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The
End Of Oil
(As We Know It)
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You're
probably thinking, despite recent headlines, that there is really
plenty of cheap gas to go around. Why worry? But the mother
of all oil shocks could be just 5 or 6 years away! Gas prices
have been reaching record highs nearly every day this year and
newly emerging studies suggest the recent run-up in gasoline
prices may just be a shot across the bow.
Let's hope not, because our current lifestyles are dependent
on oil for everything from manufacturing, to transportation,
to agriculture. Despite this and even in the face of the recurrent
oil shocks of the last decades, very little has been done worldwide
to lessen our addiction to the "black gold" from within.
And
consider this. Regardless of how much petroleum resides in the
bowels of the earth, when the production of a given amount of
fuel requires the industry to first consume the equivalent amount
to discover, extract, refine, and deliver it, its all over.
You might as well be out of gas. But guess what? Despite advances
in technology, that day may be much closer than you think. What's
more, when the amount of energy produced per barrel of oil is
just equal to the amount used to obtain it, nothing will be
left to run the engines of commerce or agriculture either.
How
could that be? Suppose you wanted to drive to the nearby filling
station to buy some gas and you only had a gallon in your tank.
What if you suddenly remembered that you would have to use all
your gas to get there though and that you had been told that
the station would only allow you to buy just one gallon. You
would have enough gas then to get from the station back to where
you started from but no more. If you have to use all your fuel
just to get an equivalent amount there would be no point leaving
home in the first place.
The
issue is known as "net energy" and it may be more
important to understanding our future than worrying about all
the tea in China or for that matter, all the oil available for
future extraction from our planet. Here's why.
"The
Best Kept Secret in Washington"
Speaking
of net energy, oil industry watcher Jay Hanson states, citing
the laws of thermodynamics, http://www.dieoff.com/page175.htm#_edn5
"By
definition, energy 'sources' must generate more energy than
they consume; otherwise, they are 'sinks'."
But
net-energy analysis first reached public attention in 1974.
At that time, Business Week reported that oil scientist Howard
Odum had developed a "New Math for Figuring Energy Costs."
To the surprise of many, Odum's new math indicated that stripper
oil well operations were energy sinks and not energy sources.
According
to this analysis, these operations could be profitable only
when "subsidized" by cheap, regulated oil, which was
used to produce deregulated oil. Because the industry is subsidized
in this way in terms of net energy and also from direct taxpayer
"allowances", the industry can continue to produce
oil at a monetary profit, at least for a while. Hanson observes,
"Even
without direct and indirect subsidies of $650 billion a year
it's conceivable that energy companies could make money – but
lose energy – by burning one $10-barrel of oil today in order
to pump one-half of a $50-barrel tomorrow."
But
how much longer can they keep this up? Hanson says,
"Based
on the best information we have at hand today, sometime during
the coming century [the 21st] the global economy will 'run out
of gas', as fossil energy sources become sinks. One can argue
about the exact date this will occur, but the end of fossil
energy – and the dependent global economy – is inevitable."
But
major oil companies may have private reserves of fuel which
can be used to underwrite the energy costs of future production.
However, if the energy produced for distribution to society
is not sufficient to also pay back the overhead, the reserves
themselves will eventually evaporate.
And
some might think that oil supplies will last forever. In reality
though of course, the oil supply is finite. Jim Bell, author
of "Achieving
Economic Survival on Spaceship Earth", compares
oil exploration with picking apples from a tree,
"We
tend to pick the ones that have fallen from the tree and those
that are closest to the ground first. Later though we may need
a ladder as we expend more effort to find the ones that are
harder to reach. The oil companies have to try harder and harder
each year to find extractable oil. They have already harvested
the easiest pickings."
Jim
Bell points out,
"We
are always told that there is plenty of ultimately recoverable
oil left in the ground and so we naturally assume the supply
will last forever, certainly through our lifetimes. What really
matters though is not the amount of petroleum that lies within
our planet, but the price we pay for it, in terms of our wallets
and the consequences for our planet. And higher fuel prices
will raise the price of everything else. As the production of
petroleum begins to decline, market forces will push the price
of hydrocarbon based products, if you can find them at all,
higher and higher."
So
then, as the oil companies expend more and more energy to extract
and refine petroleum, they eventually reach the point of diminishing
returns, as proven reserves are depleted. Although there may
be more ultimately recoverable crude in the ground, the new
sources tend most often to be smaller, require more energy expenditure,
or are technologically unexploitable. At that point, production
"peaks", then declines rapidly.
And
when oil production peaks worldwide, most experts agree it will
be a whole new ballgame. That day of reckoning is inevitable.
But when? It is a known fact that oil production peaked in this
country in the 1970s and impressive evidence suggests that oil
production worldwide will peak during the next twenty five years
or sooner, some say as early as 2010. Hanson states that "the
petroleum industry itself has announced that global oil production
will 'peak' in less than ten years!"
You
wouldn't know that from the official reports however. According
to petroleum industry own spokespersons, there is at least another
93 years of known petroleum reserves worldwide to keep us in
gas, at the current rate of consumption. The U.S. government
is even more optimistic. Government studies cite advances in
technology and the promise of synthetic fuels and methodologies
as being cause to expect the continued availability of petroleum
based fuels for generations to come.
However,
when the peak comes, whenever it does, all bets are off. And,
it could be preceded by serious production shortages, which
could occur even sooner. But Hanson warns the peak will come
sooner and not later. When it does, Hanson states,
"The
price of oil is expected to rise sharply – and permanently."
And
he has good reason to say so. In another paper, "The Best
Kept Secret in Washington", Hanson discusses a private
study that was conducted by worldwide industry expert, "Petroconsultants"
(now known as IHS Group). The study suggests that when the peak
comes, the markets will treat petroleum as a scarcity and that
the days of "cheap" petroleum will then be gone forever.
The study is available for sale and can be purchased directly
from the IHS Group (the world's leading provider of data and
analysis for oil exploration and production). Its cost- $32,000
a copy. He adds,
"In
1995, Petroconsultants published a report for oil industry insiders
titled WORLD OIL SUPPLY 1930-2050 which concluded that world
oil production could peak as soon as the year 2000 and decline
to half that level by 2025. Large and permanent increases in
oil prices were predicted after the year 2000."
And
they are not the only experts sounding the alarm. In a recently
published report from The
New Republic,
Gregg Easterbrook reports that highly respected industry analyst
Colin Campbell holds similar views,
"Campbell
bases his thinking on something called the Hubbert Curve, perfected
by M. King Hubbert, patron saint of petroleum geologists. Hubbert
found that production tends to peak almost exactly when a petroleum
reservoir hits its halfway point--meaning that once a well's
output begins to decline, the amount left in the ground is roughly
equal to what has been pumped out. In 1956, when oil optimism
was universal, Hubbert used his curve to forecast that U.S.
petroleum production would peak in 1969. The actual peak came
in 1970; this dead-on prediction has given Hubbert legendary
status."
Easterbrook
goes on to say,
"The
evidence is legion. In the United States, which contains 75
percent of the world's oil wells, petroleum production has been
in decline since the 1970 peak. Prudhoe Bay, the last "elephant"
oil find in the United States, peaked in 1988. Production in
the former Soviet states also peaked that year."
Some
experts say in fact that there are nearly 500,000 wells sites
in the U.S. that produce less than a single barrel of oil per
day. An added exclamation comes from Campbell's own work with
Laherrer,
"By
2002 or so the world will rely on Middle East nations, particularly
five near the Persian Gulf (Iran, Iraq, Kuwait, Saudi Arabia
and the United Arab Emirates), to fill in the gap between dwindling
supply and growing demand. But once approximately 900 gbo (900
thousand billion barrels of oil) have been consumed, production
must soon begin to fall. Barring a global recession, it seems
most likely that world production of conventional oil will peak
during the first decade of the 21st century."
And
after the peak? Campbell says,
"From
an economic perspective, when the world runs completely out
of oil is thus not directly relevant: what matters is when production
begins to taper off. Beyond that point, prices will rise unless
demand declines commensurately."
Sinking
Ship
A
non renewable resource, the end of cheap oil is inevitable,
although some may choose to argue the timeline. Debate aside,
the next great oil shock however, may have nothing to do with
money or supply and everything to do with that other problem,
the one no one wants to talk about, net energy. Hanson notes,
"The
key to understanding energy issues is to look at the 'energy
price' of energy. Energy resources that consume more energy
than they produce are worthless as sources of energy. This thermodynamic
law applies no matter how high the 'money price' of energy goes.
For example, if it takes more energy to search for and mine
a barrel of oil than the energy recovered, then it makes no
energy sense to look for that barrel—no matter how high the
money price of oil goes."
Consider
this illustration from University of Wisconsin at Stevens Point
professor Thomas
Detwyler
"The
useful energy to be obtained from nonrenewable resources, such
as fossil fuels (mainly crude oil, coal and natural gas) and
uranium, is subject to diminishing returns through time. It
takes energy to get energy. And because we exploit the easiest-to-get
energy resources first, each subsequent unit of gross energy
(e.g., oil in the ground) requires greater energy
subsidy to obtain than did the previous unit, thus
leaving less net energy:"
No
doubt. Energy costs in the oil industry are on the rise and
are reflected in the increasing depth of wells: 300 feet in
1870, 1,000 feet in 1900, 3,000 feet in the 1920s and more than
6,000 feet by 1980. Campbell notes,
"The
cost of drilling oil and gas wells (which is largely a function
of energy subsidy) rises exponentially with increasing depth.
By the mid-1970s, about half the petroleum produced in Texas
was also consumed there as production-related subsidies, so
that at best net energy was only half of gross energy ".
It
is for this reason perhaps that net energy returns have been
falling consistently despite improved technology. Campbell adds,
"The
dynamic of shrinking net energy means that the usefulness
of gross energy reserves may be vastly overrated. In fact, a
large portion of any given gross reserve will be energetically
unexploitable, though perhaps technically extractable.
The following diagram illustrates this consequence. Beyond the
resource cutoff line, the system is an energy sink
requiring more energy as subsidy than is returned as net energy."
Just
how bad is it? Citing recent work by analyst Richard Duncan,
http://dieoff.org/page140.htm, Hanson states that in the
'50s the industry could produce 50 barrels of energy for every
barrel consumed producing finished products for the market.
By the nineties, the ration had fallen to 5 barrels to 1. By
the year 2005, the industry will just break even-it will be
necessary to use as much energy to produce any given quantity.
Hanson
adds,
"Under
that latter scenario, even if the price of oil reaches $500
a barrel, it wouldn't be logical to look for new oil in the
US because it would consume more energy than it would recover."
Good
Money After Bad
It
takes energy to make energy. As supplies shrink and prices rise,
market forces may drive us towards other fuel sources. But we
will need to have an infrastructure in place capable of assuring
an uninterruptible supply. Professor Robert Costanza of the
University of Maryland (1984) cautioned though that there is
an "embodied cost" of energy, whereby manufactured
goods, like machinery, power cable, relays, switchboxes, or
any finished goods, exist only after a given amount of energy
was consumed by industry in their manufacture.
And
Jim Bell explains,
"When
the amount of net energy available in society begins to shrink
it is harder to harness the resources necessary to manufacture
the solar panels, the wind mills, and the other equipment needed
when we begin the inevitable task of creating a large scale
alternative infrastructure."
In
reality, because there is in only a dwindling supply of energy
that can be sucked from the well, absent an alternative, we
will be living in an "energy limited economy". Hanson
offers this definition, http://dieoff.com/page185.htm
"An
'energy-limited economy' is one where more energy cannot be
had at any price. The
global economy will become 'energy-limited' once global oil
production peaks in less than ten years (perhaps much less)."
That
could mean more trouble than just lining up at the filling station.
Consider the problem facing agriculture. Hanson points out,
http://dieoff.org/page185.htm
"Food
grains produced with modern, high-yield methods (including packaging
and delivery) now contain between four and ten calories of fossil
fuel for every calorie of solar energy." Hanson adds,
"It
has been estimated that about four percent of the nation's energy
budget is used to grow food, while about 10 to 13 percent is
needed to put it on our plates. In other words, a staggering
total of 17 percent of America's energy budget is consumed by
agriculture!" Again citing other sources, Hanson states,
"By
2040, we would need to triple the global food supply in order
to meet the basic food needs of the eleven billion people who
are expected to be alive. But doing so would require
a 1,000 percent increase in the total energy expended in food
production."
Following
the peak of oil production, absent an alternative, Hanson notes,
"It
will be physically impossible -- thus economically impossible
-- to provide enough net energy to agriculture: "
Hanson
adds grimly, "Obviously the death sentence for billions
of people has already been issued".
So
what can be done? Conservation, building a better light bulb
or even just a more fuel efficient SUV, though a good idea,
won't be enough. Observers, like Bell and others suggest that
unless industry recognizes the need to shift now from a mind
set that views energy resources in terms only of dollars instead
of in terms of diminishing returns in real energy units, they
will be planting the seeds of their own destruction, simply
throwing good money after bad. Hanson notes,
"To
have more energy in the future means that energy must be diverted
now from non-energy sectors of the economy into future energy
generation."
But
what about the so called "unconventional oil" the
oil found in shale deposits and sand tars? Sinks all. In just
a few short years then, the net energy value of oil could be
zero and its fate as the world's dominant energy source will
be sealed. Light's out! When civilization can only produce the
amount of energy needed to cover the energy expended to produce
itself, nothing is left to power your car, run your business,
or even grow you food. At that point, the size of the worlds
crude reserves would be irrelevant. Oil would then become of
greater interest to historians than to consumers as the Age
of Petroleum joins the Bronze Age and the Stone Age as footnotes
in the chronicling of civilizations.
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