Past peak oil – life after cheap fossil fuels

The only rational response to the end of the cheap oil is to redesign all aspects of our lives

Perhaps the greatest vulnerability of the current world system is that of availability and distribution of critical resources as oil, food, and water. The very logic of accumulation under the current economic system necessitates that the material elements – resources – of nature are transformed into commodities in an ever-expanding rate. In this long history of human excessiveness in production and consumption, the stability of the economic order as an unrestrained structure is dependent – more than ever – on the continued accumulation in a cycle of never-ending expansion. This means that more and more materials from the nature must be consumed in the process of production. So far, the world’s most valuable energy supplies and minerals are being extracted and consumed at a breakneck pace.

Oil is the most strategic raw material. It can hardly be overstated how crucial petroleum is to our modern industrial society. Oil fuels the economy. It is the largest single traded product in the world. It provides about 95 per cent of all transportation fuels and 40 per cent of global energy. Oil is also determinant of national security. Today’s modern armies are entirely dependent on oil-powered ships, planes, helicopters and armoured vehicles. Oil also supplies feedstock for thousands of manufactured products and is vital for food manufacturing. Some 17 per cent of our energy is used for producing food. Modern agriculture makes heavy use of oil in a variety of ways. We use oil for fertilisers, pesticides, and for the packaging and distribution of food.

Since the beginning of the 20th century, global trade and a global economy have developed, and our population has grown in size from one billion to six billion, by drawing down a massive natural gift of energy in the form of cheap crude oil. Up until early modern times – miners, scientists, natural philosophers and other experts believed that gold, silver and other minerals were vegetable-like in that, when mined, they would literally grow back like mown grass. This belief was not wrong, in principle, in the case of coal and its hydrocarbon cousins in gaseous and liquid form – because they are the remains of ancient organisms. As a practical maxim, though, it was completely mistaken – because the time it would take normal geological processes to transform organic matter into coal, natural gas and petroleum is in the order of millions of years. Therefore, for all practical purposes, these fuels are finite, non-renewable energy sources. In any given region, there is a fixed amount of oil at the beginning of the exploration and after every drop of oil is taken out – there will be that amount less of oil left under the ground.

Like any fixed non-renewable resource, oil is limited. And its consumption will rise, peak – the point beyond which oil production will irreversibly start declining – and decline. Production follows a bell curve and after production reaches peak oil – meaning when half the oil is taken out – production will inevitably fall. On the upslope of the curve, there is the first oil – that closest to the surface – which is also called “cheap oil” or “easy oil”. It is easier and cheaper to take that oil out and also it is better quality – being “light” low-sulphur oil which is, therefore, cheaper to refine. On the upslope of the curve, oil production costs are lower than on the down slope, when extra effort and cost is needed to extract the remaining poorer quality resource from deeper in the reservoirs. And extra cost is required to refine this “heavy oil” – which is high-sulphur, very viscous and does not flow easily. Therefore, once oil production reaches its peak, global demand is most likely to exceed the capacity to produce it and prices will rise – while oil-dependent economies will face serious problems. An increasing body of evidence suggests that the era of “easy oil” is over and that we have entered a new period of “tough oil”.

Today, oil and gas experts around the world are growingly alarmed at current and future scarcity of the “black gold”. As demand for energy explodes worldwide, there is less of it available and, it seems, less exploration for it. Crude oil prices have doubled since 2001. There may still be times when oil prices temporarily fall due to sharp decline in demand, mainly during the times of serious economic crisis like the current austerity period in the western economies – but the general long-term trend is unquestionably upward in the price of crude oil. United States refineries are working close to capacity, yet no new refinery has been constructed since 1976. And oil tankers are fully booked, but outdated ships are being decommissioned faster than new ones are being built.

According to many estimates, the world is depleting oil reserves at an annual rate of 6 per cent. At the same time, growth in demand is rising at an annual rate of 2.2 per cent. All this means that the world’s oil industry would have to find the equivalent of more than 8 per cent a year in newly discovered oil reserves to maintain an orderly oil market. Unfortunately, discoveries are lagging behind, primarily because new large oil deposits are not being found – but also because, even if they were, there is a considerable time lag between a discovery and turning the oil into a useable energy product. Many observers have drawn attention to the extraordinary technological accomplishments of the industry over the past few decades. Of course, advanced technologies will buy a bit more time before production commences to fall, but it is also important to appreciate that spending more money on oil exploration will not really change this situation. There is only so much crude oil in the world and the industry has found about 90 per cent of it.

There are some indications that, in the years to come, the search for new sources of oil maybe transformed into a quest for entirely new sources of energy. The replacement of fossil fuels by alternatives such as solar, wind, geothermal, biomass, hydrogen and nuclear fission does not yet seem to be a viable alternative. So far, the available energy alternatives – mostly solar and wind power – offer only diluted energy substitutes. They are not as powerful a fuel source as oil. For solar and wind energy to come close to providing the same amount of energy as oil does, would require a truly massive scale up in production and deployment of such technologies. And still they would come nowhere near to matching the convenience and density of oil. Therefore, while conservation and renewable energy are much in the news, the reality is that neither of these factors is likely to have any significant impact on the steadily growing demand for oil products.

Many analysts, looking at the current discovery and production levels of oil fields around the world suggest that within the next decade – the supply of conventional oil will be unable to keep up with demand. We are also witnessing the impact in the increasing scarcity and cost of food and other critical resources that rely on oil. There are some reports that there has been a surge of motorists running out of fuel because they could not afford to fill their tanks. Airlines are cutting back on flights and some even are beginning to charge extra for checked baggage. During the last couple of years, in some parts of the world, rising fuel prices led to massive protests and strikes. Many leading economists and oil experts claim that the price of oil generally reflects the fast rising demand from China and India, and stagnant production as reserves of accessible oil become less plentiful. According to some experts, even a shortfall between demand and supply as little as 10 or 15 percent is enough to wholly shatter an oil-dependent economy. There were serious oil-related crises in the 1970s, but these “shocks” were due to political effects rather than the decreasing amount of oil. Unlike the oil shocks of the 1970s, this time there seems to be a permanent decline. It is becoming clear that cheap fuel is no longer something that we can take for granted. The economy is already suffering for it. And the end of cheap oil indicates a potentially spectacular reshaping of the globalised trade flows that have emerged in the last two decades.

Without volume energy – we have no sustainable water, we have no sustainable food, and we now have no sustainable healthcare. And since five-sixths of the world still barely uses any energy it really is an important issue. And since five-sixths of the world is still growing fast or too fast it is an even more important issue. What peaking does mean, in energy terms, is that once oil has peaked, further growth in supply, is over. Peaking is generally, also, a relatively quick transition to a relatively serious decline at least on a basin-by-basin basis. And the issue, then, is the world’s biggest serious question. The world economy was able to enjoy impressive growth in the 20th century, largely because it benefited from cheap and abundant oil, and could afford ignoring environmental costs. The severe effects of global environmental damage have now risen to the point that the very survival of the humanity is at stake. By far the most controversial feature of environmental damage relates to potential atmospheric damage, that is, damage to the gaseous membrane that maintains all life on earth. Especially, the combustion products of fossil fuels are the major source of danger to earth’s atmosphere. The problems arise because some of the key gaseous components of the atmosphere are becoming excessively concentrated and many experts believe that this situation is dangerously upsetting the delicate balance between various gaseous in earth’s atmosphere.

This human-induced global warming is only one among many serious environmental consequences caused by the never-ending drive of accumulation under the existing system. This is the secret ticking time bomb under the global economic system in the 21st century. The only long-term solution is to reduce significantly our energy usage. This does not just mean using energy efficient light bulbs, taking the bus to work or cycling. In order to reduce our energy consumption, it follows that we consume less products. The only rational response to the impending end of the cheap oil age is to redesign all aspects of our lives.

Public Service Europe