Saturday, February 19, 2011

Energy Myths, Energy Legends

So last week we discussed the precarious situation of the world's oil supply that has come to be known as peak oil. While certain members of the American right-wing will insist that peak oil is nonsense because all the petroleum we could possibly need is in the ANWAR region of Alaska, or off the Gulf Coast, the American left is just as guilty of engaging in this type of dangerous wishful thinking when it comes to U.S. energy policy.  This is because nobody in the political machination of the world's premier industrial power, whether Republican or Democrat, wants to engage in the hard mental exercises that necessarily accompany the demise of a civilization. Yet, at the end of the day, debates of this very nature are currently underway throughout the industrial world from London to Wisconsin as nations cope with shrinking revenues and slashed budgets brought about by the global recession.

These debates are not of course framed as steppingstones to the hard choices of the future, but that is exactly what they are, especially when one takes into account wild market fluctuations that will accompany the end of the age of cheap petroleum. Add another credit bubble or two into the mix, along with a good dose of inflation and wage stagnation, and you get a looming economic disaster of epic proportions, and this does not even begin to cover the projected costs of climate change, some of which—high grain prices— are already beginning to be felt.[1] While it is true that economic cycles exist on an ebb and flow of boom and bust, the interconnectivity of the new global economy makes each cycle more protracted and pronounced. Any of the aforementioned elements could bring world markets to a standstill as was the case with the last recession. Now, imagine a tempest so strong that it included not only all of the financial instruments of the modern economy, but also the energy base that is required to keep said economy humming. World markets are still jittery and many, including myself, fear that policies such as quantitative easing that were aimed at pulling the industrialized world out of the last recession did not actually fix anything but instead merely put a drop of antibiotic on a cancer cell. Both are the wrong medicine, and both allow the problem to continue to metastasize to other areas. This is why in a recent Business Insider article, economist Charles Hugh Smith warns of a major economic crash around the year 2020 because of, you guessed it, peak oil, generational cycles, credit bubbles, and inflation/wage stagnation.[2] This isn’t alchemy, monster shouting, or light apocalyptic banter either folks, this is mathematics and sound economic and political theory backed by data which was in fact in existence and screaming quite loudly before our recent crash, the problem was that no one cared to listen.

This is because of the fact that the media, the corporations, the politicians, and the general public alike do not wish to tread into this dark territory. It isn’t good for votes to speak, even in whispers, of looming hard times, and it certainly doesn’t help one figure out what in the hell Snookie is going to be wearing on the next episode of Jersey Shore. Just like some of the rosy chronicles of contemporaries that were written as the Roman Empire crumbled, it is difficult to have enough perspective to properly comment on systemic collapse when one is in the midst of it. Things will get better, they have to, and they always have, so why shouldn't we expect the same this go round? The current archetypal God of our time, the infamous “They” will come to our rescue to keep the gears lubricated because “They” always have. Global temperatures rising? “They” will cool it. Gas prices too high? “They” can fix that too. 

While many worship at the altar of “They” which is inexorably linked to the altar of modern market economics, “They” are royally screwed, along with the rest of us, because the basic scientific tenants of ecology that describe systems exploitation could care less about economic theories or fancy consumer goods. In fact, using history as a guide, it can be said with crystal clear certainty that civilizations that overshoot the limits of their resources do not fair very well in the long run. Medieval Europe provides an excellent case study of this as deforestation linked to overpopulation in England, Germany, and France caused severe economic and social contractions that were not eased until the 14th century Black Death wiped out nearly half of the population. This same phenomenon can also be attributed to other civilizations including Easter Island, the Anasazi, Petra, Rome, and even Nazi Germany to name but a few [3] In each of these cases the societies in question overshot the carrying capacities for their particular biome. Essentially it is a numbers game of too many people trying to live off of precious little resources.

Charles Hugh Smith's Crash Cycle 

Our current predicament is not much better and in many regards, it is quite worse. Instead of running out of wood, we are running out of the fossilized sunlight that the foundation of our entire civilization has been built upon. For some though, even this challenge is no match for progress and the ingenuity of the human mind. In the United States this has taken on an interesting character as the right-wing believes we can drill a hole to the mantle of the earth if need be to gain our energy, while the left-wing worships at the altar of renewables. The problem is that in both cases, the calculations that accompany the mythology of progress are lethally incorrect. Last week we discussed the exorbitant costs of radical fossil fuel extraction such as oil fracking, tar sands, and deep water drilling. Next week we will dive deep into the world of renewables. Suffice to say that while solar cells, electric cars, and wind turbines are all fine technologies at face value, they will not be able to stem the tide of depleted petroleum in the near future. If large-scale implementation of these technologies had been set as a national priority during the 1950's-1970's then peak oil may have been but a mere blip on the radar for the industrialized world, but they were not, and we are far too into the game to change course now.[4] Next week we will talk wind mills and electric vehicles, until then I remain:

The Heirloom Troubadour

Sunday, February 13, 2011

WikiPeaks: The Saudi Oil Dilemma

While I was originally going to use this week’s post to comment on some of the long-standing issues facing international politics, particularly the situation in the Middle East, another news story broke that is just as, if not more important to the West than the Egyptian crisis.
After dismissing my classes on Wednesday I logged onto my computer to check on the latest developments from Egypt. I also needed to login to Yahoo to check my email there and when I did I saw a headline that almost made me fall out of my chair. It was a small banner story which read, “WikiLeaks: Saudis Running Out of Oil.” Whether or not you agree with the methods of WikiLeaks, which is a discussion in and of itself, the fact is that in a leaked cable that was sent from the U.S. Department of State Attache’s Office in Riyadh to Washington, a senior U.S. diplomat discusses a very troubling conversation that he had with Sadad al-Husseini, a geologist and former head of exploration for Saudi oil monopoly Aramco, sometime in 2007. In the meeting al-Husseini confided that the Saudis are unlikely to be able to keep to their OPEC-mandated target oil output of 12.5 million barrels per day much longer because, simply put, they are running out of oil. Husseini indicated that Saudi producers are likely to hit peak oil, which is the point where global oil output hit its high mark, as early as 2012.[1]
What! Saudi Arabia is running out of oil? You don’t say? But there it was, staring at me on the page. This is a serious problem folks, let me explain why. Considering that Saudi Arabia has 1/5 of the world’s entire proven reserves of petroleum, and the United States relies on the Saudis for about 1,081 barrels of oil per day[2], it means that the entire setup of industrial society is in serious danger if Saudi oil is drying up. Urban land yachts and other similar luxuries that dot the streets of the United States are in serious trouble, as are other more pressing matters such as world food prices because without their lifeblood, cheap petroleum, entire systems will grind to a halt.[3]
Before we get into all that though, let’s talk a bit about the concept that is known as peak oil. This concept, which was introduced by Shell geologist M. King Hubbard back in the late 1950’s, delineates the point in time when the maximum rate of global petroleum extraction is reached, after which the rate of production enters terminal decline. The pattern forms a bell curve and is explained pretty simply: the more oil we pump out of the ground, the less reserve there is, and eventually, since petroleum is a finite fossil fuel, production reaches a maximum apex and then falls off, eventually to zero, as there is less and less oil to pump. So what is the big deal you ask? Isn’t there plenty of oil to go around? Well the big deal is that given how dependant the industrial world is on cheap petroleum for transportation, food production, and industrial systems maintenance, any disruption to supplies would cause price shockwaves that could do significant harm to the global economy. Think back a bit to 2007-2008 when gasoline prices hovered around $4/gallon. The economic pressure that the price increase placed on American households had a fair amount to do with the global financial catastrophe that quickly followed, even if the media wanted to blame it all on Wall Street. Some, such as industrialist Richard Branson, even predicted the recession’s link to oil prices before the price spiral even occurred. In 2006, Branson wrote that rising oil prices could cause major damage to a weakened world economy in a piece that was largely shunned at the time by the masters of world finance but one that nonetheless proved to be deadly accurate.[4] 
Hubbert Peak
As for whether or not there is more oil to find and pump, that is why this Wikileaks cable is so damning. The fact of the matter is that, no, there is no more oil to go around. While some have wet dreams of infinite fossil fuel, they can chant “drill baby drill,” until they are blue in the face but that will not change the numbers game in their favor. The world is running out of petroleum reserves, plain and simple. Why else do you think energy companies are spending billions of dollars to invest in deep water drilling of the kind that caused the BP fiasco, as well as expensive operations in tar sands, and chemical fracking for oil? It takes about $50/barrel to produce a single barrel of oil from Canadian tar sands, while it costs about $1/barrel to extract light sweet crude from a Saudi oil field.[5] In another case, it costs a whopping $500,000 per day for oil companies to rent a deep-water rig that is capable of drilling at depths over 10,000 feet.[6] That is a huge difference in price, and I don’t know about you but the last time I checked oil companies were profit-driven so it makes no sense for them to resort to more expensive practices unless of course, you guessed it, their cheap sources are drying up.
Take the Saudis for example; while they sit on 1/5 of the world’s proven reserves, including the famous Ghawar Field, they too have undertaken serious offshore drilling efforts in order to reach OPEC production quotas.[7] This fact, coupled with data that clearly shows a significant drop in Saudi Arabia’s ability to deliver on its end of the bargain as far as oil prices are concerned,[8] should give pause to anyone concerned with global energy security. That however is only the beginning of the story. The Wikileaks document proves that the Saudis understand this and American and Saudi officials alike are scared shitless about the implications for global commerce. This is because they understand that while peak oil does not mean the end of petroleum by any stretch of the imagination, it does signal the onset of an era of petroleum production that will result in wild price swings that will easily throw the global economy off balance in the coming years.
You do not have to run out of fossil fuels to be in a world of hurt. From a standpoint of macroeconomics the situation is quite clear. When you start with production estimates following peak oil and subtract this number from both current global demand  as well as projections for the burgeoning petroleum needs of strong emergent economies such as India and China, the solution you get from the equation is not very rosy given that supplies will be short and prices will be astronomically high. In essence, if you can produce 4 million barrels of oil per year but the global economy demands 6-7 million barrels, then there is a serious problem because you are at a net loss of about 3 million barrels.
Unfortunately for industrialized society, this is exactly where we are headed. Indeed, if Saudi peak oil is as imminent as all the data suggests, then the $4/gallon that Americans paid for gas a few years ago will suddenly seem like the good old days and global food prices, which are already soaring, will hover at levels unheard of in the modern era.
The industrialized world has gotten itself into quite a mess with its addiction to cheap oil. No amount of solar, nuclear, or wind energy will alleviate this situation either (more on this next week). We need to look for alternative solutions and change our thinking to see that we can live quite comfortably without all the trappings of modern society. If we practice now, the transition will be livable, but if we continue to cling to the fool’s hope of a future of limitless progress on a limited planet, there will be many long winters ahead.
More next week, until then I remain,
The Heirloom Troubadour