Dave Pollard's environmental philosophy, creative works, business papers and essays.
In search of a better way to live and make a living, and a better understanding of how the world really works.



August 5, 2004

THE END OF OIL

Filed under: How the World Really Works — Dave Pollard @ 15:30
oil consumption
Recently, in an essay called The Consequence of Failure, I described what many scientists see as the consequences of not halting our exploding population and resource consumption . My good friend Jon Husband has pointed out, in his inimitable subtle way, that this portait is missing an ingredient — a possible energy crash before the ecological crash. One of the best links he provided on this is from the venerable BBC, which has a whole series of articles on this possibility. Current consumption is running at about 28 billion barrels per year (see chart above, from the ASPO site), and growing precipitously because of the skyrocketing demand from China and India, while new finds are averaging only 5-10 billion barrels per year, and many companies, like Shell, are actually reducing the estimates of their reserves because new surveys found them overstated by up to 30%. Even though there is, theoretically, 40-100 years’ worth of hydrocarbons left in the ground at current consumption levels (depending on whose numbers you use), much of this oil cannot be extracted with current technology, or will cost 5-10 times as much as today’s oil costs to extract, and current consumption levels are rising. The model above uses simple supply/demand economics to project a soaring price per barrel (quadrupling to $160) over the next few years as the consumption/discovery ratio worsens and new Asian markets bid up the price for what’s available. The combination of soaring price and simple unavailability of supply will push down consumption, starting as early as 2008.

Most of what I’ve heard, from alarmists and skeptics, about the consequences of all this, is of one of two extreme viewpoints:

  • Civilization will collapse, so buy your Montana subsistence farm now, or
  • Technology will rescue us, so there’s no cause for alarm, or to pay any more than we do now for oil.

Both of these positions seem unrealistic to me, and represent more wishful thinking than true scenario planning. So let’s look at what might happen if the chart above holds true, the price of oil jumps to $160/barrel by 2008, then to Osama bin Ladin’s “reasonable” price of $200/barrel by 2012, and by an additional $10/barrel/year thereafter.

First of all, what do we use hydrocarbons for now? The top 10 uses are: Food (it’s the main ingredient in fertilizers, pesticides and herbicides), transportation, heating, plastics and chemicals, asphalt, medicines, clothing, furniture and carpets, cosmetics and household products, and protective coatings and dyes. That’s a pretty broad list. So let’s assume that the cost of each of these products will quadruple in the next decade (the cost of materials may not quadruple, but add in the cost of transporting it and the total cost to the consumer probably will). I say a decade rather than four years because there’s always a time lag before price increases driven by the supply/demand curve reach the consumer level, and because there will be fierce political pressure to prevent or at least delay these increases. A 300% rise over a decade is roughly 25%/annum inflation. Interest rates need to be adjusted, as they were most recently in the 1980s (remember 18% mortgages?) to provide a modest return to lenders beyond inflation, so we should expect interest rates to jump to around 30%. That’s what you’ll pay on your mortgage-secured loans (on unsecured consumer loans like credit cards it will be even higher). This will cause a stock market crash, as investors cash in to cover debts and as leveraged companies become unable to pay their debts. It will cause a real estate crash because no one will be able to buy houses with 30% mortgages. It will bankrupt the US government, which owes trillions to foreign lenders, and force the end of future military adventures (even those intended to secure more oil), the virtual cessation of public services, the collapse of the pension system, and massive increases in emergency taxes. This will bring on a worldwide depression, because the rest of the world depends on US imports, and on the US paying its bills.

What else? The other bad news is that, in a desparate and myopic move, the US will pull out all the stops to find new energy sources, which means arctic, offshore and wilderness drilling everywhere, strip mining for coal, burning a lot more coal, with its catastrophic impact on global warming, huge increases in nuclear power use, with its horrendous dangers and insoluble waste disposal problems, and in some countries, massive deforestation to provide wood for burning. The impact will be especially bad in Northern areas like Canada and Scandanavia, where the alternative to burning fuel is freezing to death. These countries will need to completely restructure their economies quickly.

Now let’s look at the possible scenario for the top 10 uses one by one:

  1. Food, already heavily subsidized in the West by massive government subsidies, will be even more subsidized — to do otherwise would be political suicide. In the US however, those subsidies will not be affordable due to the massive debt load, so food prices there will skyrocket. There will be a huge move to self-sufficiency (home gardening, especially by the massive numbers unemployed due to the depression), and to lower-cost foods (unprocessed fruits, vegetables and grains that require relatively little fertilizing). Because of the lack of resilience in the food industry, suppliers of more expensive foods (meats, diary products, processed foods and those that must be transported over long distances) will simply stop producing them, leading to rationing and black market activities, and even food riots in some countries.
  2. Transportation will become a luxury. Urban sprawl will stop dead, as people move closer to work to reduce and even eliminate commuting cost. Airplane travel will collapse. The auto industry will collapse. Global trade will slow to a trickle as goods become too expensive to move. The trucking industry will be bankrupted, and governments (except the US, which won’t be able to afford it) will turn to more efficient rail transportation as the primary means of moving both goods and people. There will be a huge black market for gasoline. And gas rationing of course. Expect long lineups.
  3. Heating will suddenly become very innovative, since, unlike in transportation, there are already some major viable alternatives to hydrocarbons for heating — solar, wind, geothermal, and biomass will become huge industries. Millions of buildings will be re-insulated. The value of large, inefficient suburban homes, already hit hard by high mortgage rates and the exodus back to the cities, will be further lowered by the difficulty in making them energy-efficient. In Northern areas, heat will be both rationed and subsidized, through two-tier pricing (low price for the first X BTUs per household, many times that price for the excess).
  4. Plastics will go from being the cheapest components and containers to the most expensive. Reusable glass, paper and metal containers will replace most plastic and recylable containers. Computers and other electronics that depend on plastic components will become unaffordable to most people. The trend to miniaturization, doing more with less, will accelerate. Some chemicals we take for granted, like lubricants, waxes, flavours, colours, stabilizers, preservatives, aromatics, solvents, ammonias, chlorines and other cleaners, alcohol products, latex, synthetic rubbers, phosphates, acrylics, polymers and hundreds of other common ingredients in consumer, industrial and agricultural products and processes will be replaced with natural alternatives or eliminated altogether. (Even modern paper-making uses petrochemicals to make the paper cleaner, smoother and whiter).
  5. Asphalt, upon which we all drive, is basically an oil product. We’re going to have to go back to cement, brick or gravel. But with many fewer cars on the road, and other priorities for government spending, most existing roads will probably fall into disrepair anyway, at least until the depression ends. Asphalt is also heavily used in roofing, so we may need to take a cue from other cultures and use straw (there’s a new, leak- and rodent-proof way of doing this) or tile instead.
  6. Medicines and medical technologies for both humans and farm animals will become much more expensive. Petroleum-based solutions and ingredients will be largely replaced by biological and non-petrochemical (e.g. ceramic) equivalents.
  7. Clothing made of polyester and other petrochemical fibres will become uncompetitive compared to cotton and other natural fibres, but clothing made from heavily fertlized plants will also become very expensive. Innovation (e.g. the large-scale use of hemp and cellulose) will transform the materials we wear.
  8. Furniture and floor-coverings will have to go ‘back to basics’. Most furniture today is made fire-retardent, dyed and coated with petrochemicals, and stuffed with plastics. Floor coverings are almost all either made with or coated with petrochemicals. We’re going to have to re-learn how they made furniture before oil came along, and develop innovative ways to protect, fire-proof and (if we must) colour it.
  9. Cosmetics and household products, at one time, copied and used ingredients from nature. With petrochemical ingredients becoming so expensive, we’ll have to re-learn the old ways, at a commercial scale. Or do without.
  10. Protective coatings and dies: Solvents, mineral oils and pigments have dramatically reduced the maintenance that used to be needed on exposed walls, outdoor furniture, and high-traffic surfaces. We’re going to have to learn to appreciate the weather-beaten look, use natural materials that don’t weather, or put more time into naturally cleaning and replacing worn surfaces.

Taking these all together, I think the greatest hardships are going to be surviving the economic depression (which I’ve argued is coming anyway) and coping with high interest rates. Some of the needed behaviour changes — rediscovering old pre-oil ways of doing things, doing with less, doing more with less, using more natural ingredients and processes, and being innovative — will actually be good for us, and for our environment. So I don’t see the oil crash, even under the gloomiest scenario, being the end of the world or even of modern civilization. At the same time, it’s time we woke up to the reality that we’ve been paying far too little for oil, and living on borrowed time, for far too long.

Once we survive this disaster, maybe we’ll be alert enough to realize the much greater one that lurks behind it, and at least try to take action to reduce our population, and our consumption of other resources, in time to prevent it.

But I doubt it.

Powered by WordPress