This article was generously shared by Rex Weyler
“While the energy crisis will have severe economic impacts, it is not fundamentally about economics. It is about human ecology and the limits of growth.”
Dr. William Rees, University of British Columbia, author of Our Ecological Footprint.
The world oil harvest has peaked. For geologists this is not news. Science and industry have known about oil limits for over fifty years, at least since Shell Oil geologist M. King Hubbert described the phenomenon in 1956. In 2005, after a century of growth, liquid petroleum fuel production peaked. Since then, it has maintained a wobbly plateau at about 85 million barrels per day, and will eventually begin an inevitable and relentless decline.
Meanwhile, the burning of hydrocarbons has increased carbon-dioxide in our atmosphere, heating Earth, turning oceans acidic, and threatening the entire human community. From the point of view of carbon emissions, an oil decline appears positive, but we shall discover that the impacts on the environment and society are not simple and not equally shared across the human community.
The popular revolts in Tunisia, Egypt, Libya, Yemen, and Bahrain exposed the limit of global oil production. Libya provides about 1.8 percent of world production, but even the threat of losing a portion of this sent oil prices to their highest level since the months before the 2008 economic collapse.
Humanity took the cheap, easy, high-quality oil first – as we did with most resources – and the remaining oil fields produce a progressively lower grade, harder to retrieve oil. The Libyan fields produce a good-quality, low sulphur oil, prized for making gasoline. However, such oil is quickly disappearing, replaced by dirty, low-net energy oil such as tar sands crude and coal-to-liquid fuel. These sources increase environmental destruction and carbon emissions.
Since peak oil has arrived, every disruption creates shortages, increases prices, and triggers inflation, which hurts the poor first and sparks social unrest. Thus, we witness how ecological fundamentals impact society. Peak oil disrupts industrial societies addicted to oil and developing societies maintaining modest communities with much more limited energy supplies.
Peak oil recessions
In 2003, as the oil industry approached maximum world production, a barrel of oil cost about $30. When production stopped growing in 2005, world demand kept rising, outpacing supply, and the oil price rose to $40, 50, then $60 per barrel. By the fall of 2008, oil had reached $147/barrel, helping trigger a recession. The 2008 economic breakdown revealed ecological limits as well as financial blunders.
The rise of oil from $30 to $147 per barrel – reflecting the limit of the resource – added about $3.5 trillion per year to the world’s energy budget, almost 5 percent of the entire world economy. History shows that national and global economies rise and fall with available energy. Since energy is fundamental to economy, nations, companies, and households paid the rising energy costs in 2008, but this reduced budgets for all other economic activity, including food, travel, and loan payments. As economies faltered, companies and homeowners in the wealthy nations defaulted on loans, exposing financial fraud and unsecured derivatives. The financial collapse of 2008 signalled the first “peak oil” economic crisis.
“Oil shocks create global recessions,” explained Jeff Rubin, former Chief Economist at Canadian International Bank of Commerce World Markets. In February of this year, Steven Kopits from Douglas-Westwood energy consultants presented a report to the United States House of Representatives Energy Subcommittee staff. He told them, “2008 was an oil shock, not just a financial crisis.” But his warning did not stop there. More oil shocks are on the way “most likely in 2013, although 2012 is not precluded.”
The Next Oil Shock
In February, the world learned from Wikileaks that ex-Saudi-Aramco executive Dr. Sadad al-Husseini believes the Saudi company overstated its oil reserves. Since 1990, Saudi Arabia has produced about 10 million barrels per day (mb/d), but that production is in decline. According to Kopits, since 2008, the Saudi oil fields have failed to produce about 1 mb/d of expected “spare capacity,” considered critical to the global economy during oil disruptions such as the uprisings in North Africa. These revelations suggest that Saudi production may continue its decline and fail to produce any spare capacity within the next two years. Kopits predicts “Oil shock thereafter.”
Furthermore, the diminishing returns on oil investment present more evidence of peak oil and eminent decline. Typically, as a resource declines, the quality deteriorates, ecological impacts increase, and the costs to retrieve that resource increase. Witness the oil industry. The quality of oil has plummeted. Oil fields in the 1930s yielded 100 barrels of oil for each barrel of oil burned to recover it. This was “100-to-1” net energy oil, low in sulphur, easy to recover. Today, tar sands producers, for example, recover 3 or 4 barrels of oil for one barrel of oil energy used for extraction. The product is heavy, high-sulphur oil, yielding higher carbon emissions and leaving behind greater ecological devastation. Similar energy costs and ecological impacts result from deep-sea oil rigs, such as the one that exploded in the Gulf of Mexico last year.
Densified Oil Filters #1
Hamilton, Ontario, Canada, 1997 by Edward Burtynsky.
According to Kopits, between 1995 and 2004, the oil industry spent $2.4 trillion on capital expenditures, and increased oil production by 12.3 million barrels per day. Then, from 2005 to 2010, the industry again spent $2.4 trillion in capital expenditures, but production declined by 0.2 mb/d. These diminishing returns on investment are typical of a depleted, degraded resource, a story as old as human civilization.
In January, Shell Oil released the “Energy Scenarios to 2050” report that acknowledged peak oil production and declining net-energy. Shell, which passed its own production peak in 2003, conceded, “The energy system will struggle to match surging demand for easily accessible energy.” The economic impacts range from higher food prices to industry slowdown. In February, the International Air Transport Association in Geneva estimated that rising oil prices will cut airline industry profits in half in 2011 compared to 2010.
Since world agriculture relies on oil-based equipment, fertilizers, and transport, rising oil prices drive food inflation, causing hunger and frustrations in the world’s poorest nations. Furthermore, the necessary transition to renewable energy also relies on oil-based infrastructure, mining, shipping, and manufacturing.
Transition: Harvesting energy
“Production” is not the correct way to describe energy acquisition. We do not “produce” oil; we harvest it. We do not produce any energy. We only capture and transform energy. We also do not produce copper, silver, or lithium for our new technologies. We harvest these as well. We mine such resources with oil-burning machines, and this harvest is limited by Earth’s finite capacity.
Human civilization must make a transition to renewable fuels. Ultimately, this is inevitable if there is going to be a sustainable human civilization. Environmental groups and a few visionary governments and companies have been pushing this transition for decades, against a great deal of resistance and denial. As we make the change to renewable energy over the next generation, we must be aware of two important realities about our natural world: scale and limits.
Oil has fuelled the massive scale of human enterprise today and the affluence and wastefulness in wealthy nations. However, the oil we burn represent 500-million years of solar energy, captured, primarily by ocean algae, transformed by photosynthesis, and stored deep in the Earth. We currently burn this ancient solar energy at the rate of about 5-million-years’ worth of recoverable energy in one year.
This should awaken us to our challenge. We cannot assume that we will replace the scale and extravagance of modern industrial cultures with energy that we harvest from the sun on a daily basis. The wealthy countries need to embrace simpler lifestyles. Hydrocarbons – coal, oil, and gas – represent 85 percent of human energy consumption. Nuclear (which is not a “low carbon” energy source due to the carbon emissions of cement, steel, mining, construction, decommissioning, and waste storage) comprises 6 percent. These high-carbon energy sources represent 91 percent of human energy consumption.
Wood and other biomass represents 4 percent of human energy. Hydro-electric dams – built on some 30,000 rivers since 1900 – represent 3 percent. The remaining renewable energy sources – solar, wind, geothermal, and biofuels provide about 1.2 percent of our energy. Wind has shown the most growth among the renewables, reaching 200,000 megawatts by 2010, about 0.3% of the energy we currently obtain from burning hydrocarbons.
“Beware of scale,” says David Hughes, petroleum engineer for 30 years with the Canadian National Resource Council. “There are no scalable alternatives to the dense energy available from fossilized sunshine, period. So we have to get with the picture: radical reduction in energy throughput.” The first priority of a sound energy transition will be conservation. Wealthy nations must lead in energy reduction, as we build localized, low-impact, renewable energy systems for all nations. Biological and social histories demonstrate that the key to sustainability is simplicity and restraint, not complexity and growth.
A good energy strategy will also protect the primary energy harvesting systems on Earth, our living forests, grasslands, and oceans. We will require good public transportation systems, reversing the trend toward highways and private automobiles. The sustainable model for individual transportation is still the bicycle. Most of these changes will take generations. We can help our progeny by beginning the transitions now. The decline of oil is inevitable, but how we respond will determine our progress toward genuine sustainability.