GARBAGE IS OIL
This is not the wacky proclamation of a doomsday cult,
apocalypse bible prophecy sect,
or conspiracy theory society.
Rather, it is the scientific conclusion of the best paid,
most widely-respected geologists, physicists, bankers, and investors in the world.
These are rational, professional, conservative individuals
who are absolutely terrified by
known as global "Peak Oil."
global production would peak around the year 2000,
which it would have
had the politically created oil shocks of the 1970s
not delayed it for about 5-10 years.
A mere 15% shortfall in oil production will spike oil prices by 550%
Robert Hirsch on CNBC: Gasoline will soon be $12-to-$15 per gallon
"Big deal. If gas prices get high, I’ll just drive less.
Why should I give a damn?"
petrochemicals are key components
to much more than just the gas in your car.
As of the year 2002,
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:
Pesticides and agro-chemicals are made from oil;
Commercial fertilizers are made from ammonia, which is made from natural gas, which is also peaking in the near future. Source
Most farming implements such as tractors and trailers are constructed and powered using oil-derived fuels.
Food storage systems such as refrigerators are manufactured in oil-powered plants, distributed using oil-powered transportation networks and usually run on electricity, which most often comes from natural gas or coal.
Like oil and natural gas, coal too is peaking in the near future.
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. Source
A recent article published by CNN
documented just how much fossil fuel energy is used to produce our food.
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 to 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, those 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.
War, terrorism, extreme weather and other "above ground" geopolitical factors will likely push the effective decline rate past 10% per year, thus cutting the total supply by 50% in 7 years. Source
These 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'll need an additional 50 million barrels per 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, if it hasn't already.
Many industry insiders think the decline rate will far higher than Cheney anticipated in 1999.
Andrew Gould, CEO of the giant oil services firm Schlumberger, for instance, recently stated that "An accurate average decline rate of 8% is not an unreasonable assumption." Source Some industry analysts are anticipating decline rates as high as 13% per year.
A 13% yearly decline rate would cause gobal production to drop by 75% in less than 11 years.
If a 5% drop in production caused prices to triple in the 1970s, what do you think a 50% or 75% drop is going to do?
Estimates coming out of the oil industry indicate that this drop in production has already begun. Source The consequences of this are almost unimaginable.
As we slide down the downslope slope of the global oil production curve, we may find ourselves slipping into something best described as a "post industrial stone age."
Some people believe that no new refineries have been built due to the efforts of environmentalists.
This belief is silly when one considers how much money and political influence the oil industry has compared to the environmental movement.
Do you really think Ronald Reagan and George H. Bush were going to let a bunch of pesky environmentalists get in the way of oil refineries being built if the oil companies had really wanted to build them?
The real reason no new refineries have been built for almost 30 years is simple: any oil company that wants to stay profitable isn't going to invest in new refineries when they know there is going to be less and less oil to refine.
In addition to lowering their investments in oil exploration and refinery expansion, oil companies have been merging as though the industry is living on borrowed time:
December 1998: BP and Amoco merge;
April 1999: BP-Amoco and Arco agree to merge;
December 1999: Exxon and Mobil merge;
October 2000: Chevron and Texaco agree to merge;
November 2001: Phillips and Conoco agree to merge;
September 2002: Shell acquires Penzoil-Quaker State;
February 2003: Frontier Oil and Holly agree to merge;
March 2004: Marathon acquires 40% of Ashland;
April 2004: Westport Resources acquires Kerr-McGee;
July 2004: Analysts suggest BP and Shell merge;
April 2005: Chevron-Texaco and Unocal merge;
June 2005: Royal Dutch and Shell merge;
July 2005: China begins trying to acquire Unocal
June 2006: Andarko proposes buying Kerr McGee
July 2007: BP-Shell "Mega Merger" rumored
While many people believe talk of a global oil shortage is simply a conspiracy by "Big Oil" to drive up the prices and create "artificial scarcity," the rash of mergers listed above tells a different story.
Mergers and acquisitions are the corporate world's version of cannibalism. When any industry begins to contract/collapse, the larger and more powerful companies will cannibalize/seize the assets of the smaller, weaker companies.
(Note: for recent examples of this phenomenon outside the oil industry, see the airline and automobile industries.)
The Big Oil companies have also been (quitely) buying back their own stock at an alarming rate. According to an Bloomberg News article dated October 1st, 2007:
As mentioned previously, this is exactly what happened during the oil shocks of the 1970s - shortfalls in supply as little as 5% drove the price of oil up near 400%.
Demand did not fall until the world was mired in the most severe economic slowdown since the Great Depression.
The only thing that alleviated the economic crisis was the discovery of the world's last few "elephant" sized oil fields in the North Sea and Alaska as well as increased production from nations like Venezuela and Saudi Arabia. Once global oil production peaks (if it hasn't already) turning to new sources of supply won't be an option.
As affordable oil is necessary to power any serious attempt at an a switchover to alternative sources of energy, these extreme prices will severely hamstring if not - completely cripple - the ability of the market to handle these problems.
The economic fallout from high prices will almost certainly geopolitical tensions (i.e. war) thereby futher hampering the development of large-scale alternative sources of energy.
Worse still, in a global environment characterized by massive energy-wars,
the bulk of the world's financial capital is likely to be disproportionately invested in weapons technologies over alternative energy technologies.
For more information, see:
Our highly-efficient economy is highly-susceptible to catastrophe
Fundamental errors of free market ideology in regards to energy