Once the oil peaks, the global economy will crash like a pack of cards. If we prepare for it we can manage a soft landing instead of a crash landing.
From Our Correspondent
Is the world running out of oil? That is a wrong question. The right question to ask is when is the oil production going to peak? According to Dr Colin J Campbell and Shri Jean Laherrere the world production will peak in the first decade of the 21st century. Both of them are senior petroleum deologist with over 40 years of experience in petroleum exploration. They compiled a report after painstakingly studying the data from over 18,000 oil fields. Dr Campbell says peak oil is “turning point for mankind”. Shri Mathew Simmons, a key advisor to the Bush administration, is working hard to raise world awareness about peak oil. (He is the strongest indicator that Bush administration knows about oil peak and its consequences) He says: “The unforeseen consequences (of oil peak) are devastating.” Shri Micheal Meacher, a former UK Environment Minister in an article titled “Plan now for a world without oil” (Jan. 5, Financial Times) writes: ?Civilization faces the sharpest and perhaps most violent dislocation in recent history”. Why is peak oil so important and why is it raising such sharp comments like “devastating”, “violent dislocation”, “Turning point for mankind”, etc?
In order to understand the oil peak phenomenon it is also useful to recall the capitalist concept of “growth”. All economies must grow to prosper. So progress is defined as growth, which means increased demand for energy and thus oil. Thus historically the global economy always uses more oil than the previous year unless it is in recession. This situation means that every year the world oil production has to rise in order to keep pace with growth. Such a scenario is viable only if we had unlimited ability to increase production at will. Here is where peak oil comes into significance. Peak oil means that world oil production peaks and thus we are unable to increase production at will. Not only do we lose the ability to increase production but we also lose the ability to stop the decline in oil production. Thus we watch helplessly as the production graph keeps coming down year after year. This obviously means that oil prices will keep rising more and more as each year passes by. No one can do anything about it because this is determined by the forces of nature. Coming down of oil production means we have less energy for our economy and thus our economy slides into the negative growth rate. This in short means rising unemployment, increased risk of famine and other unthinkable consequences.
Middle East: Do we need to look closer?
It is commonly presumed that Middle East has limitless oil. Is this true? Shri A M Samsam Bakhtiari of Iran National Oil Company recently in a presentation titled “A Realistic View of Long-Term Middle East Production Capacity” at the ASPO Second International Workshop on Oil Depletion held in France, May 26-27 states that those who think that “sky is the limit” for Middle East oil, there is to be some shattering surprises over the next decade. He further points out the experience of Oman, which was outside OPEC and thus was not limited by quotas and increased its production full throttle. This Oman venture was managed by Royal Dutch/ Shell company through “Petroleum Development Oman”. But they unexpectedly peaked in 2001 and it led to Shell candidly admitting that “the decline”. (was) partly because of poor understanding of the reservoirs”. The implication is that it is just probable that all the other estimates of Middle East oil are also hypes of a similar nature.
Dr Colin Campbell and Shri Jean Laharrere in their article “The End of Oil” in Scientific American noted a suspicious jump in the reported reserves and also that the reserves never empty even after years of oil production. This makes the OPEC oil reserves data suspect.
The red areas show where countries spectacularly increased the reported quantities of oil in stock, so that OPEC would recognize them as bigger suppliers and allow them to export more, increasing revenues. They were desperately competing with each other to make up their revenue by having a bigger slice of market share, because the price per barrel had plunged to about $12 per barrel.
The biggest oil field in Saudi Arabia is Ghawar and it is ageing. Seven million barrels of water has to be filled in the field every day to keep the reservoir pressure up. During the 2003 Oil War, oops sorry Iraq War, Saudi Arabia was expected to raise production to maximum, which was thought to be 10-10.5 million barrels per day, but despite best efforts, it remained at 9.5 million barrels per day. That also is a sign that the world is over estimating oil in the Middle East.
Confusion: the reasons for it
If these are the facts then why is there such complacency and why is peaking controversial? First reason it seems is, psychological. Peaking signifies bad news and human nature is to deny bad news. Second reason for confusion is the economists who go by what is called the reserves/production ratio. Simply put, if it is known that we have 100x amount of oil in the ground and x is the rate of production per year. It is assumed that production of oil will go for 100 years. But it is wrong to assume that the last barrel will be taken out with the same ease as the first barrel. This way of thinking does not see the concept of peaking.
USGS (United States Geological Survey) has come up with a report, a very optimistic report that oil would peak by 2035. Dr Campbell calls this report flawed because it takes a liberal view of the size of the reservoir. It also is very optimistic about the future discovery of oil ignoring the downward trend in oil discovery since 1962 (see graph). We should remember that technology is so advanced these days that if there were any significant oil to discover we would have found it already. Now Dr Campbell reports that there may be only 200 billion barrels to be found, which is not much given the fact that we use 27 billion barrels in one year. Now it is hard to imagine US government coming with a flawed report since CIA has demonstrated great ability to predict the Soviet oil peak. Dr Campbell has an interesting theory. He says that this could be intentional so as to undermine OPEC confidence. If the truth comes out then OPEC will gain confidence and thus raise oil prices. US government through the USGS report seems to be saying that it can live without OPEC. Dr Campbell further theorises that Iraq war was a strategy to intimidate OPEC, which it knows is going to become powerful. It should be remembered that two country bordering Iraq are Iran and Saudi Arabia which are prominent OPEC countries. Iraq is today a US colony and thus it is militarily able to threaten OPEC. Only peak oil explains the confusing world events with any clarity.
Speaking of over optimism, the case of the Caspian Sea is a case in point. It was taunted as the next Middle East. But actual exploration has tempered the enthusiasm. This may also explain why Afghanistan is not in news anymore and Iraq whereas is.
Can alternative energy replace oil?
This is the argument of the economists that once energy from oil becomes scarce then research into alternatives will become economical and thus alternative energy technologies will save humanity. In other words, Science and Technology will be our saviours. This na?ve belief in technology is because the economists ignore the First Law of Thermodynamics, which states that no one can create energy. So money, capital and technology all are ineffective when it comes to energy. It just cannot be created. So when you have an Energy crunch you are very simply in trouble.
Net energy concept
According to this concept, we have to have more energy in usable form than what we invest to get it into usable form then only can it run the economy. In other words, the energy spent to produce and transport oil from the fields must be lesser than the energy contained in the oil itself. It takes about 735 joules of energy to lift, 15 kg of oil 5 metres from the ground just to overcome gravity-and higher the lift greater the energy requirement. At a point, it will take as much energy to take the oil out of ground as the energy contained in the oil. From that point the oil well seizes to be an energy source and becomes an energy sink. This is due to the immutable Laws of Thermodynamics and technology works within these laws. So it would be foolish to expect a technological miracle that will defeat the laws of physics. So humanity does face a real prospect of having billions of barrels of oil in the ground but not finding any use for it. Simply put do not go by numbers as they are misleading.
Laws of Thermodynamics must be taken into consideration when you evaluate alternative energy technology. We must look into how much energy is invested and how much energy is returned. Solar panels and windmills fare very poorly in this regard. It takes energy to make a solar panel, as it is an industrial process. It has been estimated that it gives only 3 units in return out of one unit of energy invested after many years. (Compare this with 1:50 ratio for Middle East oil). So one will have to wait for many years to break even in terms of energy so as to qualify it to become an energy source. When we have an energy deficit due to an oil crunch we will first need enormous amount of energy to produce solar panels and windmills and then wait for years before you break even in terms of energy. How can one see this as a solution to the energy crisis generated by the oil deficit if we understand the Laws of Thermodynamics Nuclear power also similarly has a poor net energy ratio. It is, even in times as ours where hydrocarbons are abundant, expensive to build, thus one can imagine the state during hydrocarbon deficiency. Other point is that there is not enough uranium on our planet to fulfill the colossal energy hunger of Mankind. Economists see energy as any other resource that one buys with money. Energy is not just one resource, it is the mother of all resources. This simple fact escapes the attention of economists.
One word about the so-called “Hydrogen Economy”. It needs to be understood that hydrogen is not a source of energy but a carrier of energy. You need primary energy to make hydrogen. The Second Law of Thermodynamics states that we can never achieve 100% efficiency in conversion of energy. So when you have energy and use it to make hydrogen you are wasting energy. Why would anyone be so stupid as to waste energy to make hydrogen especially at a time when there is an energy crunch? 95% of the hydrogen made today is from hydrocarbons so once they deplete we will waste precious remaining energy to make hydrogen. It is hard to imagine a more foolish idea than this. Amazingly, everyone due to their misplaced faith in technology believe once the world finishes with oil everyone will be getting energy from water and we will live happily ever after. This is, to put it mildly, fairy tale and nothing else. If it was not for the hype about hydrogen and also the ensuing public complacency due to the hype, it would have been hilarious. But it is not a joke as these fairy tales are preventing humanity from preparing for the coming disaster.
Economists argue about abundant reserves of non-conventional oil like heavy oil, oil shales, bitumen, and oceanic hydrates. This is true when you just look at the numbers. But heavy oil creates a net energy loss of 30% and it is almost a mining process thus making the production very slow to rise. This prevents any reasonable chance of delaying the world peak once conventional light oil peaks. The mining process is costly thus it would be virtually impossible to keep the cost as less as it is today.
The only light in the tunnel is energy from biomass as it has a favorable net energy but it can never replace the volumes cheap oil that we have today. (We use 70 million barrels in one day!) So the conclusion is inescapable that once the oil crunch arrives we will have to shrink our economies. Then the world will remember the advice given by Gandhiji that economies must be local and self-sufficient. The biomass energy economy will be local energy and also renewable.
Need for massive preparation for the oil crunch
Once the oil peaks, the global economy will crash like a pack of cards. If we prepare for it we can manage a soft landing instead of a crash landing. Globalisation will be history because world trade will be expensive as there will be an energy crunch. Managing huge armies will be history so there will be no wars. US will no longer be a superpower. We may just have an opportunity to build a better world but also we will have to renounce our greed. Greed is only possible if we have cheap energy otherwise such rampant consumerism is not possible. The oil crash may also turn out to be the greatest tragedy ever faced by humanity, as there is very credible threat to world food supply. It should be the first priority of governments to manage the coming food crisis otherwise we are looking at a very bleak future. This coming tragedy is being overlooked solely because of the psuedo-science of economics, which so callously ignores the Laws of Thermodynamics. One hopes the governments of the world will not listen to bad advise of the economists. If we look at the threat collectively we may just manage to save humanity from the coming disaster, otherwise food riots, massive unemployment, resource wars (possibly with nuclear weapons) and other unthinkable horrors will be our destiny.