EEM 4-11 The Peak Oil Conundrum

That Peak Oil is an inevitability is clear from the fact that oil is a finite resource, but the issue keeps stirrings the minds with questions like: When? What does it mean, what can we do? And especially: How can we deal with the side-effects?

In this EEM, several of these questions will be addressed, most of them having been spoken of at the recent ASPO-9 conference in Brussels.

Other issues concerning the consequences of Peak Oil such as the pricing issues, the social consequences, the economic rationale, as well as the possible alternatives and/or alternative ways, will be looked at in this writing, hopefully making a start in finding different ways of thinking about and dealing with this inevitable and historic development that will have major consequences for the world, societies and most of the people living on this planet.

Opening Up

The story of Peak Oil has been told and written about in numerous ways on numerous occasions and in short comes down to the moment that the depletion in existing fields will start to override new production coming online, thus reducing the total possible production at a given time.

As with every discussion it also becomes clear that there is much unclarity and diversification in the calculations, the approach, the included liquids as well as the underlying reserves estimations. We are looking at an issue that is subject to much speculation, assumption, as well as possibly even manipulation.
This is the case because the subject is of eminent importance to our society at large and is about very large amounts of money, and this always clouds realistic outlooks.

Also many future developments will have substantial influence on the occurrence and the timing of Peak Oil.

Will the Canadian oilsands-production stay at current levels (1.5-2 mm bpd) or will it go to 6 mm bpd as has been said many times, or will the lack of fresh water, the available quantity of gas, the carbon footprint or the environmental devastation be restricting future production?

Will Iraq at a certain point be able to produce more than the current 2+ mm bpd and go to the 6 or even 12 mm bpd, as was mentioned at the beginning of the war? Or will unrest and destabilization contain it at about the current level?

Will Saudi Arabia be able to continue its role as market stabilizer and, when needed, switch on (part of) its spare capacity? And will it be able and willing to go beyond the 11.5-12 mm bpd it says currently is its maximum production?
Or will Saudi Arabia also be destabilized and brought down and dispersed to bring “freedom and democracy” with the subsequent result of a collapsing production?

Will the pre-salt reservoirs, now found east of Brazil, live up to their expectation and not only contain much oil, but also produce much oil? And will the pre-salt offshore West Africa deliver as well up to the very high expectations?

And whilst the world increasingly is running out of options for new provinces, will those currently or soon under examination (off East Africa, the polar area, deepwater ocean, the Caspian) bring enough to cater for the decline of the many fields and provinces that were found earlier and are now mature or in decline?
We do need to bring in about 30 bn barrels of new found oil to stay flat in reserves (365 x ~85 mm bpd).
And will the oil companies and oil producing countries be able to bring online about 3.5 mm bpd of new capacity each year just to keep production from declining? (~4 % global depletion x ~85 mm bpd).
Especially the latter seems to be an increasing problem.

And then demand plays an important role.

Will demand increase in the coming years, as are the official expectations, carried by the emerging economies, especially the Middle East and the BRICSs, or will we see another economic collapse and changing economic circumstances, resulting in a stagnant or declining demand?

Will the changes in the global climate bring forth major disasters, such as mega droughts, super storms, or excessive flooding, and have a negative impact on the local and global economy, or are these just freak occurrences that have no further influence on either supply or demand?

And will the planetary changes (such as the changing North-South axis) that originate at levels (far) above planetary, cause major earthquakes, volcanic eruptions, tsunamis and other deep-seated changes, or will it all not be so bad?

Or will the human factor play the major tune and will there be dissent and disorder (created) that will result in major production units being taken offline and thus creating a shortage?

Looking at all the above mentioned unclarities and insecurities, it becomes clear that predicting the exact moment of Peak Oil, or the moment demand will overtake supply, in fact is an anathema.

No matter the sophistication of the models, it won’t be possible to accurately predict the developments. But that does not change the fact that it will happen, that is inevitable, inherent to the fact of using up finite, non-renewable resources.

What will happen?

But what actually will happen after/with Peak Oil?
Will the financial markets continue to have their way and drive up the prices, reducing demand by making the oil (and oil products) unaffordable for ever more people?

In the beginning this may work as it already does in Europe where the price of transportation fuels and home heating fuel is starting to cause economic hardship and reduction in demand.

Many people and countries, and organizations and industries may thus be driven to demand-reduction and energy-efficiency increase, trying to bridge the gap between decreasing supply and increasing, or more realistically, less rapidly decreasing, demand.

The effects will be an increase in costs, but a decrease in income or profit, more unemployment and poverty, decreasing social security and welfare, with subsequent social unrest and upheaval, leading to disintegration of societies, countries and regions and generally everyone but a few will be drawn into a negative spiral of getting less but needing more.

But it would lead to reducing demand and of course to ever greater profits to the owners, producers, traders and processors of the oil.
We already see this happening everywhere.

But what will happen when, even after all these measures are taken, supply keeps going down, or is not keeping pace with demand, and physical shortage starts to lead the new reality?

Who will determine who gets what?
On the base of what rationale or reasoning?
And for what price?

What will be the economic models or the ways of thinking that will determine how the increasingly scarce commodities will be divided?

The Future

No matter when exactly, but the moment that the world will see the first signs of physical shortage will be coming. And apart from the hugely manipulated financial markets that have their bases in the economic models and ways of thinking in the unlimited and cheap resources in which usage/demand can be directed by price signals, there are no models and no ways of thinking that can deal with the shrinking resources. And certainly not with shrinking resources in an environment of economic constraint and hardship.

As we can see in the US, increasing energy prices do help to reduce demand, but the side-effects are also quite devastating, in that the higher energy prices are quite instrumental in causing the widespread economic hardship and increasing poverty.

As the prices are allowed to continue to rise, it will have massive effects on billions of people, as the energy prices translate into increasing commodity prices, food prices, rents and numerous other basic and not so basic necessities of life.

Generally we will be able to see two intertwining spirals, of which the one going up represents the prices of the energy (mainly oil at first), the profits of the oil producers and traders and processors, bringing vast and ever growing amounts of money in ever fewer hands, and the other spiral being the downward spiral of economic health and prosperity and spending power and the ever growing group of have-nots that will see their lives disappear into the daily struggle for survival.

The currently going on siphoning off of ever more money to a small group of ultra-wealthy will be just the beginning and will speed up exponentially in line with the increasing prices.

However, this can only go on as long as it goes, until either the rules are changed or the people have had enough.

The current system and how it is applied is one sure road to disaster and revolution and uprising. The problem however is that a president can be replaced and the people placated with some other face to give them the illusion of success and change, but that the financial henchmen are very elusive and cannot be pointed out so easily, especially because these people also own the media, the banks and in many cases also “own” the big international institutions as well as many governments, the power of which they use to create the rules to ensure the continuation of the status quo.

If the current system is allowed to continue, we will see ever rising oil prices, maybe with an in-between correction when over-production cannot be denied anymore.

But the ever ongoing price rises will cause ever growing inflation (very much helped by the massive money creation) and ongoing loss of economic viability, growing unemployment, growing social disparity, rising costs for the states, reduction in state support and basically to massive unemployment, poverty and social unrest, certainly in the poor countries but probably also in an increasing amount of until now “rich” OECD countries.

Taking the different aspects of ever increasing energy, commodity and food prices, and combine them with the growing usage of terror and destabilization in many places, we may see:

- widespread poverty and terror in Africa with oil production down to a trickle of what is possible,

- the poorer nations in Asia suffering from ever greater poverty and destabilization and social unrest,

- growing poverty, unemployment and social disparity in Europe, with good chances of Europe falling apart, giving rise to an outside driven militarization to “contain” Russia or “protect the people” against Iran or some other area not yet brought under the influence,

- increasing terror in Middle and the north of South America,

- as well as further increasing terror and destabilization in the Middle East, also causing oil production to be strongly in decline,

- as well as massive poverty, social unrest, very hard suppression up to civil war-like situations in the US.

What the end-result will be, if the current system is to continue, and the invisible drivers are allowed to continue their play, is a strong militarization almost everywhere in the world, suppression, wars and terror instrumentalized to keep countries or people from self determination and much production and supply sites forcibly off-line.

This will mean that next to the general poverty also energy poverty will rise in almost all oil-importing countries as supply is unreachable due to the war-like situations.

Only the US will probably be reasonably well-off, at least concerning the energy, as by then indigenous production of gas and oil will have risen to cater for the, nevertheless strongly reduced, demand.
Basically, the elite will be well-off, with large parts of the country taking up arms against the central government or against each other in their struggle for either energy, food or water.

The picture looks quite grim. But does it need to be?

Can we develop new economic models, or ways of thinking that integrate shrinking economies, shrinking resources, ageing populations, less work, fewer workers, fewer babies, but nevertheless be fair?

Our models are based on infinite and cheap resources, but this time has gone. The current system is only allowed to continue because the current “free markets” are flooded with vast amounts of money that give the impression of growth, but in most cases is just an impression of growth that is allowed, and partly forced, to continue, otherwise everything would collapse.

But it is clear that the current system has run its mile and actually is only still standing due to the vast manipulation of money flows, markets, media and statistics.

Is there an alternative?

In attempting to think about or towards alternatives, we immediately run up against our own restrictions and impediments.

For the last 150 years, but actually much longer, the current system and ways of thinking have ruled large parts of the world, and certainly in the West we have never known anything else! The current system is engraved in our genetic structure, as are the ways of thinking and the value systems that go with it.

In the current system, if there are four people and four cookies, one person will do almost anything to get at least three, if not all four, and maybe leave therefore one cookie for the other three persons. The winner takes it all.

Only young children would equally share (hopefully), as would some people that have liberated themselves from the dogma of “winning-at-all-costs, especially over others” and the “grab-it-all” mentality.

But generally this behaviour of fair sharing is being derided and looked down upon, as it goes against our societal indoctrination of competition and elbowing everything and everyone aside so you can “win” and “be the best” or “win-it-all”.

This thinking has worked well for a certain time, although it always left nine out of ten people to be a “loser”, for just one person to be a “winner” or “top-gun” or “idol” or “super-star” or anything like that.

Whilst it has brought a certain kind of progression, the psychological costs have been beyond measure (also because no-one wanted to measure it because it would have meant questioning the system we are in for which we have no alternative yet).

So where does this all lead to?

Taking together the two main issues at play in this essay, we see the contradictory developments of a financial system that are currently in a state of shrieking extremism and are based upon the paradigm that “tomorrow-there-will-be-more-than-today” (and if there isn’t more than more money will create more) and the easy availability of infinite and cheap energy and resources on the one hand, and the hard reality of a shrinking resource-base (that even with much more money will not, or only temporarily, grow) on the other.

This contradiction cannot go on for very much longer.

In the past, the financial markets have been more often in a state of shrieking exaggeration and extremism and this was inevitably followed by a “correction”, which caused that the vast majority of people lost their money and savings, but that certain market players gathered excessive wealth.

But the difference with the current situation is that in the past, the demographics but especially the state of affairs around energy and resources were fundamentally different.

In the past, all those who lost a great deal or everything just started anew as materials and energy were abundant and cheap.

But how will this look like now?

Soon we can expect another major correction, but resources are or will be in short supply, energy ever more limited and expensive, water will be very unevenly spread and be in short supply in many places and also food and many other commodities will be either more expensive or just not be available.

If something is not available anymore, may it be food or water or energy, more money will not create it, unless it is taken from others.

That this is already the (actually generally accepted) “normality” can be seen in the fact that in some countries people use 20-50 times as much energy as in other places, or that in the US and in Europe 30-40 % of the food is wasted whilst in other areas people are dying from hunger (in which it is especially perverse that the land of some very poor countries is or is going to be used to provide food for export to rich countries whilst the own population is driven from their ancestral lands and often is malnourished or worse).

The time has come to start some fundamental thinking about what kind of world we want to have or create in the future and how this could be realized.

The near future will see more influences that have not played a role in the economic development in the past, such as:

- the current and future massive environmental and climatic changes upon which we have no influence,

- the finite resources upon which we hardly have any influence,

- the demographic changes in most developed countries as well as China(!), in which ever less children are born and large populations reach retirement age.

Together they will bring the human race in general and many countries in particular into problems in the future.

With an ageing and shrinking population under environmental and climatic stress, with limited food, water, energy and/or resources, it will be very hard to create economic growth, especially if the remaining food, water, energy and resources are excessively priced and mainly only available and/or accessible for the rich and wealthy.

We are looking at massive, real massive, changes in the fundamental fabric of our societies and systems.

So, what then? Are there any solutions?

Well, if it would be that easy, it might have been done already, but currently we are facing a brick wall of an unsustainable economic system and the deeply engraved mindsets out of which an escape is extremely difficult.

Are we prepared to share? Are the rich and affluent countries really prepared to give off some of their wealth to make sure next-door, or a bit further, people do not freeze or die from hunger or thirst?

In the near future, humanity will be faced with some very fundamental issues that have no quick solutions or are not necessarily subject to politics or economics.

Examples of this will come up if/when a massive tsunami in the northern North Sea destroys large parts of England and especially the Netherlands and the remaining Dutch citizens are forced to move east to Germany.

Or when the warming of the climate makes large parts of Spain, Portugal, Italy and/or Greece inhabitable, exacerbated by the fact that most groundwater has been used up to inflate agricultural short-time profits and exports.

Where are all these people going to? And will they be received and how, or will they just be shipped back, as currently is happening with the African “illegal immigrants” arriving in Italy?
Or what will happen if the major rivers in Asia, fed by the melting water of the Himalaya, will see massive flooding and displace tens or hundreds of million people?

Or what will happen with all the people dependent on their livelihood upon the major rivers on the planet: Amazon, Mississippi (even whilst currently overflowing), Rhine, Nile, etc., that may see a strong reduction in water levels and subsequently vast stretches of land, many cities and a whole lot of power plants and industry will not have water anymore?

Or simply massive areas on the planet will become so radio-active that life becomes very dangerous in those areas (and the people are actually told)?

All these scenarios have a likelihood of happening or are happening already, but the current economic system cannot do much with or for it, as the templates of thinking are simply not available.

What is the use of soaring food-costs if there are several millions of people fleeing for water or draught and have nothing? Just let them die? Or is the government forced to buy the excessively priced food items (that have risen due to speculation or due to “shortage-premiums”) and goes bankrupt whilst enriching the few?

It is all not very sustainable or actually not sustainable at all.

But are there any alternatives?

Yes of course there are, there always are. But it would mean that we start thinking in new ways, based upon the needs of the future and distance ourselves from the formulas of the past.

In the current calculations of the major institutions - UN, IEA and similar - everything is based upon the extrapolation of the past, not taking into account the developments of the future that already can be seen now.

This will lead to an even greater divergence between the models and the expectations on the one hand, and reality on the other, as already can be seen in the expectations for future population or future energy demand (and their continuous adaptation).

These models and their extrapolation will not work anymore and we will be forced to seek, and find, new ways of thinking about the maintenance of human life in the future.

But it is not just the economic models that will need adaptations; so will our value systems, as well as the basic ways of thinking with which we are brought up (based on competition).

This again will bring forth the complete overhaul of our education and schooling system, as well as the education given, hopefully by the parents, to our children.

And this will overflow in many other areas such as media, television programs, films, computer games, advertising and much else, if we set our feet upon the path of abandoning our economic and educational system based upon competition and greed, and move towards a system based upon what is natural for humans and the realization that humans are more than masters, workhorses, or trash, as is currently the way, and is directed towards the development and strengthening of the uniqueness of each individual and the support to fulfil their unique human purpose, instead of being forced into standard items that can, exchangeably, be used to continue the current industrial system (for which we anyway will not have the energy and resources anymore).

So we are looking at some very fundamental changes that will be needed in the future.

The current system is dying and is jerking in excessive spasms in the desperate attempt to stay alive, whilst it is clear that its oxygen is depleting as are the different foods to sustain this, what has become, destructive monster.

It is time to re-evaluate our importances, our values and our priorities.

Think new, think from a future arriving, not from a past gone by.


5/6 May 2011

Comments (1) Sep 17, 2012 04:01 PM
a thoughtful and insightful theory of the impending energy crisis. There is an American Indian Proverb theat reads "It's what the people believe to be is" Economic factors of the global market manipulation smoke and mirrors is like the wizzard of oz, pay no attention to that man behind the curtain... Only those with vast amounts of money are allowed to play...

The rest of us are surviving day to day... Trapped in a system that gives just enough to survive. Rationing our meager resources balancing our cost of housing, energy (home and car), food, & misc. expenses... If were lucky we are saving a little, but that is not necessarly the case. Increaseing debt load along the way, selling out tomorrow for survival today...

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