Peak Oil: The Ultimate Paradigm Shift
During my educational pursuits over the past couple of decades, I have encountered many ‘movements.’ Whether they are creative, philosophical, scientific, or cultural, when proponents of those movements spoke, the term ‘paradigm shift’ was often evoked to signify the (sometimes justified) belief that these movements, at their core, provided their adherents with a new perspective from which to experience the world. But looking back on many of them now, it seems to me that almost all shared a foundational assumption in cultural progress and, whether they acknowledged it or not, constant economic growth. If a movement, say, focused on cultural, religious or aesthetic progress (ones own aesthetic is, of course, always superior to any other) then it relied upon economic comfort in some form. If the movement preached progress in scientific or technological form, its assumptions too were predicated upon further economic growth or, more specifically, a constantly increasing supply of resources and energy. Perhaps we could generalize even more and say that this assumption is what perhaps ties together every movement, empire, or even human civilization up to this point in time: the belief that progress is a given and that the necessary inputs (resources and especially energy) would always be in sufficient supply.
Of course, we know this is a fiction… finite resources are by definition finite. And, more generally, so it would seem is progress. The very fact that every civilization, empire, and movement has eventually witnessed its own demise is perhaps another indicator of these principles. Even so, there is the lingering belief (hope) that while specific empires may fall and movements wither, progress still applies to the species itself; ever expanding, always progressing in terms of technology, agriculture, engineering and ways in which to live.
The phenomenon of peak oil puts an end to this.
What we are living through (more or less) is the peak of the hydrocarbon age… a period of human civilization characterized by cheap and abundant energy derived from petroleum. This has made everything possible. The rise of industrial society, the agricultural revolution, chemistry (in particular, herbicides, pesticides, fertilizers, and pharmaceuticals), electronics and communications technology, modern standards of living, and even the expansion of democracy from the few to the many; all is dependent upon petroleum and its chemical and energy by-products. What is unsettling is that judging from the available (but inadequate) information, this period is about to go into potentially irreversible decline.
While none of what I just recounted is new, an interesting piece of news was making the rounds this week that might just represent the final nail in the coffin so to speak. What is most fascinating is that this tidbit largely went unnoticed given the importance and immediacy of other current events (the unfolding protests in the Middle East in particular) and the constant spectacle of celebrities, sports, and politics that always seems to overwhelm everything of real importance. The news was Wikileaks documents from the U.S. embassy in Saudi Arabia discussing the possibility that the Saudi Kingdom might not be able to act as a swing producer nor be able to increase production in the future in order to meet projected world demand. Saudi Arabia has been protected by the U.S. for more than the past half-century and for good reason. It’s astonishingly abundant supplies of easy-to-access, easy-to-refine, and easy-to-transport petroleum has kept Western nations supplied with what is their lifeblood. What is more, in the past forty years, Saudi Arabia has been able to quickly step in with increased production whenever supply has been disrupted. While Saudi Arabia does not supply the U.S. directly with very much oil, it has kept oil prices largely stable and has supplied U.S. allies (crucial in the context of the Cold War). What is more, these diplomatic cables point to something that has been suspected for some time: Saudi claims relating to their oil reserves have been greatly exaggerated, perhaps by as much as 40 percent.
Many oil producing countries are in decline and that is why unconventional supplies of oil (deep water, oil/tar sands) are becoming more attractive. But this is not the light, sweet crude that dominated the twentieth century. It is heavy, sour (high sulphur content) and extremely expensive and energy-intensive to both produce and refine. And if Saudi Arabia can no longer act as the world’s swing producer or be relied upon to meet all the increased demand that is projected for the future, things are about to become very different.
Our development of alternative energy sources is very slow and very weak but even if we were to suddenly go on a spending spree to develop alternative energy (which we cannot afford since we are so bankrupt already), these energy sources do not really represent a viable, long-term solution simply because their energy density (what is available to humans) is low and are sometimes intermittent at their source. Some are dependent upon finite resources (uranium for nuclear energy for example) and all are dependent upon abundant energy for their construction and maintenance. Most importantly, these energy sources are often not well-suited for modern transportation. I hope we do find some magical, new energy source but I would not hold my breath. We have had the last one hundred and fifty years to develop and scale up the necessary technology and infrastructure needed to exploit petroleum and by all accounts we do not have any where near that amount of time to develop alternative energy sources.
As many oil geologists and others associated with the phenomenon of peak oil have been telling us, it represents the very real possibility that our species–in terms of both sheer numbers and cultural and technological development–has reached its apex. What this all represents is the ultimate paradigm shift… unlike anything that we, as a species, have had to face before.*
I do wonder if most in the world, citizens of developed Western nations and those in developing nations alike, will be able to adjust to such a change. Will we act collectively and cooperatively, set aside our expectations, and try to adjust as best we can? Can we feed seven billion souls in a world where the necessary inputs needed for industrialized agriculture become increasingly scarce and expensive? Or, will we resort to all-out resource wars to maintain some semblance of contemporary standards of living?
At the very least, we are living in very interesting times. And, if this turns out to be the ultimate paradigm shift, I am still very glad that I am alive at this particular moment in time… a singular moment where the human race–measured by its sheer numbers as well as its technological and cultural development–may very well be at its absolute peak.
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*Well, at least in recorded history. Researchers who have looked into the genetic diversity of the human population estimate that the human species was reduced, at one point in the long distant past, to something like a few hundred breeding pairs… meaning we were likely quite close to extinction at least once in our past.
Peak Oil and the Gulf Oil Spill
Since I cannot write to the producers/editors of the Lang & O’Leary Exchange (see previous post), then I will post my thoughts here.
On a previous episode, perhaps Thursday or Wednesday, I caught the tail end of an interview where the guest was speaking about the investing outlook and made an interesting (but mostly off-the-cuff) remark about the concept of peak oil. He said that if the recent events in the Gulf of Mexico have taught us anything it is that there is no shortage of oil and that the ‘peak oil theory’ has things wrong.
As I said, I suspect this was just an off-the-cuff remark, perhaps based on one of those fleeting ideas or insights we all get, but it represents a common misunderstanding of the concept of peak oil and what, in reality (or out there in the world), it is describing. It also shows, I think, how rhetoric sometimes trumps, or stands in for, rational reasoning since if you don’t think about it too much, this rhetoric tends to make some degree of sense. At any rate, I found this argument interesting and thought it would be a good one to mentally deconstruct and disassemble, perhaps to be used as an example in a future lecture or something.
Seeing the image of the uncontrollable outflow of gases and petroleum from BP’s well does show the tremendous amounts we are dealing with, even just in one blown well. We, as a species, produce and use petroleum at tremendous rates. In fact, we measure the world’s daily consumption of oil in millions of barrels. So, as the TV guest said, we are not running out of oil. However, the concept of peak oil does not include the proposition that we will run out of oil.
What the concept of peak oil puts forth is that it will become increasingly hard to produce large amounts of oil at low prices. In fact, that is what the underwater image of escaping petroleum really shows: today, we have to go to extreme lengths to secure reliable and exploitable sources of that finite, natural resource. Most of that oil was not recovered anyway and probably will never be. I don’t know if the oil that was recovered could even be refined, but I could see that they were burning off a great deal of gas at times. And, what will all this oil that BP recovered end up costing them? 20 or 25 billion dollars?
The fact is that our global society is having to rely on increasing unstable (usually due to war) and increasingly inaccessible sources of petroleum. That is why we hear more and more about these controversial forms of extraction like deep-water drilling and mining operations like the oil/tar sands. It’s not that these methods are any worse for the environment than past methods (resource extraction is just a very messy business) but that these methods are very dangerous, complex, and are themselves extremely resource-intensive. Sadly, it is probably a safe bet that we will see more of these man-made disasters and that more and more people will lose their lives as we come to rely on squeezing more and more from non-conventional sources.
This is precisely why the concept of peak oil is such an important one for a financial program like the Lang & O’Leary Exchange to look into and in detail. Modern, industrialized society arose because of, and is reliant upon, abundantly cheap energy. Since we get most of our energy (and something like 96% in the case of all forms of transportation) from petroleum, this is a big deal. Think of what this means for the long-term prospects of, not just individual companies, but entire industrial sectors. Aerospace, airlines (has that industry ever been profitable?) automotive manufacture, global and continental shipping/trucking (think Wal-Mart)… tourism. If we increasingly use natural gas (and many homes in North America have switched to that fuel for heating) to extract petroleum from oil sands or have to risk threatening other natural resources and the industries reliant upon them, then we don’t have an environment that is conducive to business or investing. Modern, industrialized agriculture is reliant upon cheap fossil fuels for diesel, fertilizer, synthetic hormones and pharmaceuticals, herbicides and pesticides. (The pharmaceutical industry depends upon industrial agriculture so is at risk too.)
What is most important is that this will affect all of as individuals too. Traditionally, energy was measured in terms of real world equivalents: man-hours or horse-power. One barrel of oil is said to represent the energy that 12 people, working for an entire year, can produce. Or it contains the energy that is the equivalent of 25,000 hours of labour from a human worker. So if I can purchase a barrel of oil for $70 today (or, say, 2 cents a barrel in Texas in 1931), that is a really cheap form of energy. But we are living in the midst of one of the severest economic recessions/depressions in a century. When or if economies can recover, demand will raise prices. It was just a few years ago when demand was surging and oil was at $140/barrel. All this points to the very real possibility that petroleum is going to get more and more expensive. For each one of us, that means we will have to perform more and more of the labour that petroleum has done for us in the past.
Finally, this is dire for businesses of all sorts (where operations are reliant upon cheap energy) and, especially, the financial sector. I find the argument that global stock markets (and market evaluations) are filled primarily with petro-dollars or petro-wealth to be a compelling one. In fact, we have inflated our economies on a mixture of banking-fuelled monopoly money and petro-wealth over the course of the entire 20th century. What is more, as Western economies are declining, many developing economies are still growing… and growing their demand for oil. In the future, we are going to have to increasingly compete with China, India, and elsewhere for oil production.
So, I think that peak oil/energy is an important topic for the Lang & and O’Leary Exchange to consider and to investigate. Many of the people who are discussing peak oil (and who are responsible for its generation as a concept in the first place) are geologists and those working in the oil industry so it’s not just granola munchers and hippies talking about this. I would contact the editors/producers of the Lang & and O’Leary Exchange to argue my point but they only seem to want to exist in Twitteratii Land.
Peak processing
Here is an interesting article on some of the real physical limitations of our basic computing technology:
“Why the Computer is Doomed”
Omar El Akkad
From Saturday’s Globe and Mail Published on Friday, Jan. 29, 2010 4:03PM EST
A few months ago, a colleague of mine had mentioned to me that there are currently physical limitations to the production of processors, meaning that the constant upward evolution of processing power is hitting a brick wall. While there are different methods available, these remain theoretical or experimental and are nowhere near being scalable to mass market dimensions (and we need to remember that the current technology has been in development for decades). I suppose what this means is that, other than adding more processors, we will probably not experience great strides in mass consumer technology that we are used to seeing in the past.
However, the article also points out the issue energy consumption, especially how this affects large-scale super computers, but this is an issue that will become more of a general one when considered in conjunction to peak energy. The connection of these two issues is real since, ultimately, the evolution of the computer is entirely dependent on abundant cheap energy: for decades of research and development, mining and processing of raw materials (especially rare elements), continued improvements of equipment and manufacturing equipment, chemistry, a massive education system to continually contribute to its development (economic specialization), and oodles and oodles of cheap energy to make, ship, market, retail, use, and dispose of all these computers.
At any rate, just as the economists around the world are starting to realize that , yes, there are physical laws out there… meaning that our economic reality is based upon finite resources… we are realizing that Moore’s Law needs to be modified so that it is understood that it is predicated on inexpensive and seemingly endless energy as well as the simple laws of our physical world.
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Beware the economists among us…
OK, I should not generalize. I know there are many good, intelligent economists out there but something every citizen should be aware of are those economists who cling to political parties, financial corporations and think tanks as they tend to be idealogues rather than true analysts. Case in point:
This is a rather pithy article probably written more for political/ideological reasons that out of economic analysis. Perry states:
For an economy that depends on energy reliability and wants greater energy independence, there’s only one realistic solution: adopting government policies to boost production of America’s oil and natural gas resources.
No, there is only one ideological solution. Realistic solutions would be to expand U.S. production (but with at least some discussion of preserving some for future generations) and active and drastic conservation. Currently, the U.S. consumes a quarter of the world’s petroleum output even though it represents something like 4 or 5% of the world’s population. But, of course, ideological economists tend not to like conservation because that takes away from the zealous belief that the natural state for any economy is that it must expand every year. Such growth is needed to fuel Wall Street/Bay Street it should be added and the few people whose pensions and retirement investments that Wall Street/Bay Street does not steal. Then he goes on to say:
Recently, drilling began from far off the Gulf coast, drawing oil from a wellhead nearly two miles below the water’s surface, the deepest in the world. Remote-operated vehicles controlled by technicians at the surface do everything from welding to connecting pipelines in thousands of feet of water.
Credit goes to American innovation and technology. Despite some “peak oil” theorists who believe energy supplies are fast running out, we have seen steady upward revisions in U.S. recoverable hydrocarbon reserves as energy companies invent new ways to find and pump oil and natural gas.
The industry has become remarkably efficient. A technique that combines hydraulic fracturing and horizontal drilling is being used to reach huge amounts of natural gas locked in shale rock. Experts believe that shale gas could meet the nation’s natural gas needs for 100 years or more. In fact, shale gas now accounts for 40 percent of domestic gas production, reversing years of decline. (emphasis added)
Nowhere does Perry discuss what this kind of oil production actually means. “The deepest in the world”? Shale Oil? These are extremely difficult and costly methods of extraction which means that the resulting oil likely consumes more energy than it actually yields and that it will be some of the most expensive oil to produce. You’d think an economist might be interested in those details (and if he even read “some ‘peak oil’ theorists” like Matthew Simmons (who is an investment banker to the petroleum industry and not some granola munching protestor), he might understand the implications of this). But Perry also says that this new, unconventional production will revese “years of decline.” Again, there is more fiction than truth here. Sure it will help in slowing the decline of U.S. domestic production but the decline rate is huge. Expensive, difficult-to-extract petroleum sources will have difficulty replacing the easy-to-access and easy-to-refine oil production of the past, especially if it actually consumes a lot of energy to produce. What does this mean? energy from fossil fuels is going to get more and more expensive and there are major questions (again, posed by those in and around the industry) whether some of these unconventional sources will ever be truly economical to exploit. Note to Perry: Peak Oil theorists are not saying we are running out of oil, only that the production will not be able to meet demand and as an economist he should know what that will entail. In fact, far off in the future (and if we don’t discover some new, miraculous energy source to replace fossil fules), our decendents are likely to be sitting on top of a lot of oil, but they will not have the resources to extract it.
Then there is this interesting statement:
The success with new drilling technology has made western oil shale, another vast energy resource, much more appealing. Oil shale in western states is estimated to hold 800 billion barrels of oil, double the proven reserves of Saudi Arabia, though new techniques still need to be developed to bring down the drilling costs.
Bring down the drilling costs? I am not sure if Perry knows how oil shale is extracted. Generally, it is similar to a mining operation where the the shale then must be heated in order to extract the usable petroleum products. In some cases the shale is heated below ground and then the petroleum is pumped out. At any rate, the extraction process is not the simple drill-then-pump process of the past. What is more, it tends to yield lower grade petroleum that requires a lot of energy to refine and produces a lot of toxic elements.
I hate to pick on this author (I don’t know him personally or what he is like in real life, I am sure he is a nice person). So I am just ranting that his argument is more ideological than analytic… and, therefore, more propagandistic than informative. And with the U.S. and World economies in the state they are and the end of the era of cheap energy upon us, we need more of the latter and less of the former in both cases.
As I said: beware the (ideological) economists among us….
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