The Coming World Oil Crisis

One of the greatest wildcards in the future of United States politics is the world oil supply.  Simply put, America has long since hit the peak of oil production and is now in decline.  World oil production will hit that same peak before long.  At some point in the future, we will run out of oil and the impact of that will likely be both pervasive and severe.  Our lives will change, particularly here in America.  As recent gas prices have shown us, cheap oil prices are quickly disappearing.  As prices sky rocket and as we eventually run out of the fuel, our economy, society and the political landscape will be altered drastically.  What's not known is just how they will be changed.

Aaron Naparstek tries to give us some idea of just what kind of changes might occur in a magnificent, lengthy article I recently read in my local paper, The Oregonian.  It is not available online, but an almost identical article recently published in the New York Press is available here.

Let's start by laying some basic groundwork.  From the New York Press article:

In recent years, scientists have built on Hubbert's techniques in an effort to discover how close we are to global oil peak. Though the estimates vary, everyone agrees that the question of global peak is not "if" it will occur, but "when." Based on 65 studies published over the last 50 years, the UK-based Oil Depletion Analysis Center estimates the world's original endowment of sweet, crude "conventional" oil to be somewhere between 2000- and 2400-billion barrels. As of today, humanity has consumed close to half that total.

The consequences of this are hard to overstate. Oil fuels 95 percent of all transportation and a significant portion of global food production. Industrial societies are dependent on a vast, steady flow of inexpensive petroleum for just about everything we make and do. Disrupt this flow, and modern society as we know it is inconceivable.

Global demand for oil has increased sevenfold over the past 50 years. In 1986 human beings consumed about 54 million barrels of oil each day. Today we use about 82 million.

Though Americans make up only 5 percent of the world's total population, we consume more than one-quarter of this energy--about three gallons per person each day. U.S. oil demand sets a new record every few months.

The developing world, led by China, is catching up to us. In the last decade, Chinese oil consumption has doubled, while Chinese car ownership has jumped from 700,000 to seven million.

"There are basically six and a half billion people on earth today and five billion of them barely use energy. They all aspire to," says Matt Simmons, chief executive of Simmons & Company, the world's biggest energy-industry investment bank.

Yet new sources of oil are becoming increasingly difficult to find and more expensive to develop. Global discovery peaked in 1964 and has declined ever since. In 2000, there were 16 discoveries of oil "mega-fields." In 2001, we found eight, and in 2002 only three such discoveries were made. Today, we consume about six barrels of oil for every one new barrel discovered.

The U.S. Dept. of Energy estimates that the world will require 120 million barrels a day by 2025. To meet that demand we must find the equivalent of 10 new North Sea oil fields within a decade. These fields, before peaking at the end of the 90s, were producing close to six million barrels of oil per day. Today, we are hard-pressed to discover one new mega-field, let alone 10 reserves equaling the size of the North Sea, which is now in serious decline. This year, 11 new mega-projects came online; next year, 18 will start producing. But by 2008 only three big new fields are scheduled to start flowing, with no new projects on track for 2009 or 2010.

You think we might have a problem here?  I think what is important to keep in mind is just how dependent our society is on oil.  It's not just about driving to and from work and taking roadtrips.  It's our entire economy, which has become more and more dependent on oil over the years.  Any disruption in our oil supply today could have a wide-ranging impact on our economy, at a very crucial time.  As a result, that would have a wide-ranging impact on Americans.  We're not just talking about lost profits; we're talking about people's very lives.

The article goes on to state that multiple studies have suggested that the world oil decline will begin around 2010.  The more optimistic studies proclaim 2020.  Either way, it is coming and it is coming fast.  A couple of decades may seem like a long time, but not when you're talking about a fundamental change in the economy.  Not when you're talking about literally restructuring an entire world's social and economic workings.  That is how dependent we have become on oil and that, therefore, is the problem that we now face.

Of course a wildcard in much of this is that much of our demand is shifting over to the Middle East.  We are becoming more and more reliant on the Middle East oil reserves, which are of course controlled by countries that cause us a bit of heartburn, to state it gently.  These countries are both inextricably bound to the terrorist networks that want American blood and at the mercy of these terrorist networks.  Further complicating the situation, of course, is the Iraq War.  Another major source of oil has now been put at serious risk of sabotage and attack because of our presence there, creating even more instability and unpredictability in the world oil supply.  A few well-placed, serious attacks could have huge consequences on American life in the form of much higher oil prices.

But these are the current problems.  Even more compelling, fascinating and frightening are the future problems.  Even if we are able to secure the oil lines in the Middle East and even if we continue to purchase oil from those countries, irregardless of the social and political intricacies of such a strategy--as we most certainly will--then we still must face the reality that the world supply of oil is eventually going to disappear.  Before that, the limited amount of oil will cause huge price increases.  So what kind of effect might this have on the United States, its economy and its society?

Today, Americans are panicky over the impact of a $40 barrel of oil. In his new book, Stephen Leeb predicts, "Oil prices are likely to rise to triple-digit territory--$100 a barrel at a minimum, and probably higher--by the end of the decade and possibly sooner." He sees the high, unstable price of energy wreaking havoc.

"Inflation and deflation will seesaw back and forth in chaotic fashion, with inflation generally ascendant but not always."

Economic growth, as we have come to know it, is entirely dependent on a vast, continuous flow of remarkably cheap oil. As Simmons says, "Peak does not mean oil has run dry, it does mean that growth is over. Who would like to get on the plane and go tell India and China, sorry guys, your spurt is over. We used your energy."

[...]

. . . [T]he U.S. economy has in the past been protected from the impact of energy price increases because energy costs have been so low and such a small percentage of total economic activity. According to Stephen Leeb, those days are coming to an end. "If the price of energy is only five percent of the total economy then increases aren't so important. When energy costs become 10 percent of the economy, that's significant. We're at about eight percent right now. That's very close to the tipping point."

When the tipping point comes, Americans will be compelled to live very differently than they do today. One leading American social critic, James Howard Kunstler, sees serious political and cultural turmoil up ahead as the way of life Americans have built over the last 60 years begins to break down. With decreasing access to cheap oil, Kunstler sees the fundamentals of industrial agriculture, manufacturing and retail trade changing significantly.

"The whole Archer Daniels Midland model of turning oil into corn into Taco Bell--that whole complex, that system, is really going to be over," says Kuntsler. "We're going to be forced to grow more of our food locally and return to a kind of agriculture that really hasn't been practiced here in a long time. A lot of the land that has only had value as suburban development in the past 30 or 40 years is going to have to be reassigned."

Likewise, Kunstler foresees "the demise of Wal-Mart style, big box, national chains." Companies whose profit margins depend on "merchandise made by factories 12,000 miles away" simply won't function in a world of $100-plus barrels of oil. "We're going to have to seriously reorganize our whole system of retail trade and economy."

[...]

"Many Americans will draw the conclusion that they're being somehow cheated by the oil companies or that there's some kind of corporate conspiracy that's causing all this trouble and they're going to militate to do something about it and, of course, that won't really be the problem. The problem is geological--about what's in the ground and where it's at and how much of it there is. I think that we'll elect maniacs to try to turn back the clock and bring back the 1990s," Kunstler says.

"It's going to be very painful and there are going to be a lot of losers created in this process. They're going to be angry."

A five dollar gallon of gas by the end of the decade?  Wars waged over access to oil?  The demise of general retailers like Wal-Mart?  More localized agriculture?  A collapsing economy?

The stakes are high, to say the least.

What interests me about this analysis is the notion that we will not have much luck in creating a successful alternative.  This is one area the article does not address in depth, aside from this short bit:

Along with many scientists, Kunstler believes George Bush's "hydrogen economy" rhetoric is a "fantasy" and a stall tactic to avoid making immediate changes. "It's kind of a cruel hoax as far as the public is concerned because it raises expectations that we're going to be able to continue living this way, and we're not."

The question is, can we find other sources?  My understanding of diesel fuel is that--unlike the gasoline cars use--it can be made from multiple sources.  For instance, I know there has been a lot of talk about corn-based diesel fuel.  So could these alternatives help to relieve the bleak outlook that many are predicting?  Is it possible that moving to a corn-based fuel could keep the trucking industry running and a shift toward electricity and fuel-cell-based cars might allow the automobile to continue, though almost surely in a different capacity than today?

I don't know.  I always assumed something along these lines would keep us going in the future, even as oil became more scarce or non-existent.  But now I'm beginning to wonder.  I bought into much of the hype about hydrogen power, but the quote above doesn't inspire much confidence in me.  And I must admit that this is an issue I have not put much research into.  I've heard things, and I've believed things, but I've never truly looked at the research and the knowledge and figured out what was reality and what was fantasy.

The suggestion here seems to be that we will not be able to replace our oil with alternate sources of energy--at least, not in time to offset the coming crisis that a lack of oil will bring.  So could it be that America, and the world at large, is in for a volatile, violent and bleak future?  It certainly sounds possible.

One thing that is certain is that this will have a huge effect on American politics.  Whichever party is able to best spin this situation or, more hopefully, best able to come up with a  realistic solution, will surely enjoy great power.  In fact, this could be the one issue that completely decides who controls the future of American politics, at least for a certain amount of time until the situation is stabilized (if it is stabilized).  At this point, it would be good for America and good for the party if the Democrats took the lead on this issue, focusing on alternate forms of energy and calling on everyone within the nation to begin working on changing our society and economy.  If we want to survive this change relatively in tact, we are going to have to start working toward a drastically different form of life, and soon.

But I can't help but think this is a problem we will not properly address.  The political parties have avoided the truth about this issue and America is loathe to change.  We will almost surely continue on our oil-consuming path until it is no longer feasible and then we will be left with outrage, with fear, with turmoil and unrest.  We will be left unprepared and the consequences may just be devastating.

Please read the article.  This is a crucial component of our future.  Personally, it's time I learned more about the realities of this situation.  I'll be ordering some books off of Amazon about this situation to try to better understand what might happen in the future and what might be done to offset the impact.  If we don't approach this problem now, with the greatest sense of urgency, we may find ourselves facing the most severe and devastating consequences in the future, when we no longer have the luxury of time to figure out a solution.

(Originally posted on my blog, Nightmares For Sale)