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:
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:
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.