve. Here is one of those bell curves. Now, bell curves are very familiar in science, and in life, for that matter. If we look at people and how tall they are, we will have a few people down around 4 1/2 or 5 feet and some up to 7 1/2 feet; but the big mass fall in the middle, clustered around 5 1/2 to 6 feet.
Looking at a yield of corn, a few farmers may get 50 bushels per acre, some may get 300, but the big mass today it is somewhere around 200 bushels per acre for corn.
Hubbert noticed when the bell curve reached its peak, about half of the oil had been exhausted from the field. Being a scientist, he theorized if you added up a lot of little bell curves, you would get one big bell curve, and if he could know the amount of reserves of oil in the United States, and he was doing this in the 1940s and early 1950s, and could project how much more might be found, he could then predict when the United States would peak in its oil production.
Doing this analysis, he concluded that we would peak in our oil production in 1970. This curve is what is known as Hubbert's Curve. The peak of the curve is what is known as Hubbert's Peak. Sometimes this is called the ``great rollover'' because when you get to the top, you roll over and start down the other side. It is frequently called ``peak oil.'' So peak oil for the United States occurred in 1970, and it is true that every year since then we have pumped less oil and found less oil. The big blue squares here are the actual and Members see they deviated a little from the theoretical as M. King Hubbert predicted, but not all that much.
At the bottom, see the difference the big field in Alaska made, and see what that made in the down slope, that never increased production in our country. It just meant that we were not going down quite as fast. You can see that here on the curve. Notice that the Alaska oil production was not the typical bell curve. It should have been, but a couple of things meant it could not be. One was it could not flow at all until we had a 4-foot pipeline. So the fields were developed and they were waiting; then we got the pipeline on board, and it was filled with oil and oil started to flow, and Members see the rapid increase here. It could not flow any faster than through that 4-foot pipe, and so it levels off at the top. We have pumped probably three-fourths of the oil in Prudhoe Bay.
Many people would like to open up ANWR. ANWR has considerably less oil than Prudhoe Bay, so the contribution will be significantly less. I want to note on this chart we also have the red curve, which is the theoretical curve for the former Soviet Union. It is a nice bell curve, peaking a little higher, they have more reserves than we do, and later because we entered the industrial age with vigor before the Soviet Union was quite there. Notice what happened when they came apart; notice how precipitously it fell here. After they got things organized, the fall stopped and now they are producing more oil. As a matter of fact, we might see a little upsurge in this; but the general trend is still going to be down.
On the next chart, and we have here the same Hubbert Curve, but the abscissa is a little too long and the ordinate a little too compressed, so it is not the sharp peak that we saw before. That is the curve we saw before. It shows the Texas component, and it shows the rest of the United States; and it also shows some natural gas liquids. We learned how to extract those a little later. So if you were plotting that as a bell curve, it would peak about here. It is little and then it is much, and then it tails off.
This is the contribution of Alaska, and you can see this not going to be our salvation to pump ANWR because ANWR contains probably not even half as much as Prudhoe Bay. And notice the small contribution that Alaska made. And that is not a bell curve for the reason I mentioned before because we had to develop the fields and they waited for the pipeline, and then it would surge through the pipeline when it was developed. So you do not see the tail getting greater and tailing off.
This is gulf oil. Remember the hullabaloo about the big finds of gulf oil that were going to solve our problem? That is what it did. There never was a moment in time between the big Alaska oil find and all of the pumping discovery and pumping in the gulf, there never was a moment in time when it decreased the fall in our country. The peak occurred, as you see here, about 1970.
Now, the next chart shows what is happening worldwide.
The red curve here shows the actual discovery of oil. Notice that that peaked. There was a big find here that distorted the curve a little but if you rounded that off, you would have the typical bell curve. It started somewhere back here off the chart, then it peaks, and then it is downhill and it tails off. These are the discoveries. The last find there is simply an extrapolation. We have no idea where it is going.
We are, by the way, very good at finding oil now. We use 3D seismic detection techniques. The world has drilled, I think, about 5 million oil wells and I think we have drilled about 3 million of them in this country, so we have a pretty good idea of where oil is.
A couple of Congresses ago, I was privileged to chair the Energy Subcommittee on Science. One of the first things I wanted to do was to determine the dimensions of the problem. We held a couple of hearings and had the world experts in. Surprisingly from the most pessimistic to the most optimistic, there was not much deviation in what the estimate is as to what the known reserves are out there. It is about 1,000 gigabarrels. That sounds like an awful lot of oil. But when you divide into that the amount of oil which we use, about 20 million barrels a day, and the amount of oil the rest of the world uses, about 60 million barrels a day, as a matter of fact, the total now is a bit over the 80 million that those two add up to. About 83 1/2 , I think. If you divide that into the 1,000 gigabarrels, you come out at about 40 years of oil remaining in the world. That is pretty good. Because up until the Carter years, during the Carter years, in every decade we used as much oil as had been used in all of previous history. Let me repeat that, because that is startling. In every decade, we used as much oil as had been used in all of previous history. The reason for that, of course, was that we were on the upward side of this bell curve. The bell curve for usage, only part of it is shown on this chart. That is the green one down here, the bell curve for usage. Notice that we are out here now about 2005. Where is it going? The Energy Information Agency says that we are going to keep on using more oil. This green line just going up and up and up is a projection of the Energy Information Agency. But that cannot be true. That cannot be true for a couple of reasons. We peaked in our discovery of oil way back here in the late sixties, about 1970. In our country it peaked much earlier than that, by the way. But the world is following several years behind us. And the area under this red curve must be the same as the area under the green curve. You cannot pump any more oil than you have found, quite obviously. If you have not found it, you cannot pump it. If you were to extend this on out where they have extended their green line, even if it turned down right there at the end of that green line, the area under the green curve is going to be very much larger than the area under the red curve. That just cannot be. We will see in some subsequent charts that we probably have reached peak oil.
Let me mention that M. King Hubbert looked at the world situation. He was joined by another scientist, Colin Campbell, who is still alive, an American citizen who lives in Scotland. Using M. King Hubbert's predictive techniques, oil was predicted to reach a maximum in about 1995, without perturbations. But there were some perturbations. One of the perturbations was 1973, the Arab oil embargo. Other perturbations were the oil price shocks and a worldwide recession that reduced the demand for oil. And so the peak that might have occurred in 1995 will occur later. How much later? That is what we are looking at this evening. There is a lot of evidence that suggests that if not now, then very quickly we should see world production of oil peak.
What are the consequences? What are the consequences of this depletion? The remaining oil is harder to get. It requires greater energy investment, resulting in a lower return on energy invested. That is the energy-profit ratio, which is decreasing. When we started out, you put in one unit of energy and you could get 30 out. Then that fell off, and then we found a few more fields and we got really good at extracting oil with better techniques. It looked for a little while like it was going up, but look what happened. It falls off to where it would have come anyhow if this curve had simply gone down. This is an inevitable consequence of pumping a field.
Lower profits are not the only concern. When more energy is required to extract it than is contained in the recovered oil, that is, when this ratio is less than 1, notice, we are over there at about 1984, we have got to get now another 20 years, I am not quite sure where we are now when you plot that day. We are getting very close to the unit it takes as much energy to get the oil out as you get out of the oil. It may still seem profitable from a monetary perspective, but when you are using more energy to get oil out of the ground than you are getting out of the oil, then clearly you need to leave it there when we reach that point. I mentioned the bump there was caused by a few more discoveries and particularly by increased efficiency in pumping the oil.
What is the current U.S. status? We have only 2 percent, between 2 and 3 percent, not really known for certain, but approximately 2 percent of the known reserves of oil. We use 25 percent of the world's oil. By the way, we have about 8 percent of the world production. What that means is if we have only 2 percent of the reserves and 8 percent of the production, that means we are real good at pumping oil, does it not? That means we are pumping our reserves at roughly four times faster than the rest of the world. That means that this 2 percent will not stay 2 percent by and by because we are so good at pumping oil, we are going to be down to 1 percent of the known reserves in the world and we will still be using about 25 percent of the world's oil. We are now importing about two-thirds of that. At the Arab oil embargo we imported about one-third of that. So we are now importing, relatively, two times more oil, actual quantity much more than that, but relatively about two times more oil.
Chart 6 shows us that more drilling just will not solve the problem. This is a very interesting chart. This shows the difference between the amount of oil that you are finding and the amount of oil that you are pumping. Notice from 1960 on until about 1980, declining for sure, but every year except for one we found more oil than we pumped. The yellow line up here is drilling. You remember the Reagan administration and all the emphasis on drilling because we knew that we were approaching this flipover point where we were going to be pumping more oil than we found and so there was a rationale that if you just give them a profit motive and you have the right incentives, tax and regulatory incentives and so forth, they will go out and they will dig more wells and they will find more oil. Sure as heck they went out and dug more wells. But did they find any more oil? As a matter of fact, in 1982, more oil was used in looking for oil than the oil they found in 1982. Pretty consistently for every year after 1982, we have used more oil than we found. Today worldwide we are pumping at least six barrels of oil for every barrel that we find.
Chart 7 shows that worldwide discoveries are repeating the U.S. pattern. This is a rough bell curve. You find a big find of oil and it is going to make a spike. This is average for 5 years. If you look at it on a year for year, it is really up and down as you find big reservoirs of oil. But generally it starts low and it goes up and it comes down. It follows roughly a bell curve. I would not pay too much attention to the figures on the ordinate here, because the area under this curve must equal just a little bit over 2,000 gigabarrels of oil. If I visually sum the area under this curve, it is going to equal something more, not frightfully more but something more than 2,000 gigabarrels of oil which from other sources we know ought to be the total amount of oil under the sun. Notice that we are tailing off to something very low. It is unlikely that we are going to find big additional finds in the future. Again, we are very good at that. We have dug about 5 million wells worldwide. We have done a whole lot more than that explorations with detonations and seismic and 3D and computers and we are very good at looking at the kind of geology where you might find oil. There is just no real expectation that there are going to be big additional fields of oil found out there. This dropoff in discovery is really in spite of very improved technology for finding oil.
Chart 8. This is a very interesting chart. It has nothing to do with time, because on the abscissa here, we have the number of wells that are drilled, the cumulative oil caps, and on the ordinate, we have the amount of oil that was found. For any relatively big field, here we are talking about 50 gigabarrels. Remember, there are about 2,000 gigabarrels worldwide, so this is a meaningful part of the world reserves of oil. We see that that goes up and up and then it tails off. You cannot find what is not there. No matter how many more wells you drill, you are not going to find oil that is not there. The same pattern should be apparent on a world scale.
Chart 9. This is a very interesting chart. It is a little too busy, but let me try to explain what is there. The oil companies for reasons of pricing and regulations and so forth have had the habit through the years of underreporting initially how much oil they found. Then later when it was appropriate to their license to produce more oil, they would report additional oil. They never found any additional oil, they simply reported oil they had found previously. By the way, you may have noted that three times in the last roughly 3 weeks, oil companies have admitted that their estimates of the reserves were exaggerated and have downscaled the reserves that they said were there. If you took the original reporting of the reserves, you might be able to construct a curve, a straight line curve which said we are just getting more and more. But if you backdated that to the actual discoveries, then you get this curve. This curve is asymtoting at a bit over 2,000 gigabarrels, which is about what the world's experts say had been there. We have now pumped about half of that. We have about 1,000 gigabarrels remaining.
What now? Where do we go now? One observer, Matt Savinar, who has thoroughly researched the options, and this is not the most optimistic assessment, by the way, but may be somewhat realistic, he starts out by saying, Dear Readers, civilization as we know it is coming to an end soon. I hope not. This is not the wacky proclamation of a doomsday cult, apocalypse Bible sect or conspiracy theory society. Rather, it is a scientific conclusion of the best-paid, most widely respected geologists, physicists and investment bankers in the world. These are rational, professional, conservative individuals who are absolutely terrified by the phenomenon known as global peak oil.
Why should they be terrified? Why should they be terrified just because we have reached the peak of oil production? Last year, China used about 30 percent more oil. India now is demanding more oil. As a matter of fact, China now is the second largest importer of oil in the world. They have passed Japan. When you look at how important oil is to our economy, you can understand the big concern if, in fact, we cannot produce oil any faster than we are producing it now and there are increasing demands, as there will be, for oil. In our country, for instance, we have a debt that we must service. It will be essentially impossible to service that debt if our economy does not continue to grow. So there are enormous potential consequences, which is why he says that these people are absolutely terrified by the phenomenon known as peak oil.
What can we do to avert the kind of a catastrophe that he hints at with those words? We must not squander an opportunity. One is always reminded of Malthus. I am sure you have heard of him. He was looking at the increase in world population and he looked at our ability to produce food and he says, gosh, those two curves are going to cross because the world population was increasing faster than our ability to produce food and we are going to have mass starvation. That did not happen. The reason that did not happen was because Malthus could not have anticipated the green revolution, which, by the way, was made possible almost entirely, well, the plant science had a lot to do with it but better plants and better genes without the fertilizer to make them grow is not going to do you much good, so the green revolution was very largely the result of our intensive use of oil. Most people do not know it, but all of our nitrogen fertilizer is made from natural gas. You may have observed that when you have a thunderstorm in the summertime, your lawn is greener than when you have watered it.
That is because of what is known as poor man's fertilizer. The lightning combines some of the nitrogen so they can be carried down by the water and one's lawn is, in fact, greener after a thunderstorm than it is when they water it. We have kind of learned how to mimic lightning, and we now know how to make nitrogen fertilizer from gas. By the way, before we knew how to do that, the only sources of nitrogen fertilizer were barnyard manurers. If one is on the Eastern Shore with a lot of chickens, one could go a long way with that now in agriculture, could one not? But barnyard manurers would fertilize only a tiny percentage of the nitrogen needs of our plants.
And other than that it was guano. My colleagues know what guano is. Guano is the droppings of bats or of birds on a tropical island, their droppings accumulating for thousands of years, and there was a major industry in sending ships around the world to tropical islands and getting the guano.
We must not squander the opportunity that we have. Jevons Paradox becomes applicable here. Just a word about what Jevons Paradox is because I am going to mention it a time or two again. But Jevons Paradox says that frequently when one works to solve a problem, they really make the situation worse.
Let me give one little example. Suppose there is a small businessman who owns a store. He is really concerned about peak oil, and he is concerned about energy, and he wants to do something. His little store is using $1,000 worth of electricity a month, and he decides that he can really cut that use. So he does several things. He gets a storm door. He puts on storm windows. He insulates more. He turns down the thermostat, and he asks his workers to wear sweaters. And he is successful because he reduces his electric bill from $1,000 to $500. Almost no matter what he does with that $500, he has just made the situation worse by doing that.
Let me explain. One of the things that he may do, and it is a natural thing for a small businessperson to do, he may decide, I could hire more people and have a bigger business if I expanded. And so now he will expand, and he will still be using as much energy. Or if he decides to invest his money, if he invests his money in the bank, the bank will lend his money out five or six times, and at least some of those loans will be to small business people. And what the small business people will do is to create jobs and use energy. So the store owner is concerned about energy and the environment and being a responsible citizen, cutting his use of electricity, because everybody did not do it, because only he did it and nobody took advantage of the opportunity that was presented because he used less energy, he really contributed to the problem.
* Because after he expanded his business, he would be using still more energy. Or if the money was lent out by the bank and small businesses created more jobs and they used more energy, the situation would have just gotten worse.
All that the ``green revolution'' did was temporarily extend the caring capacity of the world. If we think about that, ultimately if we cannot do something about it to stabilize it, the green revolution just made matters worse. In the meantime we have all eaten very well in spite of the fact that about a fifth of the world will go to bed hungry tonight; but on the average, we are eating very well, and because of the average American, we are eating maybe too well.
But what we have done with the green revolution is to permit the population of the world to double and double again. So if we cannot now make sure that we stabilize population and bring it to the point where it can be supported by a technology where there is not what was ordinarily perceived as an inexhaustible supply of oil, there will simply be more people out there to be hungry and starved if we cannot meet their needs. So we have got to make sure that whatever we do to solve this problem that Jevons Paradox does not contribute.
Chart 10, this shows that this growth cannot be sustained forever. The greatest power in the universe, Albert Einstein was asked this question: Dr. Einstein, you have now discovered the ability to release energy from the atom. We get just incredible amounts of energy from the atom. A relatively small amount of fuel in one of our big submarines will fuel it for 33 years now. Enormous energy density. And they asked him, Dr. Einstein, what is the most energy-intensive thing in the world? He said, ``It is compound interest.''
That is what we have here in this exponential curve. And by the way, we, and when I say ``we,'' I mean the world, have been using oil as if our economy could just continue to grow on this unlimited exponential curve. Whether it is 2 percent a year or 5 percent a year or near 10 percent, which is what China has been growing in the last few years, we are still on an exponential curve.
Not quite so steep if we are on a lower growth rate. It goes up and up forever and ever.
Obviously, there is not an inexhaustible amount of oil in the world; so we have the exhaustible resource, which is this lower curve. It reaches a peak, which, if not now, shortly. Oil, as the Members may have noticed, is $54 or $55 a barrel. I saw the other day one future had sold for $100 a barrel, and the experts are saying we are probably going to see $60 before we see $50. We will wait and see.
The third curve here is the renewable resource curve. Do not be confused by the size of these curves. They are simply placed here so that lines would not cross other lines. But in actual practice, the renewable resource curve is likely to be nowhere near the peak of the exhaustible resource curve, energy.
Let me give a little example of what the problem is and why this is almost certainly true. One barrel of oil, 42 gallons of oil, equals the productivity of 25,000 manhours. That is the equivalent of having 60 dedicated servants that do nothing but work for someone. We can get a little better real-life example of this. A gallon of gas will drive a 3-ton SUV, and some of those are better than others, and let us say it takes it 20 minutes, which some will but most will not. Most are around 10. But let us say one gallon of gas will take a 3-ton SUV 20 miles at 60 miles an hour down the road. That is just one little gallon of gas, which, by the way, is still cheaper than water. We pay more for water in the grocery store than we pay for gas at $2 a gallon at the pump, added up.
How long would it take one to push their 3-ton SUV the equivalent of 60 miles an hour, 20 miles down the road? To get some idea of the energy density in these fossil fuels, there is just nothing out there in the alternatives that have anything like this energy density. There are some potentials, nuclear, and we will talk about those in a little bit. But of the general renewables, there is nothing out there with that kind of density. So this curve is likely to be much lower than this curve; and notice that if it is, in fact, going to be renewable, it cannot go to an unrealistic height. There is only so much wood to cut. Easter Island had that experience. When they cut the last tree, they totally changed the ecology.
The Bible talks about the large clusters of grapes and the honey and so forth that they found when the spies went out. That now is a desert. The Cedars of Lebanon, the grand Cedars of Lebanon that built the temple, that is now largely a desert. Why is it a desert? Because they cut the trees, they changed the environment, they changed the climate. So obviously this line has to be a reasonable sustainable level. It just cannot go on forever.
The challenge, then, is to reduce consumption ultimately to a level that cannot be sustained indefinitely without succumbing to Jevons Paradox.
How do we buy time, the time that we will need to make the transition to sustainability? Obviously, there are only two things that we can do to buy time. One is to conserve, and the other is to be more efficient. And the gentleman from Maryland (Mr. Gilchrest) mentioned our increasing efficiency. We have done a great job. Our refrigerators today are probably twice as efficient as they were 20 or 30 years ago. But instead of a little refrigerator, we have a big one. Instead of one, we may have two. So I will bet we are using as much electricity in our refrigeration as we ever used.
Conservation, we can do that. Remember several years ago when there were brownouts, blackouts in California and we were predicting, boy, the next year is really going to be rough? Do the Members know why it was not and we did not see any headlines about blackouts in California? Because knowing that there was a problem, the Californians, without anybody telling them they had to, voluntarily reduced their electricity consumption by 11 percent. That is pretty significant. And that avoided the rolling blackouts or brownouts.
And, finally, we must commit to major investments in alternatives, especially as efficiencies improve. This must ultimately lead to the ability to do everything within the capability of renewable resources. If we have got a solar breeder, and this shows a picture of a solar breeder. That, by the way, is about 5 miles from my home. It was built by Solarex, and it is a sign of the times. Mr. Speaker, this is now owned by BP. They know that oil is not forever. They are now the world's second largest producer of solar panels.
A few years ago, the largest buyer of solar panels in the world, and I do not know if that is true today, but a few years ago it was Saudi Arabia. Why would Saudi Arabia, with the most oil in the world, be the biggest purchaser of solar panels in the world? The reasons are very simple. These are not dumb people, and they figured out that solar panels were better for them in producing electricity than oil because they had widely distributed communities that were very small. Electrons in a wire are very different than oil in a pipeline. Put a gallon of oil in a pipeline up at Prudhoe Bay, and a gallon will come out where it goes on the ship. If we put electrons in a line which is long enough, nothing will come out in the other end. It is called line loss.
And they knew that in their small communities, widely distributed, with the enormous line losses they had from big plants, that they would be better off with distributed production.
By the way, just a hint to our people who are concerned with homeland security, the more distributed production we have, the less vulnerable we are going to be to terrorist attacks on our power infrastructure.
Transition to sustainability will not happen if left applying market forces alone. Everyone must be part of the effort or Jevons Paradox will prevail. If only our country tries to do it and nobody else helps, we will just put off the day when we must make the transition, and it will be even more difficult. The market will, indeed, signal the arrival of peak oil. To wait until it does, however, is like waiting until we see a tsunami: by then it may be too late to do anything.
We now are doing a lot of talking here in the Congress and fortunately across the country about Social Security, and it is a big problem. But I tell the Members if the problem of Social Security is equivalent to the tidal wave produced by the hurricane, then this peak oil problem is equivalent to the tsunami. The impact and the consequences are going to be enormously greater than the impact and the consequences of Social Security or Medicare or those two put together.
It will take a sustained, conscious, coordinated national and even international, effort. If everybody is not working together and buying time by conserving and being efficient and using wisely that time we bought, then all we do is put off the inevitable.
The hydroelectric and nuclear power industries did not arise spontaneously from market forces alone. They were the product of a purposeful partnership of public and private entities focused on the public good. This is what we have to do relative to alternatives.
As I mentioned, California solved their energy crisis by voluntarily reducing their demand for electricity. Time, capital and energy resources are all finite. We have only so much time until it would be too late to avoid a real problem. Capital is limited and energy resources are certainly limited.
This time it will not be like the seventies. The big difference between now and the seventies is that in the seventies, we were just going up this curve, we were nowhere near the top of the curve, so there was always the ability to expand, to surge. If, in fact, we are now at peak oil, there is no such ability remaining.
Is there any reason to remain optimistic or hopeful? Let me go back to Matt Savinar, that not-too-optimistic journalist. ``If what you mean is there any way technology or the market or brilliant scientists or comprehensive government programs are going to hold things together or solve this for me or allow for business to continue as usual, the answer is no. On the other hand, if what you really mean is is there any way that I still can have a happy, fulfilling life, in spite of some clearly grim facts, the answer is yes. But it is going to require a lot of work, a lot of adjustments, and probably a bit of good fortune on your part.''
What now? Well, what we need to do now clearly is to buy time, and we buy that, as I mentioned, with efficiency and conservation. This will keep energy prices affordable. If demand continues to increase and output cannot increase, energy prices are going through the ceiling.
So we have got to reduce demand so that prices do not get so high that it is impossible to invest the capital necessary to develop the alternatives, using existing conventional technologies to make the transition as new technologies are developed.
We must use it wisely. If we do not use it wisely, and I have talked about Jevons Paradox several times, we have got to make investments in efficient, sustainable technologies, further reduce requirements for energy in any form, making smaller systems feasible which reduce both initial and operating costs.
The benefits are enormous. Additional benefits include business opportunities, lots of business opportunities we do not even dream of. Look at the business opportunities created by putting a man on the moon. I have 200-some companies in Maryland alone which are there only because of technology breakthroughs in putting a man on the moon.
That same thing could happen if we had a Manhattan type project focusing on renewables, potential worldwide markets, if we are the leader, and we have every reason to be the leader because we have the biggest problem. We can develop worldwide markets, domestic job creation and environmentally benign technologies with potential to reduce and or eliminate pollution. We could be a real role model.
We are, as I mentioned, less than 5 percent of the world's population, and we use 25 percent of the world's energy. I was in Europe a month or so ago, and their comment was somewhere between anger and disdain. ``You are still only paying $2 a gallon for gasoline in your country.'' It is $5.50 or $6.00 a gallon there. And they are not unmindful that this one person in 22 in the world is using 25 percent of the world's energy. We have a real opportunity to be a role model.
Let me put up the last chart. This is potential alternative solutions. For what time we have remaining, let me ask my colleague, the gentleman from Maryland (Mr. Gilchrest) to join us as we talk about this.
I have only have some of the potential solutions here. I just want to go down this list and look at these. There may be some others. The gentleman mentioned hydrogen from the ocean. That is certainly one.
There are some finite resources here, ones we have not maximally exploited here, and some renewable resources here, and we want to spend another whole hour talking about this, because there are a lot of things to talk about in these resources. But almost none of these have the density of energy that we find in fossil fuels.
There are tar sands in Canada, there is oil shale in this country, but it takes an awful lot of energy to get energy out of those. You may not have much more than a one-and-a-half to one. I have heard it takes six barrels of oil to get one net barrel of oil out of these tar sands and oil shale. There is an awful lot there, but there are considerable environmental costs and enormous economic costs to develop it.
Mr. GILCHREST. If the gentleman will yield, another analogy I heard recently about the efforts to bring out ever-increasing and diminishing oil reserves and how that simply is not going to work for sustaining our energy needs, this particular physicist gave an analogy that compared the oil to a lion in Africa taking the energy of catching two gazelles to catch one gazelle. How long would that lion last? It takes the energy of catching two gazelles to only catch one, but he needs it to sustain himself, and that simply is not going to work.
I want to compliment the gentleman from Maryland, and I would like to be a part of the extra hour that we will do maybe this week to show what the alternatives are, simply because our energy requirements are increasing, they are not decreasing, and they will continue to increase.
Political parties are not going to let the grid go cold, but what do we do when we rely on oil and natural gas as the predominant energy source for this country? We have to simply find alternatives.
If I could just say briefly, there are two problems with our dependence on oil, and the gentleman has laid those out exceptionally well tonight. Part of the first problem is trade deficits and national security because of our oil dependence. When the price goes up, because we do not have most of the reserves, when oil peaks, we have no control over that. There will never be a decrease in demand. There will always be an increase in demand, no matter what happens, and our energy hunger is gargantuan.
The other problem with our oil dependence is that we are burning fossil fuel. We are returning to the atmosphere carbon that has not been there in this amount for millions of years, and what we are burning in decades it took the natural processes millions of years to lock away.
One other comment about letting the market forces deal with this fairly eminent problem. The global marketplace deals with the CEOs that are rightly so in the business to make a quick profit. The international marketplace is when nations get together, discuss an issue and they find mutual benefit to these vast problems. Vast solutions are available through what the gentleman has described so well tonight.
Mr. BARTLETT. Mr. Speaker, reclaiming my time, of course the real challenge is to have everybody agree on what the facts are. I suspect a big percentage of the people that might read or listen to what we say this evening had not even heard of peak oil.
We really had about 30 years warning that this was going to happen. When M. King Hubbert predicted oil would peak in this country in 1970 and it did, and 5 years later, certainly by 10 years later we knew absolutely he was right, because we were well down on the curve 10 years later, we should have had some hint that he probably was right, he and Colin Campbell were probably right about world production? We paid no attention to that.
As a matter of fact, the people that were talking about this until very recently have been quickly relegated to the lunatic fringe. If I had been up here 3 or 4 years ago talking about this, someone may want to relegate the two of us this evening to the lunatic fringe.
But I think the evidence is out there. I think the evidence is out there, and the marketplace is saying that it is out there, because oil is now at $54 or $55 a barrel, they are saying we are going to see $60 before we see $50. I saw one future that was $100 a barrel.
By the way, at $100 or $200 a barrel, tar sands and oil shale become somewhat competitive, but with enormous costs. They will be positive, we will get a little more out than we put in, but not the kind of energy we are now using.
Coal, we have a lot of coal. China has a lot of coal. We now use coal primarily in this country for producing electricity. It is very dirty. Our environmental requirements now, there has not been a new coal plant in a long while, it is all natural gas. It is a real pity. Oil and natural gas are, in a very real sense, too good to burn. They are the feedstock for an enormous petrochemical industry. I mentioned only the fertilizer that grows our crops and the pesticides we make from oil. We live in a plastic world, and all of that plastic is made from oil.
Now, it is true that you can also use biomass and so forth to do some of that, but let us remember that we are just on the verge of not being able to feed the world. Tonight about one-fifth of the world will go to bed hungry. We we are not going to bed hungry in this country, not by a long shot, and we are living very high on the food chain. The time will come when you will not be able to eat the pig that ate the corn, because there is at least 10 times as much energy in the corn that the pig ate as you are going to get out of the pig by eating him. So we can certainly do a lot of by living lower on the food chain.
Mr. GILCHREST. If the gentleman would yield for a second, first of all, I want to compliment the gentleman on this fascinating factual presentation which leads me to what I want to say.
The gentleman said something earlier about finding solutions to the problem is going to be similar to the Manhattan Project or similar to placing a man on the moon within a decade when President Kennedy made that statement, and it is that kind of leadership from this Congress, from the administration, to incentivize, to create the kind of inspiration from the general public, to put these forces together to make it all work.
Mr. BARTLETT. Mr. Speaker, reclaiming my time, but now we must do it on a global basis, because of Jevons Paradox, if all the world does not cooperate, we will not get there. Had we paid attention to M. King Hubbert and not relegated him to the lunatic fringe, and he was right as evidence indicates on his prediction from 1970, had we paid attention to him we would have had at least 20 years headstart, and then we could have done it alone in this country because we are so big and use so much of the world's energy.
Before we leave coal, we are going to come back to this and spend another hour with a lot of detail on this, but someone said there are 500 years of coal, that is not true there is maybe 250, at present use rates. But as oil becomes harder and harder to find, we are going to turn more and more to coal, and that 70 years with enormous environmental penalty will shortly become a relatively few years. That is not forever. But we will be leaning on coal more than in the past nuclear.
Three ways we can get nuclear energy. For one of them we are home free, and that is fusion. We send a little less than $300 million a year on that. I would like to spend more if there was the infrastructure out there to support it, because if we get there, we are home free.
But I kind of think that hoping to solve our energy problems with fusion is a bit like you or me hoping to solve our personal financial problems by winning the lottery. That would be real nice. I think the odds are somewhere near the same. I am about as likely to win the lottery as we are to come to economically feasible fusion.
I hope I am wrong. Frequently my hopes and my anticipations are different. My anticipation is we are not going to get there because of the enormous engineering challenges. My hope is I am wrong and we are going to get there.
Two other ways to get energy from nuclear. One is the light water reactor, which is all we have in this country. By the way, tonight when you go home, every fifth home and every fifth business would be dark if we did not have nuclear. It produces 20 percent of all of our electricity. But there is not all that much fissionable uranium in the world, so we are not going to get there with light water reactors.
France produces about 80 percent of its electricity from nuclear. They have a lot of breeder reactors. They do what the name implies, they make more fuel than they use, with big problems, in enrichment, shipping it around, squirreling away the products for a quarter of a million years. That presents enormous challenges to us.
So there is the potential here in nuclear, but a lot of problems involved with it. It is not just that simple. By the way, it takes a lot of oil to build a nuclear power plant.
At some point, you pass the point of no return where there is not enough readily available high-quality fossil fuels to support our present economy while we make the investment we have got to make to transition to these renewables. And then we come to true renewables: solar, wind, geothermal, ocean energy. All of these suffer.
By the way, I am a big supporter of these. I had the first hybrid electric car in Maryland. I had the first one in the Congress. I have a vacation home that is off the grid and totally powered by solar. And I am going to put in a wind machine. I am a big supporter of this.
But the energy density here is very low. And it is intermittent. It takes a lot of solar panels to produce the electricity that you use in your home. It takes 12 of them to power your ordinary refrigerator just as an example. So those are real potential, and they are growing. Wind machines now produce electricity at 3 1/2 cents a kilowatt hour. That is getting competitive. A whole lot of them in California. They are in West Virginia. We are putting some up on Backbone Mountain in western Maryland.
Boy, if we could get down there to geothermal we would have it, would we not?
There is not a single chimney in Iceland because they do not need them. They have got geothermal. They have a little bit of it in the West. But for most of the world that molten core is far too deep for us to tap.
Mr. GILCHREST. If the gentleman would yield just for a second, I am sure he knows, but the general public, I do not think realizes it is not necessary to be sitting right on top of a volcanic area, an earthquake zone to get geothermal energy. We on the Eastern Shore of Maryland have a number of schools that are actually providing heat for those schools from geothermal energy. Some of these things are sort of a hidden secret. But it is the classical conventional wisdom that keeps us from exploring some of these things a little bit further. And I think the gentleman is bringing those out tonight.
Mr. BARTLETT of Maryland. Is this tying the school to the molten core, or is it simply using a heat pump and exchanging, not with the air? What you are trying to do in the winter-time is cool the air and what you are trying to do in the summer time is heat the air.
Mr. GILCHREST. It is actually bringing water up from the surface, from the subsurface. The water is much warmer further down.
Mr. BARTLETT of Maryland. It is indeed. But you still have to have energy to use that. You are much more efficient using a heat pump that is tied to the ground, to groundwater than it is to the cold air in the winter and the hot air in the summer. If you are thinking about what you are trying to do is to cool the cold air in the winter time and to heat the hot air in the summertime. And obviously ground water is very much better in both seasons than either the air in the winter or the cold, the hot air in the summer or the cold air in the winter.
Ocean energy. You know, it takes an enormous amount of energy to lift the ocean 2 feet. That is roughly what the Moon does in the tides, is it not? But the problem with that is energy density.
There is an old adage that says what is everybody's business is nobody's business. And the corollary to that in energy is if it is too widely distributed, you probably cannot make much of it. And we have really tried to harness the tides. In some fjords in Norway where they have 60-foot tides you put a bar there, when it runs in you trap it and then you run it out through a turbine. When it is running out, you can get some energy from it. And there is potential there, a lot of potential energy. But you know it is very dispersed. We have a hard time capturing that energy.
I suspect that our hour is about up, and this is maybe a good place to end. We are going to come back and spend another hour looking at agriculture, enormous opportunities from agriculture. But let me remind the gentleman that we are just barely able to feed the world now. And if we start taking all of this biomass off the field, what is going to happen to the tilth of our soil, to the organic matter in our soil, which is essential to the availability of nutrients in the soil by the plant. So there are lots of challenges here. There are lots of opportunities here. And we will spend another hour talking about them. Thank you very much. And I yield back, Mr. Speaker.
by Adam Porter
It has long been denied that the US government bases any policy around the idea that global oil production may be in terminal decline.
But a new US government-sponsored report, obtained by Aljazeera.net, does exactly that.
Authored by Robert Hirsch, Roger Bezdek and Robert Wendling and titled The Peaking of World Oil production: Impacts, Mitigation, & Risk Management, the report is an assessment requested by the US Department of Energy (DoE), National Energy Technology Laboratory.
It was prepared by Hirsch, who is a senior energy programme adviser at the private scientific and military company, Science Applications International Corporation (SAIC).
They work extensively on defence and geopolitical issues for clients, including many for the US government.
Among current job openings at SAIC are positions at Fort Benning (formerly School of the Americas) and a private military contract to help retrain the Albanian air force in Tirana.
Hirsch has held a wide variety of positions in the US energy hierarchy including senior energy analyst at the Rand Corporation, through to a presidentially appointed assistant administrator for solar, geothermal and advanced energy systems.
He has also previously worked for the US Department of Energy on numerous advisory committees, including the DoE Energy Research Advisory Board.
This new report follows on from two presentations by Hirsch last year. One on 1 March to the same National Energy Technology Laboratory and another on 14 June last year at the Annapolis Centre for Science Based Public Policy. Here Hirsch laid down his ideas on the peak of oil production.
The Annapolis Centre for Science-based Public Policy is a group which has received $658,000 in funding from Exxon Mobil since 1998. It openly disputes the idea that global warming is the result of burning fossil fuels.
But this brand new senior-level report on "peak oil" is unprecedented in US government circles. It is not just the existence of the report itself that is such a landmark in the current oil debate. Its conclusions also pull no punches.
"World oil peaking is going to happen," the report says. Only the "timing is uncertain".
The effects of any oil peak are similarly not ignored. Specifically, the impact on the economy of the United States. "The development of the US economy and lifestyle has been fundamentally shaped by the availability of abundant, low-cost oil. Oil scarcity and several-fold oil price increases due to world oil production peaking could have dramatic impacts ... the economic loss to the United States could be measured on a trillion-dollar scale," the report says.
The authors of the report also dismiss the power of the markets to solve any oil peak. They call for the intervention of governments. But also they rather worryingly point to a need to exclude public debate and environmental concerns from the process. They say this is needed to speed up decision-making.
"Intervention by governments will be required, because the economic and social implications of oil peaking would otherwise be chaotic. But the process will not be easy. Expediency may require major changes to ... lengthy environmental reviews and lengthy public involvement."
Hirsch notes, despite arguments from the major oil companies and producer nations, that new finds of oil are not replacing oil consumed each year. Despite the advances in technology, reserves are becoming increasingly difficult to replace.
The report sees "a world moving from a long period in which reserves additions were much greater than consumption, to an era in which annual additions are falling increasingly short of annual consumption. This is but one of a number of trends that suggest the world is fast approaching the inevitable peaking of conventional world oil production".
The report then takes three possible scenarios and outcomes. Firstly that energy replacement solutions, or "mitigation" as the report states, are started 20 years before any "peak". Secondly that solutions are only enacted 10 years before any peak and, thirdly, that solutions are only put into practice as the peak becomes apparent.
In what some may see as an optimistic assessment, the authors believe 20 years is enough time to limit damage from any peak. However, they point out that "if mitigation were to be too little, too late, world supply/demand balance will be achieved through massive demand destruction".
Demand destruction is a modern way of saying catastrophic recessions and shortages. But as well as these predictions, the report lays out "signals" it believes will be apparent in the run-up to any peak. This is perhaps the most worrying aspect of the report, as it seems to describe the very events that are taking place at the moment.
"As world oil peaking is approached, excess production capacity ... will disappear, so that even minor supply disruptions will cause increased price volatility as traders, speculators, and other market participants react to supply/demand events," the report says.
"Simultaneously, oil storage inventories are likely to decrease, further eroding security of supply, aggravating price volatility, and further stimulating speculation ... oil could become the price setter in the broader energy market, in which case other energy prices could well become increasingly volatile and unpredictable."
The report highlights a series of ways to minimise any impacts. From increased fuel efficiency to technological help in stopping the practice of "oil-left-behind" or non-extractable oil and various forms of new liquid fuels, liquefied coal and gas-to-liquids.
But in its conclusion the report makes troubling reading, noting that "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."
This report is the clearest signal yet that the U.S government is taking the subject of "peak oil" seriously. Yet it remains to be seen what actions can be taken to stop this potentially "revolutionary" change.
By Bill Henderson
Seems like the Beltway movers and shakers are starting to clue in to our Bottleneck predicament.
Well, to be honest, there are beginning tentative steps, even within the Bush Administration, to recognize that continuing US prosperity and security depend upon confronting and solving building global-scale problems - E.O. Wilson's Bottleneck problems: global warming, species extinction and severe resource depletion (peak oil, being the first daunting example).
Unfortunately, but predictably, the nascent dialogue is ludicrously Americancentric and must stay completely within business as usual (Plan A as Lester Brown calls it) because 'The American lifestyle is not negotiable'.
So even as awareness of the imminent dangers of peak oil,
"The effects of any oil peak are similarly not ignored. Specifically, the impact on the economy of the United States. 'The development of the US economy and lifestyle has been fundamentally shaped by the availability of abundant, low-cost oil. Oil scarcity and several-fold oil price increases due to world oil production peaking could have dramatic impacts ... the economic loss to the United States could be measured on a trillion-dollar scale,' the (Hirsch DOE) report says."
of a nuclear Third World War triggered by America's resource war policy path,
"According to regional sources, Russia has de facto established guarantees for Iran's security, and is beefing up its southern border, from the Black Sea into Central Asia, a signal that Moscow is taking the threats against Iran and Syria very seriously.
"One Iranian official summed up his view of the situation by saying, 'The Third World War has already begun.'"
and - unthinkably worse but as near as your gas pump - of the horrible to contemplate extinction of all life as we know it as runaway global warming could possibly heat up our atmosphere to near Venus conditions,
"The prospect of only a very limited rise in average world temperatureone that society might easily adapt tonow appears highly unlikely. An increase in average global temperatures of 2° C (3.6° F) above preindustrial levelsan amount of increase thought to separate non-catastrophic from catastrophic levels of global warmingwill soon become unstoppable. Further, there is a growing fear among scientists of runaway global warming due to cumulative effects associated with a lessening of the carbon-absorbing capacities of the oceans and forests a probable consequence of global warming itself."
Beltway movers and shakers are awakening to the evidence but refuse to take off the blinders and contemplate anything but the present economy and the present drifting loss of governance instead of even contemplating the need for a Plan B.
These people who still seek to manage the globe refuse to contemplate a future without a Super Bowl, even if it means watching the big business circus within a Fortress America as billions die outside.
First of all, in January, there was the agreement between energy corporations, Beltway think tanks and ENGOs that America must develop a new energy policy.
"Energy is fundamental to U.S. prosperity and national security. With the advent of globalization, the onset of global warming, and the war on terrorism, the complex ties between energy and U.S. national interests have drawn tighter over time....
"U.S. energy policies to date have failed to address three great challenges. The first is the danger to political and economic security posed by the world's dependence on oil. Next is the risk to the global environment from climate change, caused primarily by the combustion of fossil fuels. Finally, the lack of access by the world's poor to modern energy services, agricultural opportunities, and other basics needed for economic advancement is a profound concern."
Like the war in Iraq there were many good reasons for this new energy policy - but the many good reasons are completely about American self-interest.
Thomas Friedman enunciated being a Geo-Green to Beltway perfection in combining environmentalism and geopolitics in supporting sharply lowered energy consumption and a gasoline tax. First of all it would reduce American dependence on foreign oil and stop the flow of American dollars to mullahs who are American enemies. And:
"It would reduce the chances that the United States and China are going to have a global struggle over oil - which is where we are heading. It would help us to strengthen the dollar and reduce the current account deficit by importing less crude. It would reduce climate change more than anything in Kyoto. It would significantly improve America's standing in the world by making us good global citizens."
'Even though we pretend to manage the globe we're so small minded that policy solutions to peak oil and greenhouse gas production are reduced to driving hybrids and exploring only the practical efficiencies possible in continuing business as usual: suburbs, Wal-Marts, salads transported thousands of miles, etc. We don't acknowledge anywhere that we have been profligate wasters of energy.'
Friedman is justly famous for his take on the progress trap of globalization; THE LEXUS AND THE OLIVE TREE should be required reading by all those who believe that their local governments have any freedom to use government to do anything but make the world a better place for business. But he probably doesn't even know who E.O. Wilson is, except in a dated misunderstanding of sociobiology; probably has never even heard of Wilson's Bottleneck metaphor for our 21st century; probably isn't even aware of the reality of global-scale problems as he jet sets around the world interviewing the suits who are in power because they think the same focused business small mindedness as he does.
While in Europe trying to appear conciliatory while remaining malevolent disfunctional Daddy, President Bush announced a plan to help China and India access US technology to be able to develop their coal fired power plants much more efficiently. Somebody in the Bush Admin actually understands that American prosperity and security is at risk to Asian economic expansion producing so much CO2, so much greenhouse gas, that Americans will be effected by subsequent global warming.
Not yet recognition of how close we all are to a cliff; not yet recognition that we are already skidding off the road, but recognition of the cause and effect of global-scale problems and the need to at least tinker with Plan A and get proactive if - and we'll get Beltway parochial again - the present economy is to keep expanding.
Not yet even close to recognition that extra-sizing your dominion on this small blue planet might entail using America's technical prowess to help other competitive emerging economies get past coal, past now peaking oil to a post-fossil fuel, clean energy economy so that we all survive and not just as peasants or hunters and gatherers.
Those on the Beltway have yet to advocate a Manhattan-style program accelerating investment and government and industry cooperation to get to an alternative energy economy fast in order to keep growing without global warming and species extinction - except for Lester Brown Two very hopeful recent technology stories - photo-voltaic/nanotech paint and a new method of effectively using sunlight to split water for hydrogen - are examples of possible new energy sources that could supplant fossil fuels if developed in time.
Lester Brown, Beltway enviro extra-ordinaire, comes close to understanding our Bottleneck predicament in his recent examination of how explosive growth in China threatens American security. Brown, echoing Wilson, projects how the rapidly expanding Chinese (and greater South-Asia including India) footprint combined with projected developed world growth is ecologically impossible and is exacerbating building global-scale problems such as global warming.
Brown has also taken the next step and proposed a wartime-equivalent rational-comprehensive governmental framework to begin to confront and ameliorate building global-scale problems. He recognizes that Plan A has failed and that we need to evolve a Plan B.
Unfortunately, Beltway shakers: you are probably waking up to reality too late. Skeptics have advanced detailed arguments that it will take decades that we don't have to develop a post fossil fuel economy. Peak oil is starting to bite. You should have paid attention to M.King Hubbert's graphs. You should have recognized the true dangers of greenhouse gases a half century ago and begun needed change. You we're too busy taking care of business.
You still reject anything but Plan A.
And now Bush Admin unilateralism - especially in choosing the resource war path for us all by succumbing to temptation in trying to seize control of Iraq for narrow American self-interest - has poisoned the cup of multilateral cooperation needed to confront building global problems. There was a science and business path . But it needed American leadership. But the leaders were too small minded, too preoccupied with self-interest to recognize common danger and the need for change.
Oil prices traded at record highs again today. Well above the $57 a barrel mark. By now you know what this means, right? You'll spend more to fill 'er up, and more to heat the house. But now may be the time to start considering some other costs. As Marketplace's John Dimsdale reports, the U.S. economy is paying quite a price for being so dependent on the crude.
John Michael Greer
With the coming of Peak Oil and the beginning of long-term, irreversible declines in the availability of fossil fuels (along with many other resources), modern industrial civilization faces a wrenching series of unwelcome transitions. This comes as a surprise only for those who haven't been paying attention. More than thirty years ago, the Club of Rome's epochal study The Limits to Growth pointed out that unless something was done, a global economy based on fantasies of perpetual growth would collide disastrously with the hard limits of a finite planet sometime in the early twenty-first century.
The early twenty-first century is here, nothing was done, and the consequences are arriving on schedule. The road that would have brought industrial society through a transformation to sustainability turned out to be the road not taken. The question that remains is what we can do with the limited time we have left.
The Failure of Politics
There are specific practical things that can be done, right now, to deal with the hard realities of our situation. The problem is that most of them are counterintuitive, and fly in the face of very deeply rooted attitudes on all sides of the political spectrum.
The first point that has to be grasped is that proposals for system-wide, top-down change - getting the Federal government to do something constructive about the situation, for instance - are a waste of time. That sort of change isn't going to happen. It's not simply a matter of who's currently in power, although admittedly that doesn't help. The core of the problem is that even proposing changes on a scale that would do any good would be political suicide.
Broadly speaking, our situation is this: our society demands energy inputs on a scale, absolute and per capita, that can't possibly be maintained for more than a little while longer. Sustainable energy sources can only provide a small fraction of the energy we're used to getting from fossil fuels. As fossil fuel supplies dwindle, in other words, everybody will have to get used to living on a small fraction of the energy we've been using as a matter of course.
Of course this is an unpopular thing to say. Quite a few people nowadays are insisting that it's not true, that we can continue our present lavish, energy-wasting lifestyle indefinitely by switching from oil to some other energy source: hydrogen, biodiesel, abiotic oil, fusion power, "free energy" technology, and so on down the list of technological snake oil. Crippling issues of scale, and the massive technical problems involved in switching an oil-based civilization to some other fuel in time to make a difference, stand in the path of such projects, but those get little air time; if we want endless supplies of energy badly enough, the logic seems to be, the universe will give it to us. The problem is that the universe did give it to us - in the form of immense deposits of fossil fuels stored up over hundreds of millions of years of photosynthesis - and we wasted it. Now we're in the position of a lottery winner who's spent millions of dollars in a few short years and is running out of money. The odds of hitting another million-dollar jackpot are minute, and no amount of wishful thinking will enable us to keep up our current lifestyle by getting a job at the local hamburger joint.
We - and by this I mean people throughout the industrial world - have to make the transition to a Third World lifestyle. There's no way to sugar-coat that very unpalatable reality. Fossil fuels made it possible for most people in the industrial world to have a lifestyle that doesn't depend on hard physical labor, and to wallow in a flood of mostly unnecessary consumer goods and services. As fossil fuels deplete, all that will inevitably go away. How many people would be willing to listen to such a suggestion? More to the point, how many people would vote for a politician or a party who proposed to bring on these changes deliberately, now, in order to prevent total disaster later on?
John Kenneth Galbraith has written a brilliant, mordant book, The Culture of Contentment, about the reasons why America is incapable of constructive change. He compares today's American political class (those people who vote and involve themselves in politics) to the French aristocracy before the Revolution. Everybody knew that the situation was insupportable, and that eventually there would be an explosion, but the immediate costs of doing something about it were so unpalatable that everyone decided to do nothing and hope that things would somehow work out. We're in exactly the same situation here and now.
So while it may be appealing to fantasize about vast government programs bailing us out of the present predicament, such fantasies are not a practical way of responding to the situation. We have to start with the recognition that the most likely outcome of the current situation is collapse: to borrow the Club of Rome's formulation, sustained, simultaneous, uncontrolled and irreversible declines in population, industrial production, and capital stock.
Now as soon as this is said, most people who don't reject it out of hand slip off at once into apocalyptic ideas of one sort or another. These should be rejected; history is a better guide. Civilizations collapse. As Joseph Tainter pointed out in his useful book The Collapse of Complex Societies, it's one of the most predictable things about them. Ours is not that different from hundreds of previous civilizations that overshot their natural resource base and crashed to ruin. What we face is a natural process, and like most natural processes, much of it can be predicted by comparison with past situations.
But fantasy is often more palatable than reality, and most of the apocalyptic notions in circulation these days are sheer fantasy. The idea, popular among Christians who don't read their Bibles carefully enough, that all good Christians will be raptured away to heaven just as the rest of the world goes to hell is a case in point. It's a lightly disguised fantasy of mass suicide - when you tell the kids that Grandma went to heaven to be with Jesus, most people understand what that means - and it also serves as a way for people to pretend to themselves that God will rescue them from the consequences of their own actions. That's one of history's all time bad bets, but it's always popular.
But the Hollywood notion of an overnight collapse is just as much of a fantasy; it makes for great screenplays but has nothing to do with the realities of how civilizations fall. The disintegration of a complex society takes decades, not days. Since fossil fuel production will decline gradually, not simply come to a screeching halt, the likely course of things is gradual descent rather than freefall. Civilizations go under in a rolling collapse punctuated by localized disasters, taking anything from one to four centuries to complete the process. It's not a steady decline, either; between sudden crises come intervals of relative stability, even moderate improvement; different regions decline at different paces; existing social, economic and political structures are replaced, not with complete chaos, but with transitional structures that may develop pretty fair institutional strength themselves.
Does this model apply to the current situation? Almost certainly. As oil and natural gas run short, economies will come unglued and political systems disintegrate under the strain. But there's still oil to be had - the Hubbert Curve is a bell-shaped curve, after all. The world in 2020 may still be producing about as much oil as it was producing in 1980. It's just that with other fossil fuels gone or badly depleted, nearly twice as many people in the world, and the global economy in shreds, the gap between production and demand will be vast. The result will be poverty, spiralling shortages, rising death rates, plummeting birth rates, and epidemic violence and warfare. Not a pretty picture - but it's not an instant reversion to the Stone Age either.
Equally imaginary is the notion that the best strategy for would-be survivors is to hole up in some isolated rural area with enough firepower to stock a Panzer division, and wait things out. I can think of no better proof that people nowadays pay no attention to history. One of the more common phenomena of collapse is the breakdown of public order in rural areas, and the rise of a brigand culture preying on rural communities and travelers. Isolated survivalist enclaves with stockpiles of food and ammunition would be a tempting prize and could count on being targeted.
Equally inaccurate is the notion that stockpiling precious metals will somehow make the stockpilers exempt from the consequences of industrial collapse. This strategy has been tried over and over again in recorded history, and it doesn't work. Every few years, for example, archeologists in Britain dig up another cache of gold and silver hidden away by some wealthy landowner in Roman Britain as the empire fell apart. They're usually close to the ruins of the owner's rural villa, which shows the signs of being looted and burned to the ground by the Saxons. As a working rule, if your value consists of what you've stockpiled, there will be an unlimited number of other people interested in removing you from the stockpile and enjoying it themselves. However many you kill, there will always be more - and eventually the ammo will run out.
Communities of Survival
So what does work? The key to making sense of constructive action in a situation of impending industrial collapse is to look at the community, rather than the individual or society as a whole, as the basic unit. We know from history that local communities can continue to flourish while empires fall around them. There are, however, three things a community needs to do that, and all three of them are in short supply these days.
First, a community needs some degree of local organization. Our present culture here in America has discarded most of the local organizations it once had, in favor of a mass society where individuals deal directly with huge government and corporate institutions. This has to be reversed. The recent move to reinvigorate civil society is a step in the right direction. Joining or creating a local community group, and helping to revive local civil society, will help provide your community with voluntary networks of cooperation and mutual aid in difficult times.
One often-neglected but useful resource is the old fraternal orders - the Masons, the Odd Fellows, the Grange, and so on - which once included more than 50% of adult Americans in their membership. Many of these organizations still exist, and they're far less exclusive than people outside them tend to think. Joining such an organization, or some other local community group, and helping to revive local civil society is a crucial step that will provide your community with essential networks of cooperation and mutual aid in difficult times. The Stormwatch Project website is specifically aimed at helping fraternal orders and similar organizations get ready to fill such a role.
The second thing a community needs in the twilight of industrial society is a core of people who know how to do without fossil fuel inputs. An astonishing number of people, especially in the educated middle class, have no practical skills whatsoever when it comes to growing and preparing food, making clothing, and providing other basic necessities. An equally astonishing number are unable to go any distance at all by any means that doesn't involve burning fossil fuels - and almost no one in the developed world can light a fire without matches or a lighter from some distant factory. Survival skills such as organic gardening, low-tech medicine, basic hand crafts, and the like need to be learned and practiced now, while there's time to do so. Similarly, those people who cut their fossil fuel consumption drastically now - for example, by getting rid of their cars and using public transit or bicycles for commuting - will be better prepared for the inevitable shortages.
We live in a "prosthetic society" in which most people have totally neglected their own innate abilities in favor of ersatz mechanical imitations. Even our schoolchildren use pocket calculators instead of learning how to add and subtract. All this has to be reversed as soon as possible. Those people who can use their own hands and minds to make tools, grow food, brew beer, treat illnesses, generate modest amounts of electricity from sun and wind, and the like, will have a survival advantage over those who can't. In a violent age, practical knowledge is a life insurance policy; if you're more useful alive than dead, you're likely to stay that way. The pirate enclaves of the seventeenth-century Carribbean were among the most lawless societies in history, but physicians, navigators, shipwrights, and other skilled craftsmen were safe from the pervasive violence, since it was in everyone's best interests to keep them alive.
The third thing a community needs is access to basic human requirements, and above all food. Very large cities are going to become difficult places to be in the course of the approaching collapse, precisely because there isn't enough farmland within easy transport range to feed the people now living there. On the other hand, most American cities of half a million or less are fairly close to agricultural land that could, in a pinch, be used to grow food intensively and feed the somewhat reduced population that's likely to be left after the first stages of the collapse. What's needed is the framework of a production and distribution system around which this can take shape.
The good news is that this framework already exists; it's called the farmers market movement. The last two decades have seen an astonishing growth in farmers markets across the country - the latest figures I've seen, and they're some years out of date, indicate that farmers markets are a $16 billion a year industry, with most of that money going to small local farmers. I personally know organic farmers who are able to stay in business, and support their families on quite small acreages, because they work the farmers markets. Every dollar spent on locally grown produce from a farmers market, instead of supermarket fare shipped halfway around the world, is thus an investment in local sustainability and survival.
There are a good many other, similar steps that can be taken. Anything that provides functional alternatives to energy-wasting lifestyles lays foundations for the transitional societies of the late 21st century, and ultimately for the sustainable successor cultures that will begin to emerge in North America in the 22nd and 23rd centuries. The important point, it seems to me, is to do something constructive now, rather than presenting plans to the government in the perfect knowledge that they will be ignored until it's far too late to do anything.
Perhaps a metaphor will make an appropriate finish for this little essay. Imagine that you're on an ocean liner that's headed straight for a well marked shoal of rocks. Half the crew is dead drunk, and the other half has already responded to your attempts to alert them by telling you that you obviously don't know the first thing about navigation, and everything will be all right. At a certain point, you know, the ship will be so close to the rocks that its momentum will carry it onto them no matter what evasive actions the helmsman tries to make. You're not sure, but it looks as though that point is already well past.
What do you do? You can keep on pounding on the door to the bridge, trying to convince the crew of the approaching danger. You can join the prayer group down in the galley; they're convinced that if they pray fervently enough, God will save them from shipwreck. You can decide that everyone's doomed and go get roaring drunk. Or you can go around quietly to the other passengers, and encourage those people who have noticed the situation (or are willing to notice it) to break out the life jackets, assemble near the lifeboats, take care of people who need help, and otherwise deal with the approaching wreck in a way that will salvage as much as possible.
Me, I suggest the latter. Life jackets, anyone?
The Olduvai theory has been called unthinkable, preposterous, absurd, dangerous, self-fulfilling, and self-defeating. I offer it, however, as an inductive theory based on world energy and population data and on what I’ve seen during the past 30 years in some 50 nations on all continents except Antarctica. It is also based on my experience in electrical engineering and energy management systems, my hobbies of anthropology and archaeology, and a lifetime of reading in various fields.
The theory is defined by the ratio of world energy production (use) and world population. The details are worked out. The theory is easy. It states that the life expectancy of Industrial Civilization is less than or equal to 100 years: 1930-2030.
World energy production per capita from 1945 to 1973 grew at a breakneck speed of 3.45%/year. Next from 1973 to the all-time peak in 1979, it slowed to a sluggish 0.64%/year. Then suddenly —and for the first time in history — energy production per capita took a long-term decline of 0.33%/year from 1979 to 1999. The Olduvai theory explains the 1979 peak and the subsequent decline. More to the point, it says that energy production per capita will fall to its 1930 value by 2030, thus giving Industrial Civilization a lifetime of less than or equal to 100 years.
Should this occur, any number of factors could be cited as the 'causes' of collapse. I believe, however, that the collapse will be strongly correlated with an 'epidemic' of permanent blackouts of high-voltage electric power networks — worldwide. Briefly explained: "When the electricity goes out, you are back in the Dark Age. And the Stone Age is just around the corner."
The Olduvai theory, of course, may be proved wrong. But, as of now, it cannot be rejected by the historic world energy production and population data.
By Thomas Kostigen, MarketWatch
SANTA MONICA, Calif. (MarketWatch) -- Extremists have warned for years of an impending economic disaster due to the end of oil; the movement is dubbed "Peak Oil." It posits that one day all the oil in the world will be depleted, prices will soar and disaster will ensue.
And many are saying that day has come.
"Peak Oil is no longer on the way. It is here," says Michael Ruppert, who runs a Web site and pens a newsletter on topics that range from government corruption to insider trading to Osama bin Laden.
Ruppert and those like him who preach about the days of fire and brimstone are taking their cue from the fact that no significant oil deposits have been found as usage soars. The Energy Department last week released its short-term forecast, which sees demand increasing five percent over the next two years. Meanwhile, suppliers are dour about oil reserves.
"Oil is no longer in plentiful supply. The time when we could count on cheap oil and even cheaper natural gas is clearly ending," ChevronTexaco Chairman David O'Reilly said in a recent speech.
Economists and oil ministers say there is no need for alarm. Indeed, James Flanigan, the economics columnist for the Los Angeles Times flatly says, "Oil prices will not -- repeat, will not -- climb inexorably in coming years, for one simple reason. It's called human nature." He says people will react and make changes in their daily lives to consume less energy.
Alternative energy sources too will alleviate some of the demand on oil. Yet, those sources are far away from replacing petroleum-based fuels.
In the meantime, consumers will suffer with leaps in gas prices and energy bills, as has been the case recently in the United States. Crude hit $55 per barrel last week, and -- closer to home, at least in California -- gas prices topped $2.20 for a gallon of regular at the pump.
The confluence of increased oil usage as nations such as China and India industrialize with a winnowing of supplies winnow accounts for much of the price increases. That situation is unlikely to change. But it doesn't mean the end of oil; it means the end of oil pricing as we know it.
"It's [oil] there if you want to spend the money to extract it," says Richard Dickson, oil analyst and senior market strategist at Lowry's Research Reports in Palm Beach, Fla. "No one knows how much the Saudis have, or how much oil there is in Iraq."
He also notes that there are most likely deposits in Alaska or in deep-water areas such as the Gulf of Mexico that have yet to be exploited. On top of that, there are domestic sand and shale deposits that heretofore have been too expensive to develop.
"Look, hypothetically if oil per barrel goes up to $100, then the cost of converting those deposits at $70 or $80 per barrel doesn't look so bad. There is always oil, it's just a matter of how much it will cost to extract it," Dickson says.
Alternatives and economics
Until now it hasn't made much economic sense to explore other energy possibilities. Hydrogen fuel, which many say is the next giant step in energy, is far too expensive to produce for mass consumption. Nuclear energy, which could be the fastest energy source to be brought online, is too controversial -- and even at that would be about a decade away from wide accessibility, Dickson says.
So, oil is what's on the table. The question will be at what cost.The Organization of the Petroleum Exporting Countries meets in Iran this week, and Saudi Arabia is already calling for a production increase and a price reduction. That proposal isn't being embraced by Iran, which is hosting the meeting for the first time in 34 years, or Venezuela, the third largest producer in the cartel (after the Saudis and Iran).
Those countries claim the supply of oil on the world market is within historic range, and there is enough to meet current demand, which is typically less in the second quarter of the year anyway.
Saudi Arabia is reportedly concerned about price volatility. As well, higher prices send consumers in search of alternative energy sources, which doesn't bode well in the long term for oil-producing nations.
Whether the Saudi proposal passes or not, analysts don't see oil trading significantly lower. In addition, there will be assuredly a full-court press on to further oil exploration and innovation.
This week, the House and Senate budget committees are expected to vote on the President's 2006 budget, which contains language that authorizes drilling in the Arctic National Wildlife Refuge. That has environmental activists are up in arms.
Whether we're at "Peak Oil" or not, don't expect we'll ever be at Cheap Oil again.
by: John Laumer
“Peak Oil” is a best guess of when cumulative global oil production will begin to move into decline. This global ‘peak’ occurs when volumes lost from all countries where production is declining (losers) exceed the production gains made in all countries where production is still expanding (gainers). In the run up to Peak Oil, prices steeply climb for everything tied to oil; culture transforms radically; and everything you assumed to be constant starts to look shakey. Its not a question of "if", but rather, a matter of when we top Peak Oil and how steeply we go on our way up.
Projecting a year for Peak Oil is controversial and difficult for many reasons, some of which are non-technical. For example, few new gainer oil producing countries have popped into view recently. New gainers tend to be both unstable and unfriendly to their Western nation customers. Geopolitics can unexpectedly turn a gainer in to a loser country. Controversy about picking a year for Peak Oil is fed by concerns about biasing the market value of anything oil dependent, including stock. Its not just a game for geologists. The public has no direct way of judging the credibility of those postulating the numbers.
Because oil reserves are not interconnected, a number for global Peak Oil makes a false analogy, . There's no underground network fluidly linking each country's underground oil 'pools'. Estimates, then, are mathematical sums of a great many smaller estimates. Some of the reserves brought into the Sum Total are small or too technically or socially problematic to warrant high investments as long as there is easier oil to get at elsewhere. Just like at dinner, we consume the worst stuff last. Remember that as you read more about Peak Oil.
Here’s a variant on a more useful analogy, one that’s come by way of Europe: its the “Pub” analogy. This is a immense and crowded Pub with a very long bar, numerous taps, and a great many kegs lined up in the basement. As the night goes on some taps begin to dry up, pushing out foam. Thirsty customers anxiously look for a refill where a keg has not bottomed out, while bar employees scramble to hook up new kegs in the basement. Everyone's happy as long as the barkeeps keep up. Eventually all taps go down, though, and the manager decides to drain the Beer Bottle Reserve.
The customer in this analogy learns nothing about the global production and distribution of beer. Similarly, our personal experience with gasloine pricing and availability provides little insight into where we are with the “Peak Oil” issue. One reason is the years-long lag time between exploration, development, production, refining, distribution, and consumption. (In an ironic parallel, one person’s “weather” gives no insight whatsoever into Climate, as climate is the average of all weather).
The various Peak Oil estimates being trumpeted are easily spun by politicians, misunderstood by investors, and supporting of conspiratorial mindsets. Duck that nonsense. The peak of a curve (any data set really) should be understood for both accuracy and precision of the data. Hold off Googling on "peak oil" for a moment. Build up some spin immunity first.
Measurement Accuracy: -- An accurate measurement is one that is close to the true value of the phenomenon you are observing. How do you make an accurate measurement of oil production in an unstable place like Iraq? Do we trust the accuracy of production estimates made in the OPEC countries? Trust is based on strength of relationships. Who argues that these are improving? Houston...we may have a problem with accuracy.
Precision: -- a precise measurement is one that has very little scatter: repeat measurements give more or less the same value. If you do not know the expected value of a phenomenon but are trying to determine just that (peak oil for example), it is better to have accurate observations with poor precision than very precise, but inaccurate values. Ultimately, what gets sold in the way of oil is what was produced, allowing for some retrospective verification. However, Peak Oil numbers are and will remain imprecise: so deal with it. Expect a scatter in the projections.
Broadcast news doesn't get the substance of Peak Oil and probably never will, as its too hard to issue in a sound byte. But they will of course have plenty of opinions. Go ahead: laugh at the confused Sunday pundits and conflicting govenrment statements. Luckily, there's enough information, reflecting the full range of scatter, for you to make your own analysis. Highlights:
Consider the "little" peaks first.
According to the BP “Petroleum Review of 2004":
“Calculation of the annual average decline rate shows that in the 18 years since the US went into continuous decline (in 1985) it has been losing an average of 1.6%/y, which is probably the reason why people have generally been fairly relaxed about depletion, assuming it progresses slowly”....
"Analysis of this year’s oil production statistics leads to the conclusion that declining production and depletion is now a significant influence and that rapid production increases are sustainable in only a limited number of countries. This, in turn, gives a very great deal of political and financial leverage to those countries that do have expansion potential. …, total North American production peaked in 1997 while Asia-Pacific production peaked in 2000 and OECD production in 1998. Latin American production may have peaked in 2002, although it is too early to be sure".
Global Peak Oil Dates: The pessimistic global Peak Oil dates range from 2007 to 2012. These close-by dates tend to come from individuals, consultants, or independent non-governmental organizations. The IEA (International Energy Agency), a large energy reporting group under the OECD umbrella reports 2030. The US belongs to IEA incidentally. Optimists throw out numbers like 2100+. I suppose these optimistic ones include oil shale and tar sands in their estimates of reserves. (Should we assume that the "optimists" want to replicate the atmosphere of Venus here on Earth?)
Lets think about the 2030 number from IEA. If you live in the United States, for example, what would be some of the obvious ramifications? Here's my short list.
=>By 2030, most SUV drivers on the road today will be in retirement, their vehicles off the road. These trashed SUV’s will be partly reincarnated in more efficient vehicle designs, and the parts that did go in landfills will be getting mined back out to extract the embodied energy value.
=>For all retirees, but especially those who, today, can not afford a big SUV, the social security check is increasingly used to pay for energy.
=>By 2030, a large number of LNG transfer ports will have been established in the Northeast to supplant the oil that now heats a large proportion its residences.
=>By 2030, the cost to transport fresh fruits and vegetables from foreign producers will become so burdensome that there will be a major resurgence in local agricultural production: e.g. truck gardening, community supported agriculture, and commercial greenhouses.
=>Organic gardeners, less reliant on expensive pesticide inputs, will become increasingly competitive at the local and regional level. A return to interest in canning and consumption of winter root crops can also be expected.
=>By 2030, used materials that were energy intensive to produce, like ceramic sinks, aluminum canoes, stainless steel grilles, will become very valuable in recycling markets.
For a circumspect and interesting perspective on what Peak Oil means, albeit a very pessimistic one, click on this: This animated online slide show gets to the heart of trust and precision issues in a way no other source seems to have done. You'll need big pipes but it's really worth your ten minutes.
The leading energy analysts who foretold Enron's demise have an alarming new claim: The world's major oil companies are almost tapped out.
By Robert Bryce
Four years ago, the analysts at John S. Herold Inc. were the first to call bullshit on Enron. On Feb. 21, 2001, three Herold analysts issued a report that said Enron's profit margins were shriveling, the company had too few hard assets, and its stock price was way too high. Less than ten months later, Enron filed for bankruptcy.
Today, the analysts at Herold -- a research-only firm that issues valuations on several hundred publicly traded energy companies -- are making predictions even bolder than their call on Enron. They have begun estimating when each of the world's biggest energy companies will peak in its ability to produce oil and gas. Herold's work shows that the best minds in the energy industry are accepting the reality that the globe is reaching (or has already reached) the limit of its own ability to produce ever increasing amounts of oil.
Many analysts have estimated when the earth will reach its peak oil production. Others have done estimates on when individual countries will hit their peaks. Herold is the first Wall Street firm to predict when specific energy companies will hit their peaks.
Since last fall, Herold has done peak estimates on about two dozen oil companies. Herold believes that the French oil company, Total S.A., will reach its peak production in 2007. Herold expects 2008 to be critical, with Exxon Mobil Corp., ConocoPhillips Co., BP, Royal Dutch/Shell Group, and the Italian producer, Eni S.p.A., all hitting their peaks. In 2009, Herold expects ChevronTexaco Corp. to peak. In Herold's view, each of the world's seven largest publicly traded oil companies will begin seeing production declines within the next 48 months or so.
Executive vice president Richard Gordon, who heads Herold's global strategies team, says the firm's goal in doing peak-production estimates for individual oil companies is simple: "If the dinosaurs are going extinct, we are trying to figure out which ones are going to go extinct the soonest."
Herold's projections have enormous ramifications both for stockholders in the major oil companies and for every energy consumer on the globe. If Herold is correct, and the world's biggest oil companies cannot increase their production in the coming years, then several things appear certain:
# Oil prices -- which are already at record levels -- will continue rising as demand outstrips supply. In a few years, gasoline prices of $2 per gallon could seem like a bargain.
# State-owned oil companies like Mexico's Pemex, Venezuela's PDVSA (Petroléos de Venezuela) and Saudi Arabia's Saudi Aramco may be unable to increase their production enough to meet burgeoning global demand.
# The producers who belong to the Organization of the Petroleum Exporting Countries, and Saudi Arabia in particular, may have even more leverage over the global oil market in the coming years.
# The United States will be ever more reliant on oil imported from countries filled with people who don't like George W. Bush or his policies.
While Herold's projections provide ammunition to the growing chorus of analysts who believe peak oil is imminent, they are not being welcomed by the oil companies. Last month, when I asked ChevronTexaco's chairman and CEO, David J. O'Reilly, to respond to Herold's projection that his company would reach its peak production in 2009, he replied snappishly, "I'm not going to comment on that."
A spokesman for Royal Dutch/Shell in London was similarly coy, saying in an e-mail that the company had "no comment" on Herold's projection. However, the company's spokesman, Simon Buerk, pointed to a September 2004 report published by Shell that predicts the company will be producing the equivalent of 4.5 million barrels of oil per day by 2014, not the 4 million barrels per day that Herold foresees for that time frame.
Charley Maxwell, an analyst at Weeden & Co., a Connecticut brokerage, says oil industry officials are loath to discuss Herold's projections because doing so would "circumscribe their future prospects and the future growth of their stock, and executives have no interest in doing that since so much of their compensation is tied to their stock options." Maxwell, one of the most respected stock pickers in the energy business, believes the non-OPEC oil producers will hit their peak oil production in the next five years. And he applauds Herold's research, saying that no other reputable firm "has been willing to make this type of prediction."
Another energy industry veteran, John Olson, co-manager of Houston Energy Partners, an energy hedge fund, agrees. Olson believes that Herold's predictions about peak production are "very significant. It is perhaps the first cannon ball over the bow of a big tanker."
But Herold has its critics. Brian J. Jennings, the chief financial officer of Oklahoma City's Devon Energy Corp., which Herold believes will hit its peak in 2009, says that Herold's analysis is "a truncated look at the company. It assumes that nothing we are going to do over the next five years will increase our production." Jennings says Devon expects to increase its oil production by 25 percent over the next five years -- and that figure does not include fields that the company is developing in the Gulf of Mexico.
Of course, scientists, pundits and oil men have been predicting that the world will run out of oil ever since the gusher blew at Spindletop in Texas in 1901. Despite those predictions, the last century has been one of unbroken increases in supply. Each year, the oil industry has produced more oil than it did the year before. Today, the industry is producing about 83 million barrels of oil per day. New oil fields in the deep-water Gulf of Mexico, in the Caspian Sea and in Saudi Arabia will soon begin pumping oil onto the global market. Plus, huge deposits of oil are available in the Canadian tar sands and American oil shale.
But turning tar sands and shale into motor fuel is a very expensive proposition. And those new, unconventional oil sources may be insufficient to replace the decline in production from existing fields, which deplete by about 6 percent per year. Further, they may be too small to quench the demand from the developing world -- China in particular. Last month, at a conference in Houston, Zhu Yu, the president of China's Sinopec Economics and Development Research Institute, said that between January and September of 2004, motor fuel use in his country soared by 20 percent. Yu also predicted that China's oil consumption will double over the next 15 years to more than 10 million barrels of oil per day. Meanwhile, the Energy Information Administration expects India's oil consumption to increase by nearly 30 percent over the next five years.
The oil industry has plenty of other reasons to be nervous. The royal rulers of Saudi Arabia, the world's biggest producer, appear vulnerable to terrorist attacks and civil unrest. The Saudi government's biggest enemy, Osama bin Laden, has focused his ire on both the Saudi royals and the oil infrastructure in the Persian Gulf. And his loyalists are eager to attack both of those targets.
In Iraq, insurgents are continually attacking that country's oil infrastructure -- thereby crippling the war-torn nation's economy and its future prospects. In Venezuela, which has the biggest oil deposits in the Western hemisphere, president Hugo Chavez has threatened to cut off the flow of oil to the United States if the Bush administration continues its efforts to undermine his government. In Russia, president Vladimir Putin's brazen, state-sponsored theft of Yukos, one of that country's biggest oil companies -- and his jailing of the company's CEO, Mikhail Khordokovsky -- is likely to slow investment in Russian oil fields for years.
Furthermore, spare oil-production capacity has largely disappeared. Oil producers are running their wells at maximum capacity. Indonesia, a member of OPEC, cannot meet its OPEC quota of 1.4 million barrels per day. In February, Indonesia was able to produce only 942,000 barrels per day, its lowest level of production in 34 years. And last week, Algeria's energy minister, Chakib Khelil, said that OPEC "does not have the production capacity to increase its quotas."
All of these factors are sending oil prices to record highs. Monday's NYMEX closing price for light sweet crude was $54.95 per barrel. Last week, the Department of Energy issued a report saying that it expects prices to stay near or above $50 per barrel for the rest of this year. That's a big change for an agency that has always been conservative in its price projects. At about this same time last year, the agency was predicting that oil would cost about $29 per barrel throughout 2005.
Whatever price projections are used, it's increasingly clear that the era of cheap oil is over and that oil companies are having a harder time finding new oil to replace the oil they're pumping. In short, it appears that the late M. King Hubbert, a geophysicist who worked for Shell in Houston, is being proved right. In the 1950s, Hubbert used mathematical models to predict that American oil production would peak in the early 1970s. That's exactly what happened. Now, Hubbert's theories are being tested on a global scale.
Herold's owner and CEO, Art Smith, is a believer in Hubbert's work. Smith and his fellow analysts at Herold have been building their peak production databases since 1996. About 10 months ago, Herold began publishing what it calls "strategic evaluations" of specific companies, which include graphics showing when that company will reach its peak production. Herold does not do geologic analysis. Instead, its analysts mine the company's filings with the Securities and Exchange Commission. It also looks at the oil properties that the company has acquired or sold, along with new projects being drilled, and older oil fields in the company's portfolio. "We look at this data, put it into a financial model, and start asking questions," says Herold analyst Gordon.
Herold isn't the only Wall Street firm considering the issue of peak oil. In early December, Deutsche Bank issued a report that predicted global oil production will peak in 2014. The Deutsche Bank report also stresses political instability and China's surging demand. Those factors, Deutsche Bank believes, "could trigger a shortage shock leading to a price crisis."
And while many analysts in Houston are convinced a peak in global production is in the offing, there are others who believe that today's high prices will trigger a surge in new oil production. David Pursell, a partner at Pickering Energy Partners, a Houston brokerage, says with oil at $50 per barrel, "a whole lot of oil fields that used to be woefully uneconomic suddenly become profitable and that means that any peak projections get delayed." Although Pursell is not ready to agree with Herold's projections about individual energy companies, he -- along with virtually everyone else in the oil industry -- agrees that the era of cheap energy is over and that America must begin adapting to the new geopolitical realities that come with that fact. Alas, it appears the Bush administration hasn't made that same transition.
Last week, President Bush gave a speech on energy policy in Columbus, Ohio, in which he encouraged Congress to pass an energy bill. Once again, he touted his plan to drill for oil in the Arctic National Wildlife Refuge, a move he said would "eventually reduce our dependence on foreign oil by up to a million barrels of oil a day." The key word here is "eventually." Even if approvals for drilling ANWR were granted immediately, the first oil from the refuge would not reach the continental United States for years. Furthermore, as the New York Times reported last month, it appears that the major oil companies may have cooled in their desire to drill in the refuge. During his speech, Bush also talked about efficiency measures that could save homeowners electricity. But during his 4,600-word, 35-minute-long speech, Bush uttered the words "hybrid vehicle" exactly one time.
It's astonishing that Bush, the former Texas oil man, still doesn't understand the fundamental problem of America's imported oil addiction. Nor does he appear to grasp the threat that is posed by the possibility of peak oil.
The majority of the oil that the United States imports from places like Saudi Arabia and Venezuela is used as motor fuel in automobiles. Yet the president conflated the idea that burning more coal and building more nuclear power plants will somehow allow America to reduce its oil imports. In his speech, Bush refused to discuss the obvious: We cannot cut our oil imports (read: gasoline addiction) without dramatic changes to our auto fleet. At some point, the United States will have to force the automakers to build more efficient automobiles. And a key part of that efficiency changeover will mean replacing increasing numbers of America's 200 million cars and trucks with hybrid vehicles.
Even some of Washington's most hawkish neoconservatives are embracing the idea of high-mileage hybrid vehicles. Former CIA director James Woolsey, a key backer of the war in Iraq, is driving a Toyota Prius. Woolsey, along with neocons like Frank Gaffney have begun preaching the Greens' gospel of energy efficiency. The neocons haven't joined the Sierra Club. Instead, they're arguing that energy conservation is simply smart strategy when dealing with the Muslim extremists who reside in the oil-rich countries of the Persian Gulf. But so far, the neocons haven't been able to get Bush's ear.
Remarkably, when it comes to thinking about peak oil and what it means for the future of America, Wall Street analysts and neocons are taking the lead, while the former oil man from Midland keeps his head up his tailpipe.