Are We Running out of OIL

Courtesy of Tom W.

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OIL - http://www.lifeaftertheoilcrash.net/

"Are We 'Running Out'?

"I Thought
There Was 40 Years of the Stuff Left"

Oil will not just "run out" because all oil production follows a bell curve. This is true whether we're talking about an individual field, a country, or on the planet as a whole.

Oil is increasingly plentiful on the upslope of the bell curve, increasingly scarce and expensive on the down slope. The peak of the curve coincides with the point at which the endowment of oil has been 50 percent depleted. Once the peak is passed, oil production begins to go down while cost begins to go up.

In practical and considerably oversimplified terms, this means that if 2000 was the year of global Peak Oil, worldwide oil production in the year 2020 will be the same as it was in 1980. However, the world’s population in 2020 will be both much larger (approximately twice) and much more industrialized (oil-dependent) than it was in 1980.

Consequently, worldwide demand for oil will outpace worldwide production of oil by a significant margin. As a result, the price will skyrocket, oil-dependant economies will crumble, and resource wars will explode.

The issue is not one of "running out" so much as it is not having enough to keep our economy running. In this regard, the ramifications of Peak Oil for our civilization are similar to the ramifications of dehydration for the human body. The human body is 70 percent water. The body of a 200 pound man thus holds 140 pounds of water.

Because water is so crucial to everything the human body does, the man doesn't need to lose all 140 pounds of water weight before collapsing due to dehydration. A loss of as little as 10-15 pounds of water may be enough to kill him.

In a similar sense, an oil-based economy such as ours doesn't need to deplete its entire reserve of oil before it begins to collapse. A shortfall between demand and supply as little as 10-15 percent is enough to wholly shatter an oil-dependent economy and reduce its citizenry to poverty.

The effects of even a small drop in production can be devastating. For instance, during the 1970s oil shocks, shortfalls in production as small as 5% caused the price of oil to nearly quadruple. The same thing happened in California a few years ago with natural gas: a production drop of less than 5% caused prices to skyrocket by 400%.

Fortunately, previous price shocks were only temporary.
The coming oil shocks won't be so short-lived. They represent the onset of a new, permanent condition. Once the decline gets under way, production will drop (conservatively) by 3% per year, every year.

That estimate comes from numerous sources, not the least of which is Vice President Dick Cheney himself. In a 1999 speech he gave while still CEO of Halliburton, Cheney stated:

By some estimates, there will be an average of two-percent
annual growth in global oil demand over the years ahead,
along with, conservatively, a three-percent natural decline
in production from existing reserves.That means by 2010 we
will need on the order of anadditional 50 million barrels a
day.

Cheney's assesement is supported by the estimates of numerous non-political, retired, and now disinterested scientists, many of whom believe global oil production will peak and go into terminal decline within the next five years.

Some geologists expect 2005 to be the last year of the cheap-oil bonanza, while estimates coming out of the oil industry indicate "a seemingly unbridgeable supply-demand gap opening up after 2007," which will lead to major fuel shortages and increasingly severe blackouts beginning around 2008-2012.

The long-term ramifications of Peak Oil on your way of life are nothing short of mind blowing. As we slide down the downslope slope of the global oil production curve, we may find ourselves slipping into what some scientists are calling a "post-industrial stone age."

Graph: The Energy Curve of History?
Source: Community Solution

Peak Oil is also called "Hubbert's Peak," named for the Shell geologist Dr. Marion King Hubbert. In 1956, Hubbert accurately predicted that US domestic oil production would peak in 1970. He also predicted global production would peak in 1995, which it would have had the politically created oil shocks of the 1970s not delayed the peak for about 10-15 years.

"Big deal. If gas prices get high, I’ll just drive less. Why should I give a damn?"

Because petrochemicals are key components to much more than just the gas in your car. As geologist Dale Allen Pfeiffer points out in his article entitled, "Eating Fossil Fuels," approximately 10 calories of fossil fuels are required to produce every 1 calorie of food eaten in the US.
The size of this ratio stems from the fact that every step of modern food production is fossil fuel and petrochemical powered:

1. Pesticides are made from oil;

2. Commercial fertilizers are made from ammonia, which is
made from natural gas, which will peak about 10 years
after oil peaks;

3. With the exception of a few experimental prototypes, all
farming implements such as tractors and trailers are
constructed and powered using oil;

4. Food storage systems such as refrigerators are
manufactured in oil-powered plants, distributed across
oil-powered transportation networks and usually run on
electricity, which most often comes from natural gas or
coal;

5. In the US, the average piece of food is transported
almost 1,500 miles before it gets to your plate. In
Canada, the average piece of food is transported 5,000
miles from where it is produced to where it is consumed.
In short, people gobble oil like two-legged SUVs.

It's not just transportation and agriculture that are entirely dependent on abundant, cheap oil. Modern medicine, water distribution, and national defense are each entirely powered by oil and petroleum derived chemicals.

In addition to transportation, food, water, and modern medicine, mass quantities of oil are required for all plastics, all computers and all high-tech devices.

Some specific examples may help illustrate the degree to which our technological base is dependent on fossil fuels:

1. The construction of an average car consumes the energy
equivalent of approximately 27-54 barrels, which equates
to 1,100-2,200 gallons, of oil. Ultimately, the
construction of a car will consume an amount of fossil
fuels equivalent to twice the car’s final weight.

2. The production of one gram of microchips consumes 630
grams of fossil fuels. According to the American Chemical
Society, the construction of single 32 megabyte DRAM
chip requires 3.5 pounds of fossil fuels in addition to 70.5
pounds of water.

3. The construction of the average desktop computer
consumes ten times its weight in fossil fuels.

4. The Environmental Literacy Council tells us that due to
the "purity and sophistication of materials (needed for) a
microchip, . . . the energy used in producing nine or ten
computers is enough to produce an automobile."
When considering the role of oil in the production of modern technology, remember that most alternative systems of energy — including solar panels/solar-nanotechnology, windmills, hydrogen fuel cells, biodiesel production facilities, nuclear power plants, etc. — rely on sophisticated technology.

In fact, all electrical devices make use of silver, copper, and/or platinum, each of which is discovered, extracted, transported, and fashioned using oil-powered machinery. For instance, in his book, The Lean Years: Politics of Scarcity, author Richard J. Barnet writes:
To produce a ton of copper requires 112 million BTU's or the
equivalent of 17.8 barrels of oil. The energy cost component
of aluminum is twenty times higher.

Nuclear energy requires uranium, which is also discovered, extracted, and transported using oil-powered machinery.
Most of the feedstock (soybeans, corn) for biofuels such as biodiesel and ethanol are grown using the high-tech, oil-powered industrial methods of agriculture described above.
In short, the so called "alternatives" to oil are actually "derivatives" of oil. Without an abundant and reliable supply of oil, we have no way of scaling these alternatives to the degree necessary to power the modern world.

(Note: alternatives to oil are discussed in depth on Page Two)

"Is the Modern Banking System
Entirely Dependent on Cheap Oil?"

Yes.
The global financial system is entirely dependent on a constantly increasing supply of oil. Since, as explained above, all modern economic activity from transportation to food production to manufacturing is dependent on oil supplies, money is really just a symbol for oil. Commentator Robert Wise observes:

It's not physics, but it's true: money equals energy. Real,
liquid wealth represents usable energy. It can be exchanged
for fuel, for work, or for something built by the work of
humans or fuel-powered machines. Real cost reflects the
energy cost of doing something; real value reflects the
energy expended to build something.

Nearly all the work done in the world economy -- all the
manufacturing, construction, and transportation -- is done
with energy derived from fuel. The actual work done by
human muscle power is miniscule by comparison. And, the
lion's share of that fuel comes from oil and natural gas, the
primary sources of the world's wealth.

As Dr. Colin Campbell writes in "The Financial Consequences of Peak Oil," the continued expansion of this wealth is only possible so long as the oil supply continues to expand:

It is becoming evident that the financial and investment
community begins to accept the reality of Peak Oil, which
ends the First Half of the Age of Oil. They accept that banks
created capital during this epoch by lending more than they
had on deposit, being confident that Tomorrow’s Expansion,
fueled by cheap oil-based energy, was adequate collateral
or Today’s Debt.

The decline of oil, the principal driver of economic growth,
undermines the validity of that collateral which in turn
erodes the valuation of most entities quoted on Stock
Exchanges.

What the average layman typically fails to recognize is that the oil driven "economic growth" Dr. Campbell speaks of is absolutely necessary for individuals, businesses, and governments to pay off their debts. Commentator John La Grou writes on page six of his 11 page report on Peak Oil :

. . . debt service requires economic growth in proportion to
the size of the debt. Today's industrialized debt is at its
highest "real dollar" value in human history. Personal debt,
corporate debt, government debt - all are at or near
historical highs, and growing at historically unparalleled
rates. Hence, the level of economic growth required to
sustain such debt is at an all time high.

The connections between the oil supply and the financial system are almost universally overlooked/ignored by persons concerned about Peak Oil. It's simple: when you take out a loan, you do so with the expectation that there will be more money available to you in the future than there is now. This is what enables you to pay back both the principal and the the interest.

Since, as explained above, money is really just a symbol for oil, you are actually taking out the loan with the expectation - whether you realize it or not - that there will be more oil available to you in the future than there is now.

If this ends up not being the case - if the money/oil supply has actually decreased by the time it comes for you to pay back the loan - you default on your loan. If more than a small percentage of individuals, businesses, or nations begin defaulting on their loans at roughly the same time - as they will once the economy begins to contract due to skyrocketing energy prices - the banks will be unable to make new loans without spiraling the economy into a hyperinflationary meltdown. (See the Weimar Republic of Germany, circa 1920s)

Without the banks making enough new loans, businesses that are attempting to pay back their current loans will be unable to do so since they won't be able to find enough paying customers. The computer store owner, for instance, will not be able to find enough customers to buy his computers since most personal computers are bought on credit (ie, a loan). As a result, he goes bankrupt. The same principles apply for the car dealership owner, the home builder, etc.

Since most of our economy revolves around selling or servicing items such as cars, computers, cell phones, or homes, all of which are constructed with fossil fuels, powered by fossil-fuels and most often bought/sold on credit or with loans, the dots begin connecting to form the word "financial collapse" rather quickly.

This financial collapse will, in turn, further devastate our ability to implement alternative systems of energy. Any crash program to develop new sources of energy will require a tremendous amount of capital, which is exactly what will not be available once the global monetary system has collapsed.

Don't think for a moment that the central banks aren't fully aware of the severity of what we are facing. For instance, on June 28, 2005, Gary Duncan, the economics editor for the UK based Sunday Times, reported that the Bank of International Settlements (BIS), aka "the central banker's central bank", had issued the following warnings regarding the economic fallout of further rises in the price of oil:

Oil prices may well remain high for a prolonged period of
time . . . Further rises — if they materialize — may have
more severe consequences than currently anticipated . . .
Everyone needs to commit to some unpleasant
compromises now, in order to avoid even more unpleasant
alternatives in the future . . .

Duncan goes on to summarize the bank's report as follows:
The US current account deficit meant that a further slide in
the dollar was "almost inevitable", while the BIS sounded a
warning that the deficit could yet lead to "a disorderly
decline of the dollar, associated turmoil in other financial
markets, and even recession."

Make no mistake: a bank as crucially important to the world economy and as influential to the markets as the BIS doesn't just casually toss out terms like "unpleasant compromises", "severe consequences", "even more unpleasant alternatives", "turmoil," and "disorderly decline" in relation to the oil markets and the dollar (which is the reserve currency for all oil transactions in the world) unless something very nasty is brewing in the background.

(Note: to read the full text of the bank's report, click here.)
On a similar note, Warren Buffet, the world's second richest man, recently warned of "mega-catastrophic risks" and "investment time bombs" currently threatening the global economy.

Add those to a mix of sky-high energy prices, destabilizing resource wars, less than inspiring leadership, a possible currency collapse, more"petrodollar warfare", and well, the picture begins to look pretty grim, pretty quick.

What all of this means, in short, is that the aftermath of Peak Oil will extend far beyond how much you will pay for gas. If you are focusing solely on the price at the pump, more fuel-efficient forms of transportation, or alternative sources of energy, you aren’t seeing the bigger picture.

"Is the Bush Administration
Aware of This Situation?"

Of course they are.

As mentioned previously, Dick Cheney made the following statement in late 1999:

By some estimates, there will be an average of two-percent
annual growth in global oil demand over the years ahead,
along with, conservatively, a three-percent natural decline
in production from existing reserves. That means by 2010
we will need on the order of an additional 50 million barrels a
day.

To put Cheney’s statement in perspective, remember that the oil producing nations of the world are currently pumping at full capacity but are unable to produce much more than 80 million barrels per day. Cheney’s statement was a tacit admission of the severity and imminence of Peak Oil as the possibility of the world raising its production by such a huge amount is borderline ridiculous.

A report commissioned by Cheney and released in April 2001 was no less disturbing:

The most significant difference between now and a decade
ago is the extraordinarily rapid erosion of spare capacities at
critical segments of energy chains. Today, shortfalls appear
to be endemic. Among the most extraordinary of these
losses of spare capacity is in the oil arena.

Not surprisingly, George W. Bush has echoed Dick Cheney’s sentiments. In May 2001, Bush stated, "What people need to hear loud and clear is that we’re running out of energy in America."

One of George W. Bush's energy advisors, energy investment banker Matthew Simmons, has spoken at length about the impending crisis.
(Note: Although he has advised Bush/Cheney, Simmons considers himself strongly non-partisan on energy issues. His writings are highly regarded amongst the energy and banking community for their grounding in nonpartisan, heavily documented, and virtually infallible research & analysis.)

Simmons' investment bank, Simmons and Company International, is considered the most reputable and reliable energy investment bank in the world.

Given Simmons' background, what he has to say about the situation is truly terrifying. For instance, in an August 2003 interview with From the Wilderness publisher Michael Ruppert, Simmons was asked if it was time for Peak Oil to become part of the public policy debate. He responded:

It is past time. As I have said, the experts and politicians
have no Plan B to fall back on. If energy peaks, particularly
while 5 of the world’s 6.5 billion people have little or no use
of modern energy, it will be a tremendous jolt to our
economic well-being and to our health — greater than
anyone could ever imagine.

When asked if there is a solution to the impending natural gas crisis, Simmons responded:

I don’t think there is one. The solution is to pray. Under the
best of circumstances, if all prayers are answered there will
be no crisis for maybe two years. After that it’s a certainty.
In May 2004, Simmons explained that in order for demand to be appropriately controlled, the price of oil would have to reach $182 per barrel. Simmons explained that with oil prices at $182 per barrel, gas prices would likely rise to $7.00 per gallon.

Simmons predictions are downright tame compared to what other analysts in the world of investment banking are preparing themselves for. For instance, in April 2005, French investment bank Ixis-CIB warned, "crude oil prices could touch $380 a barrel by 2015."
If you want to ponder just how devastating oil prices in the $200-$400/barrel range will be for the US economy, consider the fact that one of Osama Bin-Laden's primary goals has been to force oil prices into the $200 range.

Oil prices that far north of $100/barrel would almost certainly trigger massive, last-ditch global resource wars as the industrialized nations of the world scramble to grab what little of the black stuff is remaining. This may explain why the director of the Selective Service recently recommended the military draft be expanded to include both genders, ages 18-to-35.

A March 2005 report prepared for the US Department of Energy confirmed dire warnings of the investment banking community. Entitled "The Mitigation of the Peaking of World Oil Production," the report observed:

Without timely mitigation, world supply/demand balance will
be achieved through massive demand destruction
(shortages), accompanied by huge oil price increases, both
of which would create a long period of significant economic
hardship worldwide.

Waiting until world conventional oil production peaks before
initiating crash program mitigation leaves the world with a
significant liquid fuel deficit for two decades or longer.
The report went on to say:

The problems associated with world oil production peaking
will not be temporary, and past 'energy crisis' experience will
provide relatively little guidance. The challenge of oil peaking
deserves immediate, serious attention, if risks are to be fully
understood and mitigation begun on a timely basis.

. . . the world has never faced a problem like this. Without
massive mitigation more than a decade before the fact, the
problem will be pervasive and will not be temporary.
Previous energy transitions were gradual and evolutionary.
Oil peaking will be abrupt and revolutionary.

As one commentator recently observed, the reason our leaders are acting like desperados is because we have a desperate situation on our hands.
If you've been wondering why the Bush administration has been spending money, cutting social programs, and starting wars like there's no tomorrow, now you have your answer: as far as they are concerned, there is no tomorrow.

What is particularly disturbing is, that from a purely Machiavellian standpoint, they are probably correct in their thinking.

Click Here to Go to Page Two of LATOC
Topics Covered on Page Two Include: Increased Discovery/Exploration for Oil, Oil Sands and Oil Shale, Oil Industry Reactions to Peak Oil, Abiotic Oil Theory, Drilling in ANWR, Laws of Supply and Demand/Market Forces, Alternative Energy, Solar, Wind, Geothermal, Wave, Hydrogen, Nuclear, Coal, Ethanol, Biodiesel, Thermal Depolymerization, Solar-Nanotechnology, Space-Based Solar Arrays, Hybrid Vehicles, Conservation and Energy Efficiency, Jevon's Paradox, Wars in Iraq, Iran, Syria, and Venezuela, the Military Draft, Possible Solutions and Ways to Prepare.


Teddy's Comment;
Go to www.zionoil.com
The Old Testament says that Israels wealth shall come from Below. "ASHERS FOOT IS DIPPED IN OIL"
I personally see a major find of oil in Israel very soon.


DISCLAIMER:
EVERY COMMENTARY PAST AND PRESENT ARE MY PERSONAL OPINION AND PERSONAL VIEWPOINT ONLY. MANY THINGS ARE COPIED AND PASTED ESPECIALLY QUOTES FROM EITHER CHAT ROOMS OR FORUMS OR PUBLIC DOMAINS. ALWAYS REMEMBER OUR FIRST AND SECOND AMMENDMENT RIGHTS.

PLEASE SAY A PRAYER FOR ALL OUR ARMED FORCES AROUND THE WORLD.


Teddy (This blogger had about 1200 hits yesterday)