Frank Fenner sees no hope for humans

FRANK Fenner doesn't engage in the skirmishes of the climate wars. To him, the evidence of global warming is in. Our fate is sealed.

"We're going to become extinct," the eminent scientist says. "Whatever we do now is too late."

Fenner is an authority on extinction. The emeritus professor in microbiology at the Australian National University played a leading role in sending one species into oblivion: the variola virus that causes smallpox.

And his work on the myxoma virus suppressed wild rabbit populations on farming land in southeastern Australia in the early 1950s.

He made the comments in an interview at his home in a leafy Canberra suburb. Now 95, he rarely gives interviews. But until recently he went into work each day at the ANU's John Curtin School of Medical Research, of which he was director from 1967 to 1973.

Decades after his official retirement from the Centre for Resource and Environmental Studies, which he set up in 1973, he continued a routine established when he was running world-class facilities while conducting research.

He'd get to work at 6.30am to spend a couple of hours writing textbooks before the rest of the staff arrived.

Fenner, a fellow of the Australian Academy of Science and of the Royal Society, has received many awards and honours. He has published hundreds of scientific papers and written or co-written 22 books.

He retrieves some of the books from his library. One of them, on smallpox, has physical as well as intellectual gravitas: it weighs 3.5kg. Another, on myxomatosis, was reprinted by Cambridge University Press last year, 44 years after the first edition came out.

Fenner is chuffed, but disappointed that he could not update it with research confirming wild rabbits have developed resistance to the biological control agent.

The study showed that myxo now had a much lower kill rate in the wild than in laboratory rabbits that had never been exposed to the virus.

"The [wild] rabbits themselves had mutated," Fenner says.

"It was an evolutionary change in the rabbits."

His deep understanding of evolution has never diminished his fascination with observing it in the field. That understanding was shaped by studies of every scale, from the molecular level to the ecosystem and planetary levels.

Fenner originally wanted to become a geologist but, on the advice of his father, studied medicine instead, graduating from the University of Adelaide in 1938.

He spent his spare time studying skulls with prehistorian Norman Tindale.

Soon after graduating, he joined the Royal Australian Army Medical Corps, serving in Egypt and Papua New Guinea. He is credited in part with Australia's victory in New Guinea because of his work to control malaria among the troops.

"That quite changed my interest from looking at skulls to microbiology and virology," he says. But his later research in virology, focusing on pox viruses, took him also into epidemiology and population dynamics, and he would soon zoom out to view species, including our own, in their ecological context.

His biological perspective is also geological.

He wrote his first papers on the environment in the early 1970s, when human impact was emerging as a big problem.

He says the Earth has entered the Anthropocene. Although it is not an official epoch on the geological timescale, the Anthropocene is entering scientific terminology. It spans the time since industrialisation, when our species started to rival ice ages and comet impacts in driving the climate on a planetary scale.

Fenner says the real trouble is the population explosion and "unbridled consumption".

The number of Homo sapiens is projected to exceed 6.9 billion this year, according to the UN. With delays in firm action on cutting greenhouse gas emissions, Fenner is pessimistic.

"We'll undergo the same fate as the people on Easter Island," he says. "Climate change is just at the very beginning. But we're seeing remarkable changes in the weather already.

"The Aborigines showed that without science and the production of carbon dioxide and global warming, they could survive for 40,000 or 50,000 years. But the world can't. The human species is likely to go the same way as many of the species that we've seen disappear.

"Homo sapiens will become extinct, perhaps within 100 years," he says. "A lot of other animals will, too. It's an irreversible situation. I think it's too late. I try not to express that because people are trying to do something, but they keep putting it off.

"Mitigation would slow things down a bit, but there are too many people here already."

It's an opinion shared by some scientists but drowned out by the row between climate change sceptics and believers.

Fenner's colleague and long-time friend Stephen Boyden, a retired professor at the ANU, says there is deep pessimism among some ecologists, but others are more optimistic.

"Frank may be right, but some of us still harbour the hope that there will come about an awareness of the situation and, as a result, the revolutionary changes necessary to achieve ecological sustainability," says Boyden, an immunologist who turned to human ecology later in his career.

"That's where Frank and I differ. We're both aware of the seriousness of the situation, but I don't accept that it's necessarily too late. While there's a glimmer of hope, it's worth working to solve the problem. We have the scientific knowledge to do it but we don't have the political will."

Fenner will open the Healthy Climate, Planet and People symposium at the Australian Academy of Science next week, as part of the AAS Fenner conference series, which is designed to bridge the gap between environmental science and policy.

In 1980, Fenner had the honour of announcing the global eradication of smallpox to the UN's World Health Assembly. The disease is the only one to have been eradicated.

Thirty years after that occasion, his outlook is vastly different as he contemplates the chaos of a species on the brink of mass extinction.

"As the population keeps growing to seven, eight or nine billion, there will be a lot more wars over food," he says.

"The grandchildren of today's generations will face a much more difficult world."

The Skeptical Train to Tyranny

You don't know for sure if you exist, declares the modern philosophical skeptic. Existence could just be a dream. Are we sure that what we see and define as reality is actually there and apart from us? Or is it something that is created in our minds?

This is one of the nasty philosophic fallacies that has plagued the world for the past two centuries and a prime contributor to the tyrannical drift of modern day societies. Skepticism is not new. It has been around since ancient times expressing doubt about man and his thought, but its modern, extreme form depicted above evolved from two Enlightenment thinkers -- the radical idealist, George Berkeley (1685-1753), and the radical empiricist, David Hume (1711-1776).

Skeptics have, throughout history, concluded that we can never be sure about what it is that exists, and even that reality itself does not exist except in the mind. With their gospel of "eternal doubt," advocates of skepticism have thus played the role of ideological termites eating away at the timbers of truth undergirding humanity's achievement of morality, justice and freedom.

For most of history, skepticism remained on the fringe of man's philosophical endeavors. It was of no major consequence. But with the ideas of Berkeley and Hume, skepticism has become a nefarious force in modernity. Both of these thinkers made powerful impacts on the world from which we have yet to recover.

George Berkeley maintained that matter per se did not exist. Only ideas were actual realities. Matter did not exist until a mind perceived it. Absent perception, reality was meaningless. David Hume concluded that only "immediate experience" was meaningful, that causality itself (the foundation of science) was suspect, and that man can never know anything with certainty outside of himself.

As a result of Berkeley's extreme idealism and Hume's extreme empiricism, there was spawned a train of radically empiricist / humanist philosophers (starting with the thought of French philosopher, Auguste Comte, 1798-1857) that has, with the breakdown of belief in God, brought about a nihilistic slant to the modern intellectual world. This is the reason why there are intellectuals today who question the existence of matter and reality itself and seriously ask: "Do we exist, or are we something that our minds create?"

Actually Berkeley did not deny the existence of matter and reality. He just maintained that matter and reality don't exist until they are perceived by a mind. If there are no humans around to perceive the candle burning in the room, it is still there and still burning because the ultimate mind, God, perceives it. The "source of all being," as Aquinas defined God, was the power that validated the existence of reality. But what plunged skepticism into modern nihilism was the loss of man's belief in a God centered universe. By the end of the 19th century, belief in God was no longer the pervasive certainty it had been for the previous 2,000 years. Once this took place, Berkeley's anchoring of reality in the mind of God was lost, and numerous intellectuals took his and Hume's ideas to their ultimate conclusion: If matter doesn't exist in itself, but only as the result of being perceived by a mind, then reality doesn't exist "apart from us." Reality is not "objectively out there." It is in our minds and tied to our thoughts. We don't have thoughts about a reality that our senses perceive; our thoughts are reality. Truth is then formed, not found, by man. And if truth is formed, each culture and every era has its own truth. Man can even refashion truth to suit his needs whenever it presents him with what he prefers not to face.

This is the final nihilistic stage in the intellectual corruption process that has been stealing over the world since Berkeley and Hume and the 18th century. Hume was an atheist, and his radical empiricism extended beyond Berkeley to maintain that all we can know are impressions in our mind of what we see, feel, hear and absorb. These impressions are not clear proof of "external reality." Our belief that there is a reality "out there" is a product of our imagination. Our senses do not give us the "self-evident" demonstration of existence that philosophy had always built upon.

Today's intellectual confusion and nihilism resulting from this combine of extreme idealism / empiricism was, of course, not the intention of Berkeley and Hume, but they could not foresee the long range ramifications of their ideas. The Law of Unintended Consequences rules over imperfect humans and always takes their "big ideas" down unforeseen paths in the ensuing centuries.

To believe that man cannot know with certainty what reality is began as a cocklebur under the saddle of civilization's cerebral horse and has now evolved into gangrene that threatens the life of the horse. It is a terrible disease; it leads to the destruction of the values that sustain freedom, and ultimately to nihilism and the breakdown of free society. In the following I will try to point out the weakness of skepticism, and why it is a fallacy that no one should ever take seriously.

Skeptical Flimflam

To believe that existence is possibly something that our minds create, one must believe that consciousness is primary to reality. In other words, consciousness precedes existence. For if reality is a creation of our minds, then our minds obviously came first in the overall scheme of things.

The first weakness in this way of thinking is that the skeptic is using his mind to say that what the mind perceives as "existing" does not actually exist. This means he is rejecting man's mind and the power of reason as valid instruments to perceive reality. In order to assert this, however, the skeptic has to use his mind and the power of reason. But if the mind cannot truly perceive reality, and if reason is invalid as a tool to discern objective truth, then is not the skeptic's rejection of the mind's efficacy and reason's prowess also invalid? It is hardly proper to use the mind and reason to claim the impotency of the mind and reason. In fact, it is nonsensical. But this is the contradictory morass into which skepticism drags us.

This is an example of what psychologist, Nathaniel Branden, calls "The Fallacy of the Stolen Concept." Branden tells us:

To understand this fallacy, consider an example of it in the realm of politics: Proudhon's famous declaration that "All property is theft."

"Theft" is a concept that logically and genetically depends on the antecedent concept of "rightfully owned property" -- and refers to the act of taking that property without the owner's consent. If no property is rightfully owned [however], that is, if nothing is property, there can be no such concept as "theft." Thus, the statement "All property is theft" has an internal contradiction: to use the concept "theft" while denying the validity of the concept "property," is to use "theft" as a concept to which one has no logical right -- that is, as a stolen concept.

All of man's knowledge and all his concepts have a hierarchical structure. The foundation or ultimate base of this structure is man's sensory perceptions; these are the starting points of his thinking. From these, man forms his first concepts and (ostensive) definitions -- then goes on building the edifice of his knowledge by identifying and integrating new concepts on a wider and wider scale. It is a process of building one identification upon another -- of deriving wider abstractions from previously known abstractions, or of breaking down wider abstractions into narrower classifications. Man's concepts are derived from and depend on earlier, more basic concepts which serve as their genetic roots. For example, the concept "parent" is presupposed by the concept "orphan"; if one had not grasped the former, one could not arrive at the latter, nor could the latter be meaningful.

The hierarchical nature of man's knowledge implies an important principle that must guide man's reasoning: When one uses concepts, one must recognize their genetic roots, one must recognize that which they logically depend on and presuppose....

When [skeptics] assert that man perceives, not objective reality, but only an illusion or mere appearance -- they evade the question of how one acquires such a concept as "illusion" or "appearance" without the existence of that which is not an illusion or mere appearance. If there were no objective perceptions of reality, from which "illusions" and "appearances" are intended to be distinguished, the latter concepts would be unintelligible....

" 'You cannot prove that you exist or that you're conscious,' they chatter, blanking out the fact that proof presupposes existence, consciousness and a complex chain of knowledge; the existence of something to know, of a consciousness able to know it, and of a knowledge that has learned to distinguish between such concepts as the proved and the unproved." (Atlas Shrugged)....

It is rational to ask: "What exists?" It is not rational to ask: "Does anything exist?" -- because the first thing one would have to evade is the existence of the question and of a being who is there to ask it. It is rational to ask: "How do the senses enable man to perceive reality?" It is not rational to ask: "Do the senses enable man to perceive reality?" -- because if they do not, by what means did the speaker acquire his knowledge of the senses, of perception, of man and of reality? (The Objectivist Newsletter, January 1963, pp. 2 & 4).

One Cannot Have It Both Ways

What the skeptic fails to perceive is that if his views are correct, he has negated his tool of cerebration (his mind) and the validity of all conclusions it may draw. And without the validity of conclusions, all thought, intellectual inquiry, and science become pointless. In other words, one cannot have it both ways. One cannot say that one's mind is not valid, but also say that one's mind verifies that we cannot know reality and that reality does not exist apart from our minds. At least one cannot say such things with credibility. And that's what scientific, philosophic and religious thought are all about. They are attempts to fathom with credibility what's what about existence.

Thus we have two fundamental views about the structure of existence: the traditional view and the skeptical view. The intellectual traditionalist says existence exists apart from man the observer, i.e., that it is objective. Existence is here whether we as observers are here or not. The intellectual skeptic says that existence is not apart from us. What we think we perceive as "objectively out there" is really brought about by our minds. In other words, it is subjective; and thus it is here because we are here.

Reason, science, religion, and plain common sense tell us that the skeptic is not just wrong, but very dangerously wrong. We have just seen how reason sides with the traditional view of an "objective reality" because by declaring otherwise, one must utilize the fallacy of the "stolen concept." Let's now take a look at how science and religion weigh in on this issue.

Almost all scientists accept the fact that the Big Bang and the creation of existence came about some 15 billion years ago. Several billion years later, the planets formed, followed by vegetation, and then animals after a few more billion years. Then came man and human consciousness. Thus our conscious minds come AFTER existence. They do not create existence. Also all Western religions agree with this: God created the universe, and THEN created man, i.e., the human consciousness, afterwards.

Thus reason, science, religion (and by implication, common sense) all tell us that reality does indeed exist apart from man the observer, i.e., that it is "objective." And these four methodologies all tell us that the skeptic's view of "subjective reality" or "illusory reality" is a fallacy. In other words, existence precedes consciousness. It is not a creation of our minds. This, the intellectual traditionalist accepts as self-evident. He realizes our perceptions of reality might not be clearly grasped (for example, the oar in the water appears to be bent when it is really straight), but there is a reality being perceived apart from our minds.

A Pernicious Chain of Thought

Skepticism's danger lies in its doubt and the uncertainty it spreads regarding the validity of man's senses and his values. Once the plausibility of radical skepticism spreads among the intellectuals that guide a society, there is set in motion a pernicious chain of thought. The skeptic view launches the following ideas and social forms: subjective reality, which spawns moral relativism, which spawns arbitrary law, which spawns tyrannical government.

This is why conservatives get so upset when we hear the purveyors of skepticism rising up. They are out to destroy the concept of an "objective reality," i.e., a reality that is apart from man and the same for all men. If reality is a creation of our minds rather than something that precedes us and is apart from us, then it is a subjective creation of us, and certainly not something that is the same for everyone -- for all men will have their own vision of what reality is.

Once we begin to doubt the concept of objective "reality," there is no longer any basis for an objective "morality," i.e., a universal concept of right and wrong. If reality is not the same for everyone, then our concepts of good and evil will not be the same for everyone.

Once we cease to believe in objective morality, we then undercut the foundation for a free society and usher in tyranny. The precursor to all tyranny is moral relativism, i.e., non-objective morality. This is because if there is no objective concept of right and wrong, then dictators can abolish "objective law" (equal rights) in favor of "arbitrary law" (special privileges). They can take away our rights under the guise of seeking national security. They can confiscate our earnings under the guise of promoting social justice. They can enact martial law under the guise of confronting an economic crisis which their socialist policies have created. They can basically do what they wish as long as they can bamboozle 50% of the voters to go along with it, or accrue enough police control.

Benito Mussolini was a powerful example of this process: "Everything I have said and done in these last years is relativism.... If relativism signifies contempt for fixed categories and men who claim to be the bearers of an objective, immortal truth... then there is nothing more relativistic than Fascist attitudes and activity.... [T]he modern relativist infers that everybody has the right to create for himself his own ideology and to attempt to enforce it with all the energy of which he is capable." (Diuturna, pp. 374-377. Cited in Henry B. Veatch, Rational Man, 1962, p. 41. Emphasis added.)

It is only with an objective code of morality that citizens can challenge such usurpation because only an objective morality can intellectually define evil. If we continue to relativize evil (i.e., refuse to define what it is), then evil will continue to grow because men cannot contest something that they cannot objectively define. Once they are made to see right and wrong as relative, as ever-shifting to accommodate the social needs of the moment, then dictatorship is inevitable. Government tyranny and its base of arbitrary law can be sold to them as a "modern necessity," as a "new kind of freedom."

The whole structure of free civilization is dependent upon belief in an objective concept of morality. But such a belief is impossible without first a belief in an objective concept of reality. And an objective reality is impossible if existence is tied into the subjective creation of our minds. This is why the skeptic's belief about reality is such a terrible danger. The Law of Unintended Consequences will drive any society that subscribes to it straight into despotism.

Seeing the Inherent Fallacies

What then are we to conclude from all this? No traditional, rational intellectual would ever ask: "Is existence a creation of our minds?" He readily sees the inherent fallacies. He also sees the big picture and thus the dangerous chain of consequences that results from trying to enshrine such skepticism. He knows that reason, science, religion, and common sense all dictate to us that existence is primary to consciousness. The traditional intellectual sees skepticism as pseudo-philosophy. He sees the skeptic's view as not just sophistry, but dangerous sophistry. The traditional intellectual sees the philosophical skeptic as a cerebral version of the clever IT geek who builds viruses and sends them out into the Internet.

There are a slew of irrationalities that go into laying the groundwork for dictatorship. One of the most lethal of those irrationalities is "philosophical skepticism" and the invidious doubt, moral relativism, and arbitrary law that result from it. Unfortunately skepticism is a way of thinking that will probably always be popping up every century or so because there are always going to be clever sophists among the human race wishing to dispense cerebral viruses.

Thankfully the traditional view of reality prevailed for 1600 years after Aristotle, and was continued via Aquinas for another 400 years. This is what built Western civilization. Since the 18th century, however, this traditional, rational view of existence has been under attack from skeptical, empiricist, relativist, nihilistic minds. The modern world's philosophical chaos and plunge into despotism are the consequences. If such destruction is to be stopped and reversed, it will require a restoration of the concept of an "objective reality" as self-evident, from which we then build the ideological constructs conducive to freedom as a way of life.

-- N. Hultberg

Checkmate

In all of the descriptions of perilous situations that I have studied, arising during adventures on the high seas or in the high mountains, or during armed conflict, a single mistake rarely proves fatal. More often than not, death comes as a result of a sequence of bad choices which reinforce each other. These choices may not appear bad at the time—but they certainly do in retrospect! The end result is a situation in which no further steps can be taken that would not be either harmful or futile. This is the essence of checkmate: no moves left. At that point, none of the previous moves can be undone. Nor do they even exist, really: they have gone off to an imaginary universe populated by the regretful ghosts of those who didn't make it.

As one should expect from a natural phenomenon, failure is fractal—observable at every scale. The same pattern of maladaptive strategy leading to untimely demise constantly replays itself at the level of viruses and bacteria, and all the way to individual plants and animals, populations, societies, countries and civilizations. Nature moves forward by canceling its unsuccessful experiments, which far outnumber its successes. Most people have come to terms with the theory of natural selection, and can understand individual and group failure. But over the last few decades—quite recently, in fact—it has become unacceptable to speak of accepting the failure of very large corporations, societies and countries as a terminal state. They are always considered to be in need of bail-out, reorganization, aid, reform, reconstruction, development and so forth. Perpetual degradation and decay followed by a headlong plunge into merciful oblivion is simply not on offer. Haiti will one day be prosperous, Somalia a model democracy, and perhaps even low-lying coastal and island nations can have a bright though wet future, provided the people there are fitted with snorkels to help them cope with rising ocean levels. When attempting to come to terms with the regularly observable demise of civilizations, and the forthcoming demise of this one, our failure to cope is complete: ancient pagan archetypes take over our thinking, our unconscious mind takes over, and we are transported to a realm of second-rate fantasy films. All reasonable people agree that the future is either Mad Max or Waterworld; take your pick, end of discussion.

The concept of strategy, and of games of strategy, is a useful one, although when applying it to serious matters (instead of childish distractions like sports) our thinking tends to be distorted by the bad habits that sports instill in us. We tend to think of games as enjoyable learning experiences that teach us to play better the next time. The idea that there always has to be the next time is insidious. The vast majority of the games we can observe being played out, both in nature and in society, are played specifically to determine whether there should be a next time. "But I have learned my lessons and the next time we play I will win!" says the defeated champion. "That won't be necessary," says Death. "We must hurry. There is a horny old man who's dying to meet you. He'll be your personal trainer for the rest of eternity." But even this ageless little narrative has a flaw, for Death is rarely in much of a hurry, and the leading edge of eternity is quite fuzzy. Defeat overlaps decay, which overlaps demise. We continue playing far beyond the point at which our defeat would have become clear to us in retrospect. In the meantime, we come to accept our personal trainer as the devil that we know, and might even delude ourselves into thinking that we are winning.

It is a serious matter that much of life has been recast in terms of sport. We are all supposed to be good sports, team players, when we fail we pick ourselves up and try again, or fall into a safety net. When we get into trouble we can always call for rescue. When someone dies, it is always the result of an accident, never the inevitable result of bad judgment. People who fail repeatedly yet always try again are lauded for their persistence, never mind that they are serial failures. This isn't necessarily bad; people should and do safeguard each other. What's worse is that the higher in society one goes, the more dilute the consequences of failure tend to become, until we rise up to those exalted places whose existence is safeguarded by the magic incantation "too big to fail." This incantation is quite effective: many people are hypnotized by it. It prevents them from seeing something quite obvious: when serial failures are continually rescued, this allows them to bloat up until they are too large for the rescuers to deal with, at which point they become too big to not fail. When any one of them can no longer be rescued, the result is a cascaded failure that overwhelms the rest, and failure becomes crippling. Past that point, nobody gets to try much of anything ever again: society has checkmated itself.

What happens after that point bears a striking resemblance to what came before. After all, there were many insoluble problems before, and many degenerative cultural trends could be observed. It's just that there are more of them afterward, and they are more severe, but there may not be an obvious qualitative difference. It may not be immediately apparent that checkmate has arrived, and the specific point in time can become visible only in retrospect, if at all. Emergencies come and go, and people get used to the fact that the beaches are black and sometimes catch fire and burn for weeks, or that there is a ravine running through the center of town where the riverfront used to be, or that electricity is only on for a couple of hours a day. Dogs and children turn feral, but nobody remembers when that started happening, so everyone assumes that that's the way it's always been. Nor does anyone remember when it became fashionable to tattoo corporate logos on one's scalp, or to proudly display one's naked buttocks in public. An expatriate who leaves and later comes back might think that this now is a completely different country, but those who stay would be at pains to detect the difference because for them changes were too slow to rise above the threshold of perception.

The population can dwindle quite rapidly, but this too is often imperceptible. Large swaths of the landscape become depopulated, but that is not noticed by anyone because nobody goes there any more. When births exceed deaths, population increases exponentially. When deaths exceed births, population declines exponentially. There are always some maternities, and there are always some funerals; the change in the ratio of the two is not something that can be directly perceived. Societal extinction doesn't make any noise when it finally happens. Survivors simply move on. Non-survivors might as well have not existed, and the more gullible survivors come to believe the extravagant ruins they left behind to have been the work of extraterrestrials.

How does a society go about checkmating itself? There is no shortage of real-world examples, but real life is complicated, so here is a simple allegory. Let's suppose that there is a tribe called the Merkanoids, which remains quite ordinary for most of its history, but which at some point undergoes a strange cultural mutation. An accidental synergy between atmospheric electricity and chemicals in the water produces a strange effect on their minds that causes them to decamp from the towns and villages wherein they had hitherto happily dwelt, and take up residence in little huts scattered throughout the surrounding pasture, fields and woods. They then proceed to move around and switch huts a lot, until few of them know or trust their neighbors. This makes them feel rather unsafe, and the way the Merkanoids decide to make themselves feel safer is by burying land mines about their property and posting signs that read "No trespassing! Land mines!"

This makes them feel a whole lot safer while in fact making them much less so: the social predators among them become reasonably good at avoiding land mines, while the rest of the population generally does not, producing a large subclass of people whose legs have been blown off. These, being relatively immobile and defenseless, present an even more desirable target to the social predators, and naturally compensate by acquiring more and bigger land mines. This cycle repeats a few times, until two-legged people become the minority. Since people who are missing a lower limb or two are somewhat less productive than two-legged ones, in due course the Merkanoid economy can no longer produce the surplus necessary to invest in anything beyond more land mines (which they now find it cheaper to import from China on credit than to manufacture themselves). As debt service swallows up more and more of the Merkanoids income, their disposable income plummets. As a consequence, crutches, wheelchairs and prosthetic limbs became luxury items which fewer and fewer of them can afford. Without these devices the ever more numerous legless people can no longer move around, making it more difficult for them to remain productive members of the Merkanoid economy, causing economic output to plunge even faster.

When this vicious cycle becomes too obvious for any half-intelligent Merkanoid to ignore, a reform movement springs up. Activists organize community de-mining activities and promote the idea of an annual "land mine-free week." Entrepreneurs work to develop "green mines" which stun people instead of maiming them, but these come to be regarded as less effective and therefore unsafe. Some political extremists take the radical step of de-mining their own properties. A lot of them then find their huts repeatedly burgled and quietly put the land mines back in. At one point a brilliant Merkanoid visionary has an epiphany and exclaims: "It's not the land-minds that are killing us! It's the huts!" Everyone thinks that he had gone off the deep end: how can anyone not live in one's own private hut? It's the Merkanoid way of life!

In the meantime, small groups of as yet two-legged people begin to band together on the margins of Merkanoid society. Instead of living in widely dispersed huts, they live compactly in tents, moving about the non-mined parts of the landscape. They eschew land mines and defend themselves (and each other) by keeping a sharp look-out at all times, and, if necessary, with pointed sticks. They also spontaneously develop a sort of crazy talk that turns out to be highly disruptive to the mainstream Merkanoid mentality. So disruptive is this effect that Merkanoid society, having no energy to oppose these outside groups, is forced to strenuously deny their existence. In turn, the outsiders happily ignore much of Merkanoid society, patiently waiting for it to fade from view, which, in due course, it does.

I hope that the meaning of my little parable is clear. A society takes a series of bad turns (which may not seem bad at the time). Once that happens, it's all over but for the waiting. The turns are irreversible, and attempting to make a society undo them is futile. In this situation, the only adaptive thing any of us can do is to learn to live as if these turns had never been made in the first place. This, of course, is very difficult and, should you succeed, will make you unpopular, so you should definitely consider the alternative: do nothing. In the timeless words of the I Ching, "Perseverance does not further. No blame."

-- Orlov

Science 1101 Part 2: Oil as a Liquid Fuel and Expected Peak Oil Impacts

1. Why is petroleum so highly valued?

The main reason that petroleum is highly valued is for its energy content. If petroleum is burned, it can do work that makes our lives easier. For example it can be used to power an automobile or an airplane. We eat food to give us energy that allows us to do work of various kinds. In many ways, petroleum is the equivalent of food for many types of mechanical objects. For example, petroleum allows us to drive a car, and to do the work of transporting our luggage and ourselves. If we didn’t have petroleum, we would have to do the work ourselves – walk and carry our own luggage.

Another reason petroleum is valued is for all the things that can be created from the petroleum itself, without burning it. Final products include fabrics, plastics, drugs, herbicides, insecticides, and much more. At some point, we may decide oil is too valuable to burn. These products are very valuable, and it would be difficult to find replacements.

2. What is the relationship between energy use and standard of living?

There is a close tie between energy use and standard of living. Energy use gives us mechanical slaves that can do much work that we could do ourselves, but would take much longer. For example, mechanical equipment is used to plant and harvest crops, and to wash and package the food. Trucks are used to transport food to market. We could do many of these steps ourselves, by digging in the ground, picking the crops ourselves, and walking to market with the produce, but it would take much more of our own physical work.

Many economists dismiss the close tie between energy and standard of living. They say that energy costs are only a small portion of total costs, so energy is not very important. This reasoning is not correct. If there is a shortage of petroleum, it is in some ways analogous to a shortage of food. The real problem is not that we have to pay more; it is that we have to get along with less. If our diet were reduced from 2,000 calories a day to 1,900, it would make a difference to our lives. If the economy suddenly experiences a shortfall in petroleum products, fewer goods can be transported to market, and someone will have to do without a product or service that they would otherwise have had.

Robert Ayers and Benjamin Warr showed the close relationship between energy use and standard of living, disproving the standard belief of economists. In particular, they showed that there is a very strong tie between energy use, including the more efficient use of energy, and economic growth. http://www.iea.org/Textbase/work/2004/eewp/Ayres-paper1.pdf

3. Why is petroleum more highly valued than other forms of energy?

There are many reasons:

a. Its abundance. Petroleum is the largest energy source for the United States, comprising 40% of our energy use. Coal and natural gas are each a little over half as big (23%). The new alternatives are tiny in comparison.

b. The fact that it is a liquid. Liquids are easy to transport and store. Imagine filling your fuel tank with coal!

c. Its high level of concentration. Those of us who have done cooking or counted calories know that oils have a lot more calories for the same volume than other foods. It is the same way with fuel. Gasoline has 115,000 Btu per gallon, or in terms we are more familiar with, 29,000 calories (of the type you eat in food –- actually kilocalories) per gallon. Ethanol, which is equivalent to alcohol in alcoholic beverages, has only two-thirds as many calories (that is, energy) per gallon.

d. Its low price. The reason oil has historically been inexpensive is that it takes a relatively small amount of resources to extract oil. In the early days of production, it took roughly the energy of one barrel of oil, plus a few other inputs (human labor and iron ore) to extract 100 barrels of oil. Even recently, it has taken as little as the equivalent as 15 barrels of oil (plus human labor and a few other inputs) to produce 100 barrels of oil.

e. Very favorable energy balance. This is just the flip side of Item d, oil's low price. If it only takes one barrel of oil to produce 100 barrels of oil, a small investment can create a huge amount of energy. Even if it takes 15 barrels of oil to produce 100 barrels of oil, there is still a very favorable return. This extra energy benefits society in many ways. It gives us the extra energy we need to build roads and malls and better our lifestyle.

f. Built Infrastructure. Nearly all of the cars, trucks, airplanes, and farm equipment currently in use were designed to burn oil products. While theoretically they could be replaced, this is a huge sunk cost. It would require technical innovation, a large investment of fuel and other resources, plus a timeframe of thirty or more years to convert to a new base.

g. Non-intermittent supply. At least historically, the supply of oil has been there, so that we could depend on it. We didn’t have to worry whether the wind was blowing, or a cloud was covering the sun.

4. What are petroleum's disadvantages?

a. Not renewable. The supply is depleting. Decline may begin within a few years.

b. Not environmentally friendly. There are problems in three different areas:

Global warming gases. Oil is only 80% as bad as coal in terms of the amount of carbon dioxide formed per unit of energy, but 40% worse than natural gas. Because we use so much oil, total carbon dioxide is more from oil than from coal or natural gas.

Air pollution. Smog, airborne particulate matter, and some carcinogens are the indirect result of the burning of petroleum.

Local environmental damage. Spills. Pollution problems particularly for Canadian oil sands, where much water is required for extraction. http://www.commondreams.org/archive/2008/01/10/6304/

5. How are oil and gasoline priced?

Oil is priced based on supply and demand. If there is not sufficient oil for everyone who wants it, the price increases until some would-be buyers are priced out of the market or an alternative appears. Additionally, the price must be high enough to cover the cost of extraction of even recently discovered oil. If the price drops too low, or it the likelihood of profit is too low because of punitive taxation, oil companies will discontinue their attempts to produce more oil.

Prices tend to “shoot up” if there is a shortage oil or gasoline, because people are unwilling to go without, and substitutes are very limited. A rough estimate is that 1% shortfall in supply will result in a 17% increase in gasoline prices, and a 2% shortfall will result in a 33% increase in prices. (This is based on a shot-term price elasticity of demand of .06. See http://www.cbo.gov/ftpdocs/88xx/doc8893/01-14-GasolinePrices.pdf )

The price of gasoline is fairly closely related to the price of oil, plus the additional costs involved. One US Energy Information Administration government website shows this relationship:

Figure 9

6. How does corn-based ethanol compare to petroleum as a solution to our energy needs?

Corn-based ethanol is a very poor substitute for petroleum. Actually, it is only, at best, a substitute for gasoline. Other petroleum products, such as diesel, lubricating oil, and asphalt require different types of substitutes.

The major problems with ethanol from corn are

a. Not scalable. A very large amount of land is required to produce a small amount of fuel. In 2007, over 20% of America’s corn was devoted to ethanol, but this provided only the energy equivalent of 3% of our gasoline use (or 1.1% of our petroleum use). More than doubling this will be very difficult.

b. Causes food prices increases. Competition of corn for land raises food prices. We end up paying a second time for corn ethanol through higher food prices.

c. Causes fertilizer shortages. Corn uses a lot of fertilizer. Fertilizer is made from natural gas and mostly imported. Fertilizer prices are now double what they were a year ago. The situation may get worse in future years and lead to shortages of fertilizer for food crops.

d. Environmental impacts as bad as gasoline (or worse). There are problems in several areas. Ethanol produces more global warming gasses than gasoline, according to recent studies. Older studies say that ethanol might produce slightly less global warming gasses than gasoline, but even this is not much help. http://www.rsc.org/chemistryworld/News/2007/September/21090701.asp http://www.independent.co.uk/environment/climate-change/biofuels-make-cl...

A Stanford study says that air pollution is also worse than with gasoline. Ozone, which causes smog, is likely to be worse with ethanol than gasoline. Ethanol decreases some carcinogens, but increases others. http://news-service.stanford.edu/news/2007/april18/ethanol-041807.html

The planting of corn also has negative environmental impacts, including aquifer depletion, topsoil erosion, and fertilizer runoff. These are especially problems if expansion of corn acreage means that corn is planted in hilly or arid locations where it would not usually be planted.

e. Energy intensive. Nearly as much energy must be used to make ethanol as is gotten back in return, so we are mostly recycling scarce fuels. Ethanol is not like petroleum, which has a positive energy balance to benefit our standard of living. If corn ethanol replaces petroleum, the impact on standard of living is likely to be negative. (See Item 3e)

f. Poor fit with petroleum system. At most 10% ethanol can be used in gasoline, without causing corrosion, unless autos are especially modified. Ethanol cannot be transported by pipeline, so costly and complex special arrangements must be made.

g. Less energy per gallon than oil. Ethanol has only about two-thirds the energy (calories) of gasoline.

h. Summer gasoline price run-up. Adding ethanol to gasoline makes gasoline evaporate at lower temperatures. To counter this, the fraction of gasoline that evaporates most easily (molecules with 4 or 5 carbon atoms, rather than 6 to 10 carbon molecules) must be removed from the gasoline mixture. Removing this portion of the gasoline reduces supply in the summer, and increases prices.

i. Drought sensitive. Supply depends on good weather in growing regions. http://collinpeterson.house.gov/PDF/ethanol.pdf

j. Expensive. Requires subsidies to be cost-competitive. Subsidies raise tax levels. Even with subsidies, ethanol's cost is often higher than that of gasoline.

7. Why is ethanol so popular?

The primary reason ethanol is popular is because it makes legislators look like they are doing something about reducing imports of gasoline. People do not realize that the benefit is tiny at best, and offset by many other problems.

The use of corn ethanol was expanded before people had a chance to learn its real-world problems. Many continue to support it because they believe it will be a “bridge” to better second generation fuels, such as cellulosic ethanol.

Corn ethanol also provides income to investors in biofuel refineries and jobs in rural areas. The offsetting costs of subsidies and higher food prices are far enough removed that people are not aware of them.

Car manufacturers like ethanol also because of a loophole that allows them to get credit for cars with higher mileage than they really have. Because of this, car manufacturers can build more gas-guzzlers than they would otherwise and still meet mileage requirements.

Ethanol’s use was expanded in 2005 and 2006 because clean air laws required the use of an additive called an “oxygenate”. The previous oxygenate, MTBE, had been found to be unsatisfactory. A number of people have raised the question as to whether oxygenates are really needed any more. Engines manufactured since 1994 have substantially reduced tailpipe emissions, so that an oxygenate may not to be needed.
http://www.foxnews.com/story/0,2933,104259,00.html

8. What other possibilities are there as a replacement for oil as a liquid fuel?

Some other biofuel possibilities include the following:

a. Biodiesel from rapeseed. This is equivalent to what we in the US would call “canola oil”. Use of farmland for nonfood items is likely to drive up food costs. Heavy user of fertilizer. Has somewhat better energy balance than corn-ethanol. Mostly produced in Europe.

b. Cellulosic ethanol. Can be made experimentally, but isn’t yet commercially viable. Would be made from non-food bio-products such as wood, switchgrass, and corn stalks. Likely to be more energy efficient than corn ethanol, and cause less pressure on land use. Most methods are not economic at this time, but one approach claims better success.

Larger potential volume than corn ethanol, but still would not replace more than 20% of petroleum use. Cellulosic ethanol will compete with electricity generation for the use of the same biomass. Some analyses indicate that cellulosic ethanol is not the best use for biomass. http://www.coskataenergy.com/process.html http://www.technologyreview.com/Energy/19842/ (Requires free registration)

c. Biodiesel from left-over oil. Can be made from leftover vegetable oil or from animal fat. Energy efficient, but total volume likely to be small.

d. Ethanol from sugar cane. Not cost efficient in US; Brazil makes low-cost product with much hand labor. Brazilian product is very energy efficient, but has human rights issues for laborers. Relatively small amount available for export. Would be another source of imported fuel.

e. Biodiesel from palm oil. Also made from other tree fruits. Often grown on forest land that has been cleared for this purpose, so has very adverse environmental impacts. Often competes with food use for oil. Would be another source of imported fuel.

f. Biodiesel from algae. Under investigation, but no one has found a way to do this in a commercially viable way yet. Requires little land use.

Besides biofuel approaches, there are also fossil fuel approaches:

a. Coal to liquid. Process to convert coal to a petroleum substitute was developed many years ago. Method is quite energy intensive. Has much worse carbon dioxide impact than petroleum. Probably less expensive than most biofuels. Several plants now being planned.

b. Natural gas to liquid. It is theoretically possible to convert natural gas to a liquid fuel, but it is very expensive and not much used. Cars can also be adapted to run on compressed natural gas. Natural gas solutions may work in some parts of the world, but supply is not adequate in North America, and imports are very limited.

9. How about solutions such as wind turbines, solar voltaic panels, battery operated cars, and hydrogen powered cars?

None of these are liquid fuels. They don’t directly solve our need for something to keep are current fleet of vehicles and other devices using petroleum products operating. It is possible that over the very long term they can be part of the solution, but they cannot keep our current fleet on the road and our airplanes in the air.

Wind turbines and solar voltaic panels really relate to our need for better sources of electricity. Electrical supply is likely also to be a problem in the future, but we have not attempted to address the electrical supply issue in this document.

Battery-powered cars are a worthwhile idea, but there are some obstacles that need to be overcome. http://www.evworld.com/

a. Common materials. Batteries that require rare minerals will not scale up to the volume needed for millions of cars. If we do not require too long a range, more options may be available. It is possible that ultra-capacitors may be part of the solution. http://www.nrel.gov/vehiclesandfuels/energystorage/ultracapacitors.html

b. Long time frame. Even if technology were fully perfected today, it would still take 15 to 20 years to get factories built, and the current fleet of cars replaced. Peak oil may delay this further.

c. Electricity issues. We assume that adequate excess electricity will be available to charge the cars 20 or 30 years from now, but that may not be the case. It would be ideal if a way could be found to use solar power to charge the cars. http://www.theoildrum.com/node/3316 http://jalopnik.com/335956/austrailian-solar-bus-is-mighty-green-mighty-...

Hydrogen powered cars seem to be much farther in the future than battery powered cars. Hydrogen is not a fuel source; it is more like a battery. Somehow, we would have to produce the huge amount of energy that would be necessary to separate the hydrogen from the compounds in which it is found. Besides having to build new cars, we would have to build a new pipeline network, a new set of filling stations, and the infrastructure to make this work. The whole process would be extremely expensive and likely require over 30 years.

10. Will biofuels and the other alternatives be sufficient to compensate for the petroleum shortage?

No, not based on what we know today. If nothing else, there will be a time-gap before the transition to alternatives can be made. There are a lot of alternatives under consideration, but none, by itself, seems likely to solve our need for a liquid fuel substitute in the timeframe in which it is needed.

Conservation will need to be an important part of the solution to our liquid fuel shortage. Better use of what we have, like carpooling, is one possibility. Another is electrified rail transportation. Streetcars were used years ago in many places, and could be built again, without developing new technology. Existing rail systems could be enhanced to permit more freight to be transported by rail. In some cases, sails can be added to boats to reduce fuel needs. If need be, personal vehicles can be made much smaller than we drive today, perhaps akin to golf carts or electric bicycles. http://en.wikipedia.org/wiki/Tram

11. Besides higher oil prices, what types of impacts can we expect from peak oil?

Increasing food prices. One reason is that oil is used in planting, harvesting, packaging, and transporting food. Another reason is that growing corn for ethanol will compete with other uses of land, and drive food prices up. Also, if there are fertilizer shortages, yields may be lower.

More defaults on loans can be expected, as food and petroleum prices increase. Families will have less money left over to pay mortgages and credit card debt.

Pre-peak impacts. Increases in oil and food prices are likely to begin even before peak hits, and seem to be happening already. All that is needed is a gap between oil supply and demand (see Part 1, Figure 5), not an actual decline. Ethanol-induced land shortages also contribute to the food price increases. Higher oil and food prices may be contributing to current US financial problems.

Reduced discretionary spending. People will spend less on things like restaurant food and out-of-town vacations.

Reduced economic growth or actual decline appears likely.

12. What are the implications of the likely shortfall in oil production on career opportunities?

Careers in fields that are very petroleum-dependent may not be good choices. For example, there will likely be fewer airline pilots in 2040 than there are today.

If there is less petroleum, people are likely to be interested in having stores nearby that they can walk to. Thus, there may be an opportunity for starting a small store in your own neighborhood, or developing a neighborhood clinic.

Recycled products, especially those using petroleum inputs, are also likely to become more important. There may be careers in buying and selling these products.

There is clearly a need for more scientist and engineers in many energy-related fields. We need to find better ways to extract the oil that is available, and we need to develop more fuel-efficient vehicles. We need to find more and better petroleum alternatives, and to find ways to scale up these alternatives to the quantities needed as replacements for petroleum products.

13. Are there any actions we should take?

These are several ideas:

a. When buying a car, purchase the smallest, most fuel-efficient model you can find.

b. Consider sharing rides with someone else who is commuting in the same general direction, or take public transportation.

c. Make greater use of work-at-home programs and distance learning programs. Or live in a dorm.

d. Move closer to work or school.

e. When distances are short, walk or ride a bicycle, rather than drive.

f. Use recycling, especially for petroleum-based products like plastic. Other recycling is also helpful from a general energy-saving perspective, but not necessarily from a petroleum-saving perspective.

g. Avoid fruits and vegetables that have been flown to the United States from around the world. These tend to be quite expensive.

h. Reduce trips taken to distant locations, whether by air or automobile.

One idea which looks at the shortfall in a different way is to reduce meat consumption by eating smaller portions of meat or by substituting beans for meat in some meals. We are currently using biofuels as a substitute for petroleum, and this puts huge pressure on the food supply. By eating less meat, a person can help reduce the pressure on the food supply.

Animals eat several times as many calories in grain products as they produce in meat calories. By eating less meat, fewer acres of grains need to be planted to meet our food needs. We also reduce the production of global warming gasses, because animals, particularly cows, are big contributors to these gasses.

Another idea is to get involved with campus groups or political groups to try to solve some of the problems in the years ahead. It is likely to be a difficult adjustment, but working together we are likely to be able to accomplish more than we can as individuals.

Part 2 – Discussion Questions

1. US oil consumption is about 25 barrels per year for each person in the United States. There are 42 gallons in a barrel, and each gallon contains on averages 34,800 (kilo) calories (gasoline has less, asphalt has more). How many (kilo) calories does this equate to? (Answer: 36,540,000)

If we had food equivalent to this many calories, how many people could be fed with this many calories, assuming people, on average, eat 2,000 (kilo) calories a day? (Answer: 50)

What does this relationship say about the likelihood that we will be able to grow enough crops to turn into biofuels to meet our current petroleum usage?

2. If oil rationing were imposed, and the amount of gasoline you could purchase were limited to half of what you are currently using today, how would that change your driving / commuting?

3. If you were the president of the United States, and needed to impose rationing, in what order would you rank the following in priority.

a. Military
b. Farmers
c. Chemical feedstock use
d. Transportation of food
e. Mining of coal and uranium
f. Transportation of non-food items
g. Railroad and bus fuel
h. Air travel
i. Emergency services (ambulance, police)
j. People with jobs
k. People without jobs (retired, students)

4. There have been numerous governmental studies about peak oil. It is clear from public comments that Alan Greenspan is a believer in peak oil, as is former President Clinton. President Bush and Dick Cheney worked in the oil industry before their election.

Do you think that President George W. Bush is aware of peak oil? If so, how do you think it has affected Bush’s presidency? How long do you think that they have been aware of peak oil? Do you think it has had any impact on their policies? Why haven’t they said anything about peak oil? http://search.doe.gov/search?output=xml_no_dtd&sort=date%3AD%3AL%3Ad1&ie... http://www.peakoil.net/Articles2005/Westervelt_EnergyTrends__TN.pdf http://www.straight.com/article/clinton-raises-alarm-about-oil-depletion... http://online.wsj.com/article/SB119763743685729349.html (Greenspan) http://www.netl.doe.gov/publications/others/pdf/Oil_Peaking_NETL.pdf

5. One of the reasons that there has been little said about peak oil is that economists keep saying that peak should not be no problem; in a free market economy, substitutes will be found.

Name three substitutes for food.

How does your answer to the substitutes for food question suggest that economic theory may be incorrect in with respect to replacements for liquid fuels?

6. If biofuels, at least at this point, seem to have as many environmental problems as oil, would it make sense to concentrate our efforts on enhanced oil recovery? How about coal to liquid?

For further reading – Relates to both Part 1 and Part 2:

A number of links are given in the reading material. In addition, some websites that may be of interest are

www.TheOilDrum.com - Discussion about energy and our future, including peak oil. Many articles written for the site, plus news items related to energy, and discussion about the various items. I write as “Gail the Actuary” for this site. A list of my articles can be found at http://www.theoildrum.com/user/Gail+the+Actuary/stories

www.EnergyBulletin.net - Peak oil related news items. No discussion.

Association for the Study of Peak Oil and Gas - USA http://www.aspo-usa.com/ Has a good weekly newsletter, and an annual conference.

Educational website about oil and gas, how it is formed, and production ins and outs http://www.ukooa.co.uk/education/storyofoil/index.cfm

“Peaking of World Oil Production: Impacts, Mitigation, and Risk Management” by Robert Hirsch, Roger Bezdek, and Robert Wendling. Analysis of peak oil and mitigation options, prepared for the US Department of Energy in early 2005. http://www.netl.doe.gov/publications/others/pdf/Oil_Peaking_NETL.pdf

Rear Admiral Hyman Rickover’s 1957 speech talking about the expected future decline in fossil fuel resources and the need to tell the younger generation. http://www.theoildrum.com/node/2724

Myths of Biofuels - Talk by David Fridley - Free video for download - http://www.sfbayoil.org/sfoa/myths/index.html

Peak Oil and the Fate of Humanity – Series of downloadable presentations – Canadian http://www.peakoilandhumanity.com/chapter_choice.htm

Global Oil Supply: Barriers to Investment - Presentation by David Fyfe of International Energy Agency http://www.clingendael.nl/ciep/events/20080214/20080214_ciep_fyfe.pdf

Science 1101: The Science of Oil and Peak Oil Revisited

1. What is petroleum?

Petroleum (also called oil) is a viscous liquid that is found beneath the earth’s surface that is refined to make fuels, plastics and other goods. Oil is not found in large pools. Instead, it is generally trapped in the pores of sandstone or other porous rocks. It is often found with natural gas, which is formed under similar conditions.

Petroleum is not a single compound. Instead, it consists of a mixture of hydrocarbon chains of different lengths, ranging from about C5H12 to C42H86. It also contains some associated hydrocarbon gasses, with 1 to 4 carbon molecules. When petroleum is burned, the hydrocarbon chains plus oxygen are transformed into CO2 (carbon dioxide) and H2O (water), and energy is released. Carbon dioxide is one of the major gasses implicated in global warming.

2. How was petroleum formed?

Petroleum was formed millions of years ago from the remains of small plants and animals that lived in seas or lakes. These plants and animals died and fell to the bottom of the sea. Gradually, layers of silt and sediment covered their remains, causing great heat and pressure to build up.

Under this heat and pressure, a chemical reaction took place, transforming the hydrogen and carbon from the decaying plants and animals into the mixture of hydrocarbons that we know as petroleum. This petroleum is found in only a relatively small number of places in the world, where conditions were precisely right for its formation.

3. Is new petroleum now being formed?

Not in any measurable quantity. Once we use up the petroleum that was formed millions of years ago, it will be gone for good.

4. Aren’t we continuing to discover more and more oil every year?

No. Once we started looking for oil, we found more and more oil for a while, but then new discoveries started to drop off, as more and more of the world was explored. This is shown in Figure 1, below. We are continuing to discover oil, but the quantity discovered now is much smaller than it was years ago, and much smaller than we are now using. (In all of these charts, the amount of oil is measured in barrels. A barrel is equal to 42 gallons or 158.984 liters. The total quantity is huge!)

Figure 1

We often read in the news about finding new fields, but these fields tend to be smaller and harder to reach than those discovered in the past. We are now so concerned about finding oil that even small discoveries are reported as news.

Figure 1 does not include oils that are not liquids, like the Canadian oil sands. There are large quantities of these, but extraction is extremely slow. It is doubtful that they will ever become a significant share of world oil production.

5. How is petroleum extracted from the ground?

Petroleum is generally extracted by drilling oil wells in areas where there is some reason to believe oil might be located. When oil is first found, it often comes from the ground very quickly, under great pressure. Gradually, the oil comes out more and more slowly. This happens partly because the oil pressure drops, and partly because the oil that is extracted from the ground tends to be mixed with more and more water, as more oil is removed from the ground. Many US oil wells produce more than 99% water.

In some places, such as the Canadian oil sands, a very viscous form of oil is found. This is mined, rather than extracted using oil wells. Production of such oil tends to be very slow and expensive.

6. Is all of the oil in a given area removed by the use of oil wells?

No. As noted in Item 1, oil is generally found trapped in the pores of porous rock such as sandstone or limestone. The rock is somewhat like a hard sponge, with a goey liquid trapped inside. This oil is very difficult to get out of the rock. If wells are used to collect the oil that seeps out of its own accord, typically only 10% to 30% of the oil originally in the rock can be removed.

Various methods of enhanced oil recovery have been developed to increase the percentage of oil that can be removed. One approach uses water injection to increase the pressure in the well. In another approach, carbon dioxide or some other gas is injected, to force some of the trapped oil out. In one newer process, microbes are used to break up the oil droplets into smaller pieces, so that they can more easily be removed. One method under development uses an underground fire to heat the oil, so that it will become more liquid and drain out of the rock (Microbial Method: http://www.titanoilrecovery.com/ Water injection: http://en.wikipedia.org/wiki/Water_injection_(oil_production) Underground fire: http://www.theoildrum.com/node/2907 )

Usually, even with enhanced oil recovery, not more than 50% of the oil originally in place can be removed. Often the percentage is quite a bit less than 50%. Some of the newer enhanced oil recovery methods offer the possibility that this percentage may be raised in the years ahead.

7. Can an oil company produce a constant amount of oil in a given location?

No, it generally doesn’t happen this way. When a single oil well is drilled, production very often quickly reaches a peak, and then tapers off over a several-year period, as oil pressure drops and the amount of water produced increases.

When we look at production from all of the wells in a given geographic area, production generally increases for several years, as more and more oil wells are drilled. One by one, wells begin to decline, and new wells are drilled. Eventually, there are not enough new places to drill additional wells, and overall production starts to decline. (See Figure 2, below.)

US oil production for the 48 states excluding Alaska and Hawaii reached its peak in 1970. Once energy companies realized that production was declining in the US 48 states, they looked for new locations where oil might be extracted. Alaska had oil, but it was difficult to transport oil out of Alaska without a pipeline. The necessary pipeline was completed in 1977. Production reached its peak in 19888, and has been declining since then.

Figure 2

Oil production was also begun in the North Sea, near Norway and Great Britain, but this too soon reached a peak. North Sea oil production has been declining since 1999. All of these declines have taken place in spite of new technology and improvements in oil recovery methods.

Oil is also produced in many other parts of the world, but oil recoveries are starting to decline in many of these areas as well. At this point, much of the world’s “easy to produce” oil has been removed. New oil production tends to be in difficult areas, like deep-sea locations.

8. Will world oil production reach a peak and begin to decline? If so, when?

Since oil is a finite resource, we know that production must eventually decline. There is considerable disagreement as to when this decline in production will occur.

The US General Accountability Office (GAO) released a report in March 2007 titled, “Uncertainty about Future Oil Supply Makes It Important to Develop a Strategy for Addressing a Peak and Decline in Oil Production.” This report indicates that decline is likely to begin sometime between now and 2040. The United States Association for the Study of Peak Oil indicates that the peak and decline is expected to occur prior to 2015.

Even oil companies are beginning to talk about the possibility of future production falling short of demand. This wouldn’t necessarily be a decline; it might be a plateau or slight increase. Shell Oil says, “After 2015, easily accessible supplies of oil and gas probably will no longer keep up with demand.”

(GAO Report: http://www.gao.gov/new.items/d07283.pdf Shell Oil statement: http://www.shell.com/home/content/aboutshell-en/our_strategy/shell_globa... National Petroleum Council 2007 report “Facing the Hard Truths about Energy” http://www.npchardtruthsreport.org/
Canadian Business article: http://www.canadianbusiness.com/columnists/jeff_sanford/article.jsp?cont... )

9. How are estimates of the date of peak production made?

There are a variety of methods. In 1956, M. King Hubbert correctly forecast that oil production for the United States was likely to reach a peak and decline about 1970. Estimates from that time period put the peak in world production at about 2000. Because of efficiency increases and energy conservation efforts that were put in place during our previous energy crises, growth in oil usage slowed and the date of the peak was pushed back. http://www.hubbertpeak.com/hubbert/1956/1956.pdf

Besides using techniques similar to Hubbert’s, estimates now consider additional types of information, including new projects being planned and decline rates on existing fields. Another consideration is the fact that it been very difficult to increase oil production in the past few years. Oil production since 2005 has been flat, in spite of increasing prices. Oil companies are having difficulty finding more oil reserves to replace those used by extraction of oil during the year.

The organizations with the highest estimates tend to put greatest reliance on published reserve estimates of the major oil exporting nations. These amounts are not audited. There is increasing evidence, including Google satellite information, that these amounts are inflated. Exporting nations look more powerful if they report high numbers, so there is a temptation to report optimistic amounts. http://www.theoildrum.com/node/3574#more

10. Can outside factors make a difference in future production?

If every country had infinite resources, and chose to put them all into oil production, it is likely that oil production would be higher than it is. In the real world, that is not the way it is, though.

One limitation is the supply of trained geologists and engineers. The energy field has been stagnant for many years. Many people trained for the oil and gas have left the field, because of frequent boom and bust cycles. Of those remaining, a disproportionate number are near retirement age.

There are also limitations on physical infrastructure. There is a limited number of drilling rigs, especially those needed for the very deep-sea locations now being explored. The forces of supply and demand drive up costs for these rigs, making projects more expensive. Other infrastructure items are in similarly short supply. Companies do not have infinite budgets, and can’t use equipment that is not available, so projects get pushed back.

Another factor is the influence of foreign governments and of government sponsored oil companies around the world. One estimate is that only 7% of the world’s oil reserves are in countries that allow “International Oil Companies” (companies like ExxonMobil, Chevron, and Total) free reign.

Wars and civil disorder can affect production. The production of Iraq and Nigeria have clearly been affected by fighting of various types.

One factor that has the potential to help future supply, or at least soften the down slope, is technological advances. For example, some of the newer enhanced oil recovery methods may have promise. Putting them to work on old fields could be done, but it would not necessarily easy. In many cases, oil rights would need to be obtained from current owners, and new wells drilled. This would be expensive.

11. How certain are future petroleum imports?

Not very. Oil imports comprise about two-thirds of US petroleum use. The amount of future world production is uncertain, and the portion available for import is even more uncertain. Oil exporting countries want to keep their own populations happy. This often means increasing use of oil within the country, at the expense of exports. Also, if it becomes clear that there will be a shortfall in world production, exporting countries may decide to hoard the oil they have, saving it for the future when it is likely to sell for an even higher price.

Another concern is a possible drop in the value of the dollar, because of difficulties within the US financial system, or because of balance of payment problems. If the value of the dollar should decline, oil will be much more expensive, so it will be difficult to buy as much.

Figure 3 below shows US crude oil production. It has been decreasing at about 2.1% peer year.

Figure 3
Figure 4

Figure 4 shows US imports of oil and finished products, like gasoline. These were rising at about 4.5% a year, but declined in 2006 and 2007. World oil production has been flat since 2005. (See Figure 5, below). With no increase in world production, it has been harder for the US to find oil to import, and the price of what we have been able to find has been higher.

12. Does the date of the peak matter?

We have already reached the point where oil is in short supply. Because of this, we need to find ways to conserve, and to find alternative energy sources. The actions we need to take are pretty much the same, whether the peak in the world’s oil production is now, or in 2040.

Also, any governmental action taken to change our oil usage, or to find alternatives, is likely to take many years to implement. For example, if manufacturers start making cars more fuel efficient, it will take many years before all of the old fuel-inefficient cars can be replaced. For this reason, we need to start taking action well before the peak.

(See “Peaking of World Oil Production: Impacts, Mitigation, and Risk Management” by Robert Hirsch, Roger Bezdek, and Robert Wendling for US Department of Energy (2005) http://www.netl.doe.gov/publications/others/pdf/Oil_Peaking_NETL.pdf )

Figure 5

The blue line Figure 5 shows recent oil production trends. Oil production has been on a plateau for three years, since 2005. The line “Demand at +1.8%” gives an idea of how much oil the world would like to use, if it is actually available, at a reasonable (2005) price. It assumes 1.8% per year growth. Scenarios 1, 2, and 3, give three (of many) possible directions future oil production may follow. Even if a fairly optimistic scenario like Scenario 1 occurs, there is likely to be a significant gap between demand and supply.

13. What is petroleum used for?

The vast majority of oil is used as fuel, of one type or another. Figure 6, below, shows that largest share (46%) of US oil usage is for gasoline. The next biggest slice is “distillate”, with 20%. Distillate includes diesel fuel (used in trucks and many types of equipment) and home heating oil (used primarily in the Northeast). Petroleum is also used as jet fuel, and as fuel for boats, so it provides the vast majority of the transportation fuel used in the United States. It also provides asphalt for our roads, and lubricating oils for engines.

The “All Other” category is quite small on the graph, but includes most of the chemical uses for petroleum. Products made using petroleum as a feedstock include plastics, synthetic fabrics, dyes, pharmaceutical drugs, detergents, insecticides and herbicides, and many other products we use every day.

Figure 6

In some parts of the world, petroleum is used to produce electricity. In 2006, only about 2% of US power generation was from oil. http://www.theoildrum.com/files/Generation%20by%20State%20by%20Type.png

14. How is petroleum processed to obtain its major products?

Petroleum is sent to a refinery, where it is processed to remove impurities and to separate it into its component parts. As we noted earlier, petroleum is a mixture of different hydrocarbons ranging from about C5H12 to C42H86. These hydrocarbons have different properties, including different boiling points and different viscosities. Very short chains, containing 1 to 4 carbon molecules, are gasses at room temperature. Chains with 5 to 10 carbon molecules are thin liquids that boil at low temperatures. The longest chains are asphalt or bitumen. Asphalt is very viscous and has a very high boiling point.

During refining, a process called fractional distillation is used to separate out the mixture into components. Petroleum is heated to a vapor, and then allowed to condense in a tower containing trays at different levels. Because the shorter hydrocarbon chains boil at lower temperatures than longer chains, this process can be used to separate petroleum into its component parts. The lighter the fraction, (that is, the fewer carbon molecules in the chain), the higher up it condenses.

Figure 7. Fractional Distillation (Diagram by The Institute of Petroleum, UK)

For further discussion see “How Oil Refining Works” on HowStuffWorks.com (http://science.howstuffworks.com/oil-refining.htm )

15. Is petroleum from different locations the same?

No. Some petroleum is “light” – that is, composed mostly of the shorter chain hydrocarbons. Other petroleum is “heavy” – that is composed mostly of longer chain hydrocarbons. Some is even “very heavy”. Oil also differs in the amount of impurities. The highest quality (and highest priced) crude oil is light oil, with few impurities. The lowest priced crude oil is heavy oil, with many impurities.

The reason that light oil is prized is because when fractional distillation is used, it yields a high proportion of gasoline and diesel fuel, and relatively little asphalt and other lower priced products. When fractional distillation is used on heavy oil, it tends to yield a high a proportion of asphalt and other low priced products. A process called “cracking” can be used to break very long molecules into shorter, more commercially valuable molecules, but this process is expensive, and requires specialized equipment.

The amount and types of impurities in crude oil is also important in determining the selling price of crude oil. Special processes, available only in certain refineries, may be needed to remove certain types of impurities. In some cases, it is necessary to build a refinery especially for oil from a particular location, so as to have the proper equipment to remove the impurities from the oil.

Some of the oil that has not yet been extracted is oil with difficult to remove impurities. This oil was bypassed in the past as too difficult to process. Saudi Arabia has some oil that it is not extracting because a refinery has not yet been built to handle the impurities.

16. How is oil transported from place to place?

When crude oil is found in a location, it must be transported to a refinery for processing. There are two major ways this is done. One is by “oil tanker” (type of ship). The other is by pipeline. When oil is discovered in a remote location, new pipelines often must be built before production can begin so as to have a way of transporting the oil once it is extracted. This is costly, and may take several years.

Once the oil is refined, the refined products are again shipped by pipeline to a location near where they will be used. Trucks are generally used for transportation to the final customer.

It might be noted that each pipeline has both a maximum and a minimum flow rate. If production or use drops too much in an area, its pipeline may no longer be usable.

One exception to the use of pipelines for transport occurs for gasoline with ethanol. The gasoline base is shipped by pipeline, but ethanol cannot be shipped by pipeline, because it tends to absorb water. Ethanol must therefore be shipped by other means (railroad, barge, and /or truck) to a location near where the gasoline will be sold. There, ethanol is blended with the appropriate gasoline base to make gasoline. After it has been blended with the base, it is shipped by truck to the retail location where it is sold. This whole process is expensive and difficult to co-ordinate.

Part 1 - Discussion Questions

1. In 1957. Rear Admiral Hyman Rickover gave a speech in which he talked about the expected peak of oil and gas production in the first part of the 21st century, and the likely decline of coal toward the middle of the 21st century. He also talked about the need to tell young people, and to start planning for the difficult transition that likely lay ahead. http://www.theoildrum.com/node/2724

Why didn’t people take his advice?

2. In 2007, there was considerable publicity about the Tupi field in Brazil. According to newspaper articles, Tupi may transform Brazil into a major oil exporter. When you read further, you find that the oil field is nearly 200 miles off shore, and is at record depths. Furthermore, the oil is found beneath layers of rock and salt.

Figure 8 (The Oil Drum)

The salt is unstable to drill through. A problem with thermal shock is expected when oil is extracted because the temperature of the oil in the reservoir is expected to be nearly 100 degrees Celsius, while the water above the rock is expected to be 4 degrees Celsius. In order to extract the oil, new technology will need to be developed to drill this deep and to overcome the problems of the unstable salt layer and of thermal shock.

Also, some means of transporting the material extracted will be needed. Because natural gas will be included, the usual method would be a pipeline, but the distance will be a challenge. Therefore, the company is considering building a floating liquefied natural gas to liquid plant, so that tankers can transport both the oil and liquefied natural gas.

The expected oil production from Tupi is large relative to recent discoveries, but not large relative to the amount of oil we need to discover each year. At full development, Tupi is expected to produce 500,000 to 1 million barrels a day. This is equivalent to 2.4% to 4.8% of the United States' current daily oil usage, or 0.6% to 1.2% of world usage. Just to offset declines in existing fields, we need to discover 5 to 9 fields the size of Tupi each year.

a. What probability would you assign to this project actually succeeding?

b. The company hopes to have initial production by 2013. Given the technology and infrastructure issues, how likely does this seem? Would you be surprised by setbacks?

c. If this is the major discovery of the year, what does this tell you about other discoveries?

To read about Tupi (not needed for exercise)
http://www.theoildrum.com/node/3269
http://www.iht.com/articles/2008/01/11/business/oil.php
http://www.afxnews.com/about488/index.php?lg=en&c=00.00&story=2305842

http://www.theoildrum.com/files/TupiLayerSketch.png

What happens when energy resources deplete?

What happens when energy resources, such as oil, deplete?

One view is that energy prices will rise, substitutes will be found, and prices will come back down again, perhaps settling at a somewhat higher equilibrium reflecting the cost of producing the substitute energy source. The economy will continue to function pretty much as before. The catch is that we aren't finding reasonably-priced, scalable substitutes, so this isn't happening. Oil prices are down, but not because of substitutes.

Another view, popular among those concerned about peak-oil, is that oil and energy prices will just keep rising. If scalable substitutes aren't found, some expect that oil prices will rise from their current price of $75 barrel, to $100 barrel, to $200 barrel, to $300 barrel, and eventually to $1,000 barrel or more.

The problem with this view is that it doesn't take into account the amount of money people actually have available to spend. Just because oil or energy prices rise doesn't mean that people will get additional income to cover these higher expenditures. In real life, prices can't keep going up.

I expect that what really will happen is oil prices may bounce up, but they will soon come back down again, because of recessionary impacts and credit crunches caused by high oil prices. Most of the time, oil prices will end up in the uncomfortable middle--too high for the economy to buzz along, but too low to encourage much new oil production, or much new renewable production. The result is likely to be continuing recession, getting worse over time, because of what will be generally viewed as inadequate demand for oil.

What really happens when energy prices go up

Energy expenditures are not a big share of income for high income people, but they are for the many people getting along on minimum wage, or close to minimum wage. If oil prices go up, these folks find the price of food and gasoline going up, and perhaps the price of home heating and electricity (because the prices of the various types of energy tend to move together). They find their budgets stretched, and they either

1. Cut back on discretionary spending, or

2. Default on loan repayments.

A similar situation happens to the many people who earn more than minimum wage, but live paycheck to paycheck, and pretty much spend all the money they earn. As the prices of energy-related goods rise, these people too find a need to cutback. Some will cut back on discretionary goods; others will default on loan repayments; some will do both.

Thus, when oil prices rise (or energy prices in general rise), we end up with two main effects:

1. Banks find themselves in worse condition because of many loan defaults.

2. The economy starts feeling recessionary impact, because so many people cut back on buying discretionary goods.

These impacts are likely to lead to others as well:

1. Banks become less willing to make loans, because of the problem with defaults.

2. Many people are laid off from work, because of reduced demand for discretionary goods (restaurant meals, vacations, new homes, new cars, new home furnishings, for example.)

The cutback in the purchase of new homes, new cars, new home furnishings and the like leads to yet more impacts:

1. The price of homes drops (because fewer are upgrading to more expensive homes, and because loans are harder to get).

2. There is less demand for oil (because oil is used in making cars, new homes, and many other things. Also, if fewer people take vacations, and fewer people drive to work, this reduces oil usage).

3. There is also less demand for natural gas, coal, and electricity, because all of these are used in manufacturing discretionary goods.

The next round of effects then becomes:

1. Even more people default on their loans, because with the decline in home values, they owe more on their homes than their homes are worth. This may also happen if people have lost their jobs, and can no longer afford their homes.

2. The prices of all energy products drop (oil, natural gas, coal, uranium, ethanol) because of reduced demand. Many fewer solar panels are sold as well.

About this time, governments come in with stimulus funds, bails out for banks, and the problem appears to mostly solved. It isn't really solved though--it is mostly transferred from private citizens and from corporations to governments. But governments find revenue vastly exceeds expenditures, and debt is rapidly rising. Something needs to be done--either raise taxes and cut services, or default on debt.

Before we talk about these options, let's talk about timing.

When does all this happen?

The popular myth among people concerned about peak oil is that difficulties do not really start until oil production begins its down-slope. In my view, the difficulties start much sooner--as soon as oil supply cannot be provided at close to a constant price.

Figure 1. Average monthly West Texas Intermediate spot prices, based on Energy Information Administration data

Oil prices were in the $20 a barrel range for many years, but then started rising about 2004, as Chinese demand began rising. So this was really the first sign of problems.

A second measure of when this happens is when the growth in oil supplies starts to falter. The world had been accustomed to a close to 2% a year rise in world oil production, but slipped onto a production plateau starting in 2005. This production plateau has lasted until the present time (2010).

Figure 2. Diagram by author. Historical data from Energy Information Administration.

So if we compare what production we might have expected in the absence of higher price or credit problems (green line), to the actual production (blue line), a gap started to appear about 2006. This is another measure of when we would expect symptoms of energy shortages to start affecting economies.

I know many will say, "Oh, but while we had problems with sub-prime mortgages about then, and housing price drops, it couldn't have had anything to do with oil prices." I would point out:

1. Recessionary effects happened around the world, not just where there were subprime mortgages. Japan was affected even before the US, and didn't have subprime mortgages.

2. The effects that we would expect from higher oil prices had to be manifested somewhere. It turns out the greatest manifestation was with lower income people, living in distant suburbs where the commutes were longest. These are precisely the folks one would expect to be most affected by higher oil prices.

3. The impacts of recession and credit problems have gradually spread more broadly than subprime loans, as we would expect, based on the foregoing discussion of the expected impacts.

I should point out that saying that higher oil prices being instrumental in causing in recession doesn't mean that there couldn't be underlying weaknesses, that would allow the manifestations to be in particular parts of the economy.

Also, we know that higher world oil usage is closely linked with world economic growth. One would expect relatively lower oil use to therefore lead to recession--and that is precisely what seems to be happening in the real world.

What is ahead?

We are now at the point where the recession seems to be better, because governments have bailed out private citizens and companies (particularly banks). But this leaves the governments with a huge amount of debt, and with a big gap between revenues and expenditures.

Figure 3. US government receipts and disbursements as percentages of disposable personal income, based on data of the US Bureau of Economic Analysis

Figure 3 shows what a huge shortfall the US government now has in revenues. There are many other governments around the world with similar issues. In addition, state and local governments have serious revenue shortfalls.

If recession continues, it is difficult for governments to continue to borrow more, as expenditures outpace income. Eventually, governments are left with two options:

1. Raise taxes and reduce services, so as to get revenue and expenses back in line.

2. Default on debt.

Either one of these things will make the situation worse:

1. If governments raise taxes, the effect on citizens is pretty much like higher oil (or energy) prices. Citizens react by cutting back on discretionary spending or defaulting on loans, and we are back to more of the problems recessionary problems, plus loan defaults we had before. If governments also layoff workers, this increases the recessionary effect.

2. If only one or two small governments default on debt, the world can probably accommodate the defaults pretty easily. But if problems spread to a large number of big countries (UK, United States, and Japan, for example), then international trade is likely to be disrupted, because many sellers of goods will find themselves without payment. To prevent this happening again, the sellers of goods are likely to set stricter terms--I will sell you so much oil if you will sell me so much wheat in return, for example. The amount of trade is likely to drop precipitously, because of the cumbersome nature of such trading.

If governments mainly raise taxes and reduce services, I would expect the result to be more recession, more debt defaults, and lower prices for all energy products. Everyone will say, there is plenty of oil (natural gas, coal, uranium) in the ground. If prices were only higher, we would extract it.

If there are major international debt defaults, the situation is likely to be somewhat the same (recessionary impacts and lack of credit), but some goods may cease to be available for import. If these goods are critical goods (computers, replacement parts for the electrical grid, replacement parts for automobiles), the economy could spiral downhill rapidly.

A variation on defaulting on debt is attempting to inflate it away. This still leaves owners of bonds very unhappy, and can cause many of the same problems as regular default.

What would it take to ramp up oil production (or a substitute) so production is again on a trajectory where it is growing at, say, 2% per year?

I can see several ways such a ramp-up theoretically could be accomplished. (Some of these are more ways of circumventing the problem. Note that these are all temporary solutions. In a finite world, it is not possible to continue exponential growth forever.)

1. If conventional oil production is flat to declining, one could ramp up unconventional oil production (oil sands, oil shale, ultra-deep, and arctic for example).

2. If conventional oil production is flat to declining, ramp up production of other liquids--ethanol, biodiesel from algae, and coal to liquids, for example.

3. If conventional oil production is flat to declining, one can try to convert a large share of the auto fleet to electric, and ramp up electrical production.

4. If conventional oil production is declining, one can theoretically engineer cars to be much more efficient, and ramp up production of these new cars.

Regardless of which approach one uses, one needs:

1. A lot of time. In 2005, Robert Hirsch was the lead author or a report for the department of defense called Peaking of World Oil Production: Impacts, Mitigation, & Risk Management. This report showed that mitigation would take 20 years. If one stops and works through the details of any of the three solutions proposed above, one can see that each of these require long lead times. For example, scaling up oil shale would likely require new coal fired power plants in the area, new coal mines, new train tracks from the coal mines to the oil shale area, and new water supplies piped into the arid US West, not to mention building the facilities themselves. Perfecting the technology for electric cars, and building a whole fleet of these, would be a similarly slow undertaking, as would replacing the current auto fleet with more efficient cars.

2. A lot of capital. Unless oil prices are higher--a lot higher--it is hard to justify large capital expenditures, in ventures such as this. We have just seen that consumers cannot afford high oil prices, without recession.

3. Long term subsidies. If the prices of the new fuels are too high for consumers to really afford, one needs long-term subsidies. We have just seen that high oil prices seem to hurt the economy badly. High prices for substitutes can be expected to have a similar effect.

It seems like any one of these issues is likely to be a deal-killer. Since we are already at a point where conventional oil is falling short of demand, the time requirement will mean that scaling up will be very difficult. Progress to date on renewables has been very small, as shown on Figure 4.

Figure 4. World primary energy production, based on BP 2010 Statistical Analysis – Graph by Euan Mearns

Wind, solar, and geothermal are combined in the tiny red line at the top of the chart. Since these all produce electricity, not a liquid fuel, they are not good substitutes for oil. Biofuels are not shown, but are also a very thin line.

What is "Peak Oil"?

"Peak oil" is sometimes described as the time when conventional oil production begins to fall. There is still a lot of oil in the ground, though, but what is left is

1. Very slow to extract. It is necessary to ramp up huge amounts of production capability to mitigate the downslope of conventional production.

2. Expensive to produce. The easy to produce oil is gone.

So what peak oil really is, is a turning point. One can theoretically continue to produce the same amount of oil or more, if one makes huge investment well in advance. The problem is that it is really too late now. By the time new production finally gets started, conventional oil production will be down very substantially from its peak level. The fact that no one ramped up unconventional production (or alternatives production) before it was too late leaves us with precisely the problem that the peak oil community has been warning about--oil production capacity that can be expected to decrease over time, as individual fields deplete.

Peak Oil and Exponential Growth

Oil supplies are expected not just to level off, but to actually decline. Part of this happens because of the natural decline rate of conventional oil fields, as the finite amount of oil that is in the field is extracted.

The decline is likely to be more severe than historical decline rates (2% to 8% per year) would suggest, for two reasons mentioned earlier:

1. Declining credit availability, as high default rates continue among buyers. Lack of credit will tend to keep oil prices low, and discourage investment.

2. Higher tax rates on fossil fuels. Governments are short of funds and oil companies are temping targets. If tax rates are raised, this will likely cut back production, since oil companies base investment decisions on expected after-tax profit, and this will be lower for many projects.

Meanwhile, we have a huge number of variables growing exponentially:

• Economic growth
• Money supply
• Stock market prices (hopefully)
• Population

These variables are not independent of energy supplies. If nothing else, people need food to eat, and oil is used very extensively for food production. It is questionable whether these variables can continue their exponential growth if oil and other energy supplies are declining in quantity.

Figure 5. Graph from report Dangerous Exponentials by Tullett Prebon.

“Anyone who believes exponential growth can go on forever in a finite world is either a madman or an economist”. Kenneth Boulding

Related posts and resources:

Delusions of Finance: Where We are Headed February 8, 2010

Gulf Oil Spill: With so Many Resources, Can't we Just Drill Somewhere Else? May 29, 2010

Peak Oil and the Financial Crisis: Where we are Headed March 25, 2009

Casualty Actuarial Society Climate Change Committee presentation - June 16, 2010