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.

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11 Responses to THE END OF OIL

  1. Doug Alder says:

    Ok Dave you’ver left out a lot of possibilities here. First there’s the resounding success of Changing World Technology’s thermal de-polymerization process in turning ANY organic matter into sweet light crude oil (along with natural gas and some costituent chemicals) at an efficiency rate that is already economically sustainable (see Build plants to do this all over Canada and the US in each large city and convert all organic wastes into energy. Helps solve two problems at once, the first being a shortage of oil and the second being overly full municipal waste dumps. I continue to remain surprised that environmental groups have not embraced this technology as the test plant with ConAgra has shown just how valuanble and successful a technolgy it is. Yes it continues he oil economy and all that entails but in exchange it converts renewable (wood, food, natural fabrics etc) and non-renewable (plastics, vulcanized rubber etc) organic wastes to useful products – recycling them for real and reduces the need for removing those resources from beneath the planet’s surface. Sounds like one hell of a good trade off to me.Secondly in Canada we have the Alberta tar sand which contain almost as much oil in reserve as all of the middle east EXCEPT it is difficult and expensive to extract. However as oils reserves in the rest of the world collapse and the price climbs it becomes economically sound to extract the oil from the tar sands. As a side note Venezuela in additions to it’s large regular oil reserves also has massive tar sands containg a large amount of oil reserves. In other words Dave there is only a coming shortage of easily extracted CHEAP oil. Sure eventually this won’t be enough either but it creates a much longer a slower decline giving society time to plan alternatives. Those trumpeting a sudden or imminent collapse simply have not dome their homework and thought it through.

  2. Avi Solomon says:

    Dear Dave,Thanks.Personally have already decided to implement 2 action items:-To own my house without taking out a mortgage-To make sure to have access to land & water for growing foodThe situation is on the verge of being remarkably similar to the 20s depression.Ralph Borsodi’s strategies to deal with the same(Homesteading, alternative currencies) will once more come into fashion. Too bad we humans have to learn the hard way.

  3. Mike says:

    I’ve heard about the organic-wastes-to-oil process previously. What I find a little scary is that the problem of not enough oil and too many people suggests an easy solution.

  4. Susan says:

    I would point out that if the situation becomes as dire as you describe, the massive landfills all over the US, in particular, could start looking attractive to innovative companies who can extract and recycle from them. Landfill mining.

  5. Don Dwiggins says:

    I’ll definitely link to this article on my new, improved Final Exam site (if I can ever break free enough time to get it posted). A few comments:Something to factor in to your scenario: assume that the PNAC folks know very well what the real situation is, as laid out by ASPO (and have known for at least a few years). One of the ASPO members, Matt Simmons, is also an advisor to the Bush administration, and was probably on Cheney’s energy task force in early 2001. I can imagine a belligerent administration in a mad, violent scramble to get complete control of the remaining oil fields, hold off China’s aspirations, and using the “perpetual war” excuse to complete the transition of the US government to a de-facto dictatorship. I hope to hell things break in such a way that they can’t pull off more than a tiny fraction of what I suspect are their plans.On biofuels, as introduced by Doug Alder: in a rationally planned transition, this could be a tremendously useful technology, both for transitional and sustainable purposes. The “sudden or imminent collapse”, however, is not a threat because good alternatives don’t exist, but because of human societal and institutional failings. We do have enough resources and knowledge that, if we really deserved our Latin species name, sapiens, we could make the transition without tremendous pain. (To a first approximation, we could probably replace all the uses of fossil hydrocarbons, but only by reducing consumption as well.)Which reminds me: Dave, you list the top 10 uses of fossil hydrocarbons. Do you have a reference for this? I’ve been looking for a really good chart, table, or whatever that lays out where a barrel of oil goes on the global market, with the percentage that goes into each end product category. I’ve seen pieces of this, for example an energy-focused “flow chart” for the US market, but nothing as complete as I’d like. I’d like to use that as a basis for evaluating where the shortfalls and gaps are for alternative technologies in energy, food, plastics, etc. In turn, that could be a good basis for estimating the “supply-side” limits on Terra’s human carrying capacity.

  6. Derek says:

    One question. The last time interest rates went to heck in a hand basket, why didn’t it bankrupt the government? I remain optimistic that the government will see some of this coming and have a whole bunch of longer term debt issued at < 10% interest, and with the rising price of oil, will have a new healthy tax base to help finance all that debt.I will also point out that most of our vegetable oil crops can be used as fuel (diesel). At this time biodiesel is currently 20% more costly than the oil based version, but at $160/barrel, biodiesel would be ridiculously cheap in comparison.

  7. Avi Solomon says:

    Just found Richard Heinberg’sA LETTER FROM THE FUTURE

  8. Dave Pollard says:

    Doug: The projections aren’t mine, but from what I can determine they do include Canada’s and Venezuela’s tar sands. I’ve been told that biomass compression faces some huge technical hurdles (it consumes a significant amount of energy to produce modestly more), and I’m really skeptical of any representations from ConAgra, a company with a dreadful social (tainted meat scandals), environmental, and ethical (massive business fraud, price-fixing and accounting misstatements) record. But I hope you’re right. Susan: Besides some recyclables, many landfills are filled with toxic wastes from the ‘old days’ and in many cases ‘mining’ them risks exposing the toxins and would be illegal.Don: I think China is the unknown variable in all of this — with the explosion of low-labour-cost, low-environmental-standards industry there, their demand for oil is growing at a staggering rate, and they’re in a position to pay more than others for it, and their anti-American history is an advantage in negotiating with many producer countries. The top 10 list was from one of the BBC site pages, but I looked in vain for a pie chart or table that showed exactly how much oil each of these 10 uses consumes. Wish I could help. Let me know if you find such a chart or table. Derek: The last time interest rates spiked, government debt levels were much lower, and there *was* a squeeze — governments of all stripes cut deficits fiercely for most of the following decade, then got sloppy again as interest rates fell. I’m glad you’re so optimistic about the government’s long-range thinking — it hasn’t been apparent in anything else they’ve done.Avi: Thanks. I’ve read parts of Heinberg’s ‘The Party’s Over’, which is in the same vein. Interesting that he sees the collapse being principally economic, whereas I believe it will be mainly political. Just as the availability of food seems to make growth of population inevitable, so the availability of WMD seems to make apocalypticwar inevitable.

  9. Randolph Resor says:

    I recall reading almost exactly the same sort of comments (not on the Web, of course) in the late 1970s. In fact, I attended a conference in 1977 in which intelligent people (including geologist/astronaut Harrison Schmidt) made presentations on “the end of cheap oil”. As I recall, oil was going to cost $200 a barrel (in 1977 $!) by 1990, and run out entirely early in the 21st Century. Even to keep up with depletion, we’d have to discover “a new North Slope every year”. Well, we discovered TWO new North Slopes every year during the period, and oil reserves now are double what they were in 1977.While I don’t dispute that oil will “run out” at some point in the future, there are many, many adjustments a free market economy can make (and we made many of them in the 1980s, even as oil prices fell from their historic highs). I wouldn’t be so hasty in predicting a future of valueless houses and backyard “victory gardens”. I survived the 1970s, after all.

  10. Andy Waters says:

    I’m with you 1000% on peak oil and I think your projections for consequences are spot on,but your deal on man caused global warming is just plain wrong. You have bought into the same politically correct BS being promoted by the main stream press as all the other sheepel. Answer me this one question; if man causes global warming on earth,who is causing it on every other planet in our solar system???? The polar caps are melting on Mars. Did we cause that too???? OR MAYBE….. it’s the FACT that we are experiencing an uptick ( it has happened hundreds of times before) in solar flare activity. If you check your recent history facts you will find in the early 1970’s the horror we were all going to die from was the next ice age we were about to slide into. My best to you and yours,keep up the good work!!

  11. Andy Waters says:

    To answer Dereks’ question above, the last time interest rates went through the roof our G-ment was’nt 8.5 TRILLION $ in debt. The fed. g-ment today pays ( mostly to the japanese and chinese) OVER 3 BILLION a day in interest payments on the debt.

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