Peak Oil

What started me on the resource depletion thing and peak oil, was a site that came out around 2005 called lifeaftertheoilcrash.net.  Created by Matthew David Savinar, Esq.

The first 3 pages of his site really summed up what was ahead, although to an extreme that grabbed you by the throat and made you listen.  I’m pasting his first 3 pages here so you can get an overview of what peak oil is all about.

Dear Reader,

Civilization as we know it is coming to an end soon. 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 a phenomenon known as global “Peak Oil.”

“Are We ‘Running Out’? I Thought There Was 40 Years of the Stuff Left”

Oil will not just “run out” because all oil production follows a bell curve. This is true whether we’re talking about an individual field, a country, or on the planet as a whole.

Oil is increasingly plentiful on the upslope of the bell curve, increasingly scarce and expensive on the down slope. The peak of the curve coincides with the point at which the endowment of oil has been 50 percent depleted. Once the peak is passed, oil production begins to go down while cost begins to go up.

In practical and considerably oversimplified terms, this means that if 2005 was the year of global Peak Oil, worldwide oil production in the year 2030 will be the same as it was in 1980. However, the world’s population in 2030 will be both much larger (approximately twice) and much more industrialized (oil-dependent) than it was in 1980. Consequently, worldwide demand for oil will outpace worldwide production of oil by a significant margin. As a result, the price will skyrocket, oil dependant economies will crumble, and resource wars will explode.

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. Source For instance, during the 1970s oil shocks, shortfalls in production as small as 5% caused the price of oil to nearly quadruple. Source 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”. Source 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. Source

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. Source

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. Source 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.” Source
Dr. Richard Duncan: The Peak of World Oil Production and the Road to the Olduvai Gorge (PDF Format)

Ultimately, the energy-intensive industrial age may be little more than a blip in the course of human history:

Peak Oil is also called “Hubbert’s Peak,” named for the Shell geologist Dr. Marion King Hubbert. In 1956, Hubbert accurately predicted that US domestic oil production would peak in 1970. Source#1 Source #2 He also predicted 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.

“Big deal. If gas prices get high, I’ll just drive less. Why should I give a damn?”
Because 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. Source 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. Source

In the US, the average piece of food is transported almost 1,500 miles before it gets to your plate. Source 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. Emphasis added:
In the U.S., up to 20 percent of the country’s fossil fuel consumption goes into the food chain which points out that fossil fuel use by the food system “often rivals that of automobiles”. To feed an average family of four in the developed world uses up the equivalent of 930 gallons of gasoline a year – just shy of the 1,070 gallons that family would use up each year to power their cars. Source
According to the Organic Trade Association, the production of one pair of regular cotton jeans takes three-quarters of a pound of fertilizers and pesticides. Source

In short, people gobble fossil fuels like two-legged SUVs.

“Are all forms of modern technology actually petroleum products?”
Yes.

It’s not just transportation and agriculture that are entirely dependent on abundant, cheap oil. Modern medicine, water distribution, and national defense are each entirely powered by oil and petroleum derived chemicals.

In addition to transportation, food, water, and modern medicine, mass quantities of oil are required for all plastics, all computers and all high-tech devices. Some specific examples may help illustrate the degree to which our technological base is dependent on fossil fuels:

Automobiles:

The construction of an average car consumes the energy equivalent of approximately 20 barrels (840 gallons) of oil. Source Ultimately, the construction of a car will consume an amount of fossil fuels equivalent to twice the car’s final weight. Source

It’s also worth nothing that the construction of an average car consumes almost 120,000 gallons of fresh water. Source Fresh water is also rapidly depleting and happens to be absolutely essential to the petroleum refining process as each gallon of gasoline requires almost two gallons of fresh water for refining. Source

Computers:

The construction of the average desktop computer consumes ten times its weight in fossil fuels. Source

Microchips:

The production of one gram of microchips consumes 630 grams of fossil fuels. According to the American Chemical Society, the construction of single 32 megabyte DRAM chip requires 3.5 pounds of fossil fuels in addition to 70.5 pounds of water. Source The Environmental Literacy Council tells us that due to the “purity and sophistication of materials (needed for) a microchip, . . . the energy used in producing nine or ten computers is enough to produce an automobile.” Source In his book “The Nine Nations of North America”, author Joel Garreau explains in graphic detail just how much energy it takes to fashion a typical microprocessor:
. . . microchips are not made one by one. They are printed in a batch on a silicon wafer, say, four inches in diameter. Each time a layer of stuff is printed on this silicon wafer, the wafer must be treated so the stuff you’ve laid on will stay there. This process is achieved through the application of monumental quantities of energy. In effect, as each layer of the circuit is laid on, the whole wafer is “baked” at temperatures sometimes high enough to reach the outer limits of technology. Source
The Internet:

Contrary to popular belief, the internet consumes tremendous amounts of energy. Author John Michael Greer explains:
The explosive spread of the internet, finally, was also a product of the era of ultracheap energy. The hardware of the internet, with its worldwide connections, its vast server farms, and its billions of interlinked home and business computers, probably counts as the largest infrastructure project ever created and deployed in a two decade period in history. The sheer amount of energy that’s been been invested to create and sustain the internet beggars the imagination. Source

Recent estimates indicate the infrastructure necessary to support the internet consumes 10% of all the electricity produced in the United States. Source The overwhelming majority of this electricity is produced using coal or natural gas, both of which, as explained momentarily, are also near their global production peaks. Source #1 Source #2 Source #3 Source #4 Source #5

Concrete, Asphalt, Highways, and Modern Cities:

It is hard to precisely quantify how much energy is necessary to construct and maintain a modern city. Some of NASA’s recent images of cities, however, hint that the volumes of energy invested in modern cities are almost unfathomably prodigious. Consider, for instance, the following NASA image of Los Angeles:

When studying the above image, keep in mind that the manufacturing of one ton of cement requires 4.7 million BTUs of energy, which is the amount contained in about 45 gallons of oil or 420 pounds of coal. Source

“What about alternative energy systems like solar panels and wind turbines? Are they also manufactured using petroleum and petroleum derived resources?”
Yes.

When considering the role of oil in the production of modern technology, remember that most alternative systems of energy — including solar panels/solar-nanotechnology, windmills, hydrogen fuel cells, biodiesel production facilities, nuclear power plants, etc. all rely on sophisticated technology and energy-intensive forms of metallurgy.

In fact, all electrical devices make use of silver, copper, aluminum and platinum, each of which is discovered, extracted, and fashioned using oil or natural gas powered machinery. For instance, in his book, The Lean Years: Politics of Scarcity, author Richard J. Barnet writes:

To produce a ton of copper requires 112 million BTU’s or the equal of 17.8
barrels of oil. The energy cost component of aluminum is 20 times higher.

Author Joel Garreau, in the same chapter of his book “The Nine Nations of North America” that was cited above, explains how energy-intensive the manufacture of aluminum is:

The manufacturing of aluminum requires inexpensive energy as its most important raw material. It takes twelve times as much power to create a pound of aluminum as it does to make a pound of iron. A good sized aluminum plant uses as much power as a city of 175,000 people. Source
Nuclear energy requires uranium, which is also discovered, extracted, and transported using oil powered machinery.

For more information on metals shortages and energy production, see:

Scarcity of aluminum, copper threaten solar installations

Scarcity of highly refined silicon threatens solar industry

Dwindling supply of rare metals imperiling innovation

World running out of platinum and other common elements

Global shortage of metals looming

Most of the feedstock (soybeans, corn) for biofuels such as biodiesel and ethanol are grown using the high-tech, oil-powered industrial methods of agriculture described above.

In short, the so called “alternatives” to oil are actually “derivatives” of oil. Analyst John Michael Greer offers the following rather lucid explanation of this often over-looked relationship:
. . . every other energy source currently used in modern societies gets a substantial “energy subsidy” from oil. The energy used in uranium mining and reactor construction, for example, comes from diesel rather than nuclear power, just as sunlight doesn’t make solar panels. What rarely seems to have been noticed is the way these “energy subsidies” intersect with the challenges of declining petroleum production to [preemptievely sabotage] the future of alternative energy production in industrial societies. Source

Without an affordable supply of oil coupled with healthy and robust financial markets to capitalize the transition, a non-chaotic adaptation phase is unlikely as the raw materials and investment capital necessary to fuel such a large-scale transition will have evaporated.

(Note: alternatives to oil are discussed in depth on Page Two)

“Is the financial system entirely dependent on ever-increasing amounts of cheap oil?”
Yes.

The relationship between the supply of oil and natural gas and the workings of the global financial system is arguably the key issue to dealing with Peak Oil as robost and smoothly function global capital markets must exist in order to power an orderly (or semi-orderly) transition process. In fact this relationship is far more important than alternative sources of energy, energy conservation, or the development of new energy technologies, all of which are discussed in detail on page two of this site. In short, the global financial system is entirely dependent on a constantly increasing supply of oil and natural gas.

To illustrate, if home and business loans are issued with interest rates in the 7% range, the assumption underlying the loans is that the monetary supply will increase (on average) by 7% per year. But if that 7% yearly increase in the monetary supply is not matched by a 7% yearly increase in the amount of economic activity (goods and services), the result is hyper-inflation. The key is this: in order for there to be an increase in the amount of economic activity taking place, there must be an increase in the amount of net-energy (i.e. the net-number of BTUs) available to fuel those activities. As no alternative source or combination of sources comes even remotely close to the energy density of oil (125,000 BTUs per gallon, the equivalent of 150-500 hours of human labor), a decline or even plateau in the supply of oil carries such overwhelming consequences for the financial system. Dr. Colin Campbell presents an understandable model of this comple relationship as follows:

It is becoming evident that the financial community begins to accept the reality of Peak Oil. They accept that banks created capital during this epoch by lending more than they had on deposit, being confident that tomorrow’s expansion, fuelled by cheap oil-based energy, was adequate collateral for today’s debt. The decline of oil, the principal driver of economic growth, undermines the validity of that collateral which in turn erodes the valuation of most entities quoted on Stock Exchanges. Source
Commentator Robert Wise explains the connection between energy and money as follows:
It’s not physics, but it’s true: money equals energy. Real, liquid wealth represents usable energy. It can be exchanged for fuel, for work, or for something built by the work of humans or fuel-powered machines. Real cost reflects the energy cost of doing something; real value reflects the energy expended to build something.

Nearly all the work done in the world economy, all the manufacturing, construction, and transportation, is done with energy derived from fuel. The actual work done by human muscle power is miniscule by comparison. And, the lion’s share of that fuel comes from oil and natural gas, the primary sources of the world’s wealth. Source

Author Dmitry Orlov offers the following explanation of how the debt-based financial currency used in a modern economy is actually dependent on an increasing supply of energy. Emphas added:
Although it is often thought that a [modern] economy produces value, as an empirical matter it can be observed that what it produces is debt. One borrows money in order to provide and to receive goods and services. Loans are extended based on the expectation that, in the future, demand for these services will be even higher, driving further economic growth. However, this economy is not a closed system: the delivery of these goods and services is linked to external energy flows. Greater flows of energy, in the form of increased oil and natural gas imports, increased coal production and so forth are failing to occur, for a variety of geological and geopolitical reasons. There is every reason to expect that the ability to deliver goods and services will suffer as a result of energy shortages, collapsing the debt pyramid . . . Source

In October 2005, the normally conservative London Times acknowledged that the world’s wealth may soon evaporate as we enter a technological and economic “Dark Age.” In an article entitled “Waiting for the Lights to Go Out” Times columnist Bryan Appleyard reported:
Oil is running out; the climate is changing at a potentially catastrophic rate; wars over scarce resources are brewing; finally, most shocking of all, we don’t seem to be having enough ideas about how to fix any of these things.

Almost daily, new evidence is emerging that progress can no longer be taken for granted, that a new Dark Age is lying in wait for ourselves and our children . . . growth may be coming to an end. Since our entire financial order from interest rates, pension funds, insurance, to stock markets is predicated on growth, the social and economic consequences may be cataclysmic. Source

If you want to understand just how cataclysmic these consequences might be, consider the current crisis in the UK as a “preview of coming attractions.” The London Telegraph recently reported:
The Government has admitted that companies across Britain might be forced to close this winter because of fuel shortages. “The balance between supply and demand for energy is uncomfortably tight. I think if we have a colder -than-usual winter given the supply shortages, certain industries could suffer real difficulties.” The admission was made after this newspaper revealed that Britain could be paralysed by energy shortages if the winter is colder than average.

The Met Office says there is a 67 per cent likelihood of prolonged cold this year after almost a decade of mild winters. That, coupled with high fuel prices, raises the fear that industry will not be able to cope. Source

In May 2007 the London Times published excerpts from a study about the future of Britain’s electrical grid. According to the study, fears of a catastrophic energy crisis occuring within the next 10 years can no longer be dismissed as “apocalyptic fantasies”, emphasis added:
Across Britain, cities are plunged into darkness. In London, the Underground grinds to a halt, leaving panicked commuters stranded in oppressively hot carriages. In office blocks, lifts stop operating and the air-conditioning shuts down. Employees swelter in stifling conditions.

This is not the postapocalyptic vision of some film-maker, but a realistic scenario as Britain grapples with a looming energy crisis. The statistics are frightening. In only eight years, demand for energy could outstrip supply by 23% at peak times, according to a study by the consultant Logica CMG. The loss to the economy could be £108 billion each year. Source

The severe consequences of these shortfalls have prompted the UK government to look into draconian energy conservation measures that would be enforced via house-to-house searches by a force of “energy-police.”

Parts of the US are facing similarly dire possibilities. For example, US News and World Report recently published a six page article documenting the scenarios soon to unfold across North America. Source According to the normally conservative publication, people in the northeastern US could soon be facing massive layoffs, rotating blackouts, permanent industrial shutdowns, and catastrophic breakdowns in public services as a result of shortages of heating oil and natural gas. Source

“What does all of this mean for me?”
What all of this means, in short, is that the aftermath of Peak Oil will extend far beyond how much you will pay for gas. To illustrate: in a July 2006 special report published by the Chicago Tribune, Pullitzer Prize winning journalist Paul Salopek described the consequences of Peak Oil as follows:

. . . the consequences would be unimaginable. Permanent fuel shortages would tip the world into a generations-long economic depression. Millions would lose their jobs as industry implodes. Farm tractors would be idled for lack of fuel, triggering massive famines. Energy wars would flare. And carless suburbanites would trudge to their nearest big box stores, not to buy Chinese made clothing transported cheaply across the globe, but to scavenge glass and copper wire from abandoned buildings. Source

Journalist Jonathan Gatehouse summarized the conclusions of Oxford trained geologist Jeremy Leggett, author of The Empty Tank: Oil, Gas, Hot Air, and the Coming Financial Catastrophe, in a 2006 Macleans article as follows, emphasis added:

. . . when the truth can no longer be obscured, the price will spike, the economy nosedive, and the underpinnings of our civilization will start tumbling like dominos. “The price of houses will collapse. Stock markets will crash. Within a short period, human wealth — little more than a pile of paper at the best of times, even with the confidence about the future high among traders — will shrivel.” There will be emergency summits, diplomatic initiatives, urgent exploration efforts, but the turmoil will not subside. Thousands of companies will go bankrupt, and millions will be unemployed. “Once affluent cities with street cafés will have queues at soup kitchens and armies of beggars. The crime rate will soar. The earth has always been a dangerous place, but now it will become a tinderbox.”

By 2010, predicts Leggett, democracy will be on the run

. . . economic hardship will bring out the worst in people. Fascists will rise, feeding on the anger of the newly poor and whipping up support. These new rulers will find the tools of repression — emergency laws, prison camps, a relaxed attitude toward torture — already in place, courtesy of the war on terror. And if that scenario isn’t nightmarish enough, Leggett predicts that “Big Oversight Number One” — climate change — will be simultaneously making its presence felt “with a vengeance.” On the heels of their rapid financial ruin, people “will now watch aghast as their food and water supplies dwindle in the face of a climate going awry.” Prolonged droughts will spread, decimating harvests. Source

If you are focusing solely on the price at the pump, buying a hybrid car, or getting some of those energy efficient light bulbs, you aren’t seeing the bigger picture.

“Was the Bush administration aware of this when planning the invasion and occupation of Iraq?”

Of course they were.

Significant elements of US national security apparatus have been aware of Peak Oil since at least 1977 when the CIA prepared a now-declassified report on it. Professor Richard Heinberg explains:

The 1977 CIA document shows clear and detailed awareness of oil issues, including depletion, extraction technologies, pipelines, areas of likely new discovery, the quality of existing reserves, and the dynamics of the global oil market. The CIA has obviously been studying oil very carefully for some time and must therefore understand the issue of global oil peak. Source

In 1982, the State Department released its own report which stated:
. . . world petroleum production will peak in the 1990-2010 interval at 80-105 million barrels per day, with ultimate resources estimated at 2,100 billion barrels. Source
As mentioned previously, in a speech he gave in 1999 while still CEO of Halliburton, Dick Cheney stated:

. . . there will be an average of two-percent annual growth in global oil demand over the years ahead, along with, conservatively, a three-percent decline in production from existing reserves. That means by 2010 we will need on the order of an additional 50 million barrels a day. Source

A report commissioned by Cheney and released in April 2001 was no less disturbing:
The most significant difference between now and a decade ago is the extraordinarily rapid erosion of spare capacities at critical segments of energy chains. Today, shortfalls appear to be endemic. Among the most extraordinary of these losses of spare capacity is in the oil arena. Source

In light of this information, Cheney knew the only way for Western oil majors to stay oil majors was to use force to grab what’s left in the Middle East. Four years after the invasion of Iraq, this is exactly what is happening. U.K. Independent journalist Geoffrey Lean explains:

“So where is this oil going to come from?” Cheney asked His answer: the Middle East was “where the prize ultimately lies”.

Lest there be any doubt about what was at stake, the man who was to become one of the most powerful proponents of the invasion of Iraq went on: “Oil is unique because it is so strategic in nature. We are not talking about soapflakes or leisurewear . . . The Gulf War was a reflection of that reality.”

Well, seven years on, Mr. Cheney’s solution to the impending oil crisis is well on its way to being implemented. In the aftermath of another war, Iraq’s Council of Ministers is today expected to throw open the doors to the country’s oil reserves – the third largest in the world – to private companies, the first time a major Middle Eastern producer has ever done so. Source

One of George W. Bush’s energy advisors, energy investment banker Matthew Simmons, has spoken at length about the impending crisis. For instance, in an August 2003 interview Simmons was asked if it was time for Peak Oil to become part of the public policy debate. He responded:

It is past time. As I have said, the experts and politicians have no Plan B to fall back on. If energy peaks, particularly while 5 of the world’s 6.5 billion people have little or no use of modern energy, it will be a tremendous jolt to our economic well-being and to our health — greater than anyone could ever imagine. Source

When asked if there is a solution to the impending natural gas crisis, Simmons responded:
I don’t think there is one. The solution is to pray. Under the best of circumstances, if all prayers are answered there will be no crisis for maybe two years. After that it’s a certainty.
In May 2004, Simmons explained that in order for demand to be appropriately controlled, the price of oil would have to reach $182 per barrel. Source Simmons explained that with oil prices at $182 per barrel, gas prices would likely rise to $7.00 per gallon.

A March 2005 report prepared for the US Department of Energy confirmed the dire warnings of the investment banking community. Entitled “The Mitigation of the Peaking of World Oil Production,” the report observed:

Without timely mitigation, world supply/demand balance will be achieved through massive demand destruction (shortages), accompanied by huge oil price increases, both of which would create a long period of significant economic hardship worldwide. Waiting until world conventional oil production peaks before initiating crash program mitigation leaves the world with a significant liquid fuel deficit for two decades or longer. Source
The report went on to say, emphasis added:
The problems associated with world oil production peaking will not be temporary, and past ‘energy crisis’ experience will provide relatively little guidance. The challenge of oil peaking deserves immediate, serious attention, if risks are to be understood and mitigation begun. The world has never faced a problem like this. Without massive mitigation more than a decade before the fact, the problem will be pervasive and will not be temporary. Previous energy transitions were gradual and evolutionary. Oil peaking will be abrupt and revolutionary. Source
As one commentator recently observed, the reason our leaders are acting like desperados is because we have a desperate situation on our hands.

If you’ve been wondering why the Bush administration has been spending money, cutting social programs, and starting wars like there’s no tomorrow, now you have your answer: as far as they are concerned, there is no tomorrow.

In 2003, the BBC filmed a three-part, relatively apolitical, documentary entitled “War for Oil” about the role the Bush administration’s knowledge of Peak Oil played in their decision to invade and occupy Iraq. As the documentary explains, in private the Bush administration sees the war in Iraq as “a fight for survival.” In a purely Machiavellian world, they were probably correct in their thinking.

For what it’s worth, Bush’s Crawford ranch has been completely off-the-grid since 2002. The ranch is equipped with the latest in energy saving and renewable power systems. It has been described as an “environmentalist’s dream home.” Source The fact a man as steeped in the petroleum industry as Bush would own such a home should tell you something.

On a similar note, Dick Cheny’s personal investments indicate his banker has been expecting an economic collapse since at least 2006. Source

Neither Bush or Cheney (or really, any administration) could be honest with the American people about the severity of what is unfolding. If they were honest with the country, half the nation would likley refuse to believe them while the other half would likely panic.

“Is Barack Obama’s administration aware of this?”

While nobody has been able to confirm that Obama himself is aware of Peak Oil, key members of his administration certainly are. In an interview with the North Bay Bohemian, a former colleague of Obama’s Secretary of Energy explains:

Fridley also believes assistance will not come from the world’s leaders. Transition can only be a grass-roots revolution. He points out that Secretary of Energy Steven Chu was previously the director of Lawrence Berkeley National Laboratory, where Fridley has done much of his thinking about peak oil and Transition.

“[Chu] was my boss,” Fridley says. “He knows all about peak oil, but he can’t talk about it. If the government announced that peak oil was threatening our economy, Wall Street would crash. He just can’t say anything about it.” Source

Obama’s Secretary of State is Hilary Clinton whose husband Bill Clinton (former president of the United States) has both A) acknowledged the magnitude of Peak Oil and B) insisted he was not briefed by the CIA about it during his time in office. Given his rather emotional reaction to becoming aware of the issue after reading “The Party’s Over” by Richard Heinberg, it is hard to believe he has not discussed it with his wife. In a 2006 speech to the Aspen Institute, Clinton said:

I was reading a book the other day by a guy just bashing the living hell out of me, saying that he was certain the CIA briefed me once a week on how America was running out of oil and I did nothing serious about it. But that’s not true.

To the best of my knowledge I never had a security briefing which said what some of these very serious but conservative petroleum geologists say, which is they think that either now or before the decade is out that we’ll reach peak oil production globally . . .

There’s a good chance that these people who made a living all these years studying petroleum deposits know what they’re talking about, and we may not have as much oil as we think. Source

“Have government agencies been attempting to hide this from the public for fear of setting off a panic?”

In November 2009, the UK Guardian reported that two insiders at the International Energy Agency (the agency tasked with figuring out how much oil is left in the ground) informed the paper that the agency has intentionally been covering up this crisis for fear of setting off a panic (emphasis added):
The world is much closer to running out of oil than official estimates admit, according to a whistleblower at the International Energy Agency who claims [the agency] has been deliberately underplaying a looming shortage for fear of triggering panic buying.

The senior official claims the US has played an influential role in encouraging the watchdog to underplay the rate of decline from existing oil fields while overplaying the chances of finding new reserves.
A bit later in the article:
“Many inside the organisation believe that maintaining oil supplies at even 90m to 95m barrels a day would be impossible but there are fears that panic could spread on the financial markets if the figures were brought down further.

A second senior IEA source, who has now left but was also unwilling to give his name, said a key rule at the organisation was that it was “imperative not to anger the Americans” but the fact was that there was not as much oil in the world as had been admitted. “We have [already] entered the ‘peak oil’ zone. I think that the situation is really bad,” he added. Source
A few days later, the Guardian published a follow up to the above article:
This all seemed pretty gigantic news to me but . . . did it cause headlines around the world? No, no, no.

The fear is that panicky markets can cause enormous damage – panic-buying that prompts fights over resources, which in turn could lead to power cuts in some places and other such mayhem. But so far in facing this huge challenge, our political/economic system seems unable to cope with reality. We are forced to carry on living in an illusion that we have so much time to adapt to post-oil that we don’t even need to be thinking much about what a world without plentiful oil would look like. Reality has become too dangerous. Source

Robert L. Hirsch was the lead author of a report on Peak Oil written for the US Department of Energy which was released in early 2005. Source In a 2009 interview with EV World, Hirsch explained the degree to which he and others were pressured by people high up in the agency to no longer talk about or work on Peak Oil:

Hirsch: When the people at the DOE saw the final report, it shocked them even theought they see what was coming . . . Management really didn’t know what to do with it because it was so shocking and the implications were so significant. Finally, the director decided that she would sign off on it because she was retiring and couldn’t be hurt, or so I was told.

Question: Under pressure from whom?

Hirsch: From people in the hierarchy of the DOE. This was true in both Republican and Democrat administrations. There is, I think, ample evidence, and some people in DOE have gone so far as to say it specifically, that people in the hierarchy of DOE, under both administrations, understood that there was a problem and suppressed work in the area. Under President Bush, we were not only able to do the first study but also a follow-on study that looked at mitigation. After that, visibility got so high that we were told to stop any further work on peak oil. Source
“How do I know this isn’t just fear mongering by loony-environmentalists and ‘end is nigh’ types?”
If you think what you are reading on this page is the product of a loony-left nut, consider what Representative Roscoe Bartlett (Republican, Maryland) has had to say in speeches to Congress or what billionaire investor Richard Rainwater has had to say in the pages of Fortune Magazine.

On March 14, 2005 Bartlett gave an extremely thorough presentation to Congress about the frightening ramifications of Peak Oil. During his presentation Representative Bartlett, who may be the most conservative member of Congress,quoted from this site extensively, citing the author (Matt Savinar) by name on numerous occasions, while employing several analogies and examples originally published on this site. You can read the full congressional record of Representative Bartlett’s presentation by clicking here. You can view a video of Bartlett recommending the article you are now reading to Resources for the Future, an extremely influential DC think tank, by clicking here.

On April 19, 2005 Representative Bartlett was interviewed on national television. Again, he referenced the article you are now reading:

One of the writers on this starts his article by saying, ‘Dear Reader, Civilization as we know it will end soon.’ Now your first impulse is to put down the article. This guy’s a nut. But if you don’t put it down and read through the article, you’re hard-pressed to argue with his conclusions. Source
On May 12, 2005 Representative Bartlett gave another presentation about Peak Oil on the floor of the House of Representatives, stating that this website “galvanized” him. On July 19, 2005 he had the following to say:
Mr. Speaker, if you go to your computer this evening and do a Google search for peak oil, you will find there a large assortment of articles and comments. Like every issue, you will find a few people who are on the extreme, but there will be a lot of mainstream observations there.

One of the articles that you will find there was written by Matt Savinar. Matt Savinar is not a technical person. He is a lawyer, a good one, and he does what lawyers do. He goes to the sources and builds his case. Matt Savinar could be correct when he said, “Dear Reader, civilization as we know it is coming to an end soon.” I would encourage you, Mr. Speaker, to pull up his article and read it. It is really very sobering.
In subsequent speeches, Representative Bartlett read large excerpts of this site verbatim into the official US Congressional record. He has also frequently quoted a September 2005 report from the U.S. Army Corps of Engineers entitled “Energy Trends and Their Implications for U.S. Army Installations.” The report explains:

. . . energy consumption is indispensable to our standard of living and a necessity for the Army to carry out its mission. However, current trends are not sustainable. The impact of excessive, unsustainable energy consumption may undermine the very culture and activities it supports . . . Source

A 2007 report commissioned by the Pentagon details the amount of fuel necessary to run modern military operations:
In World War II, the United States consumed about a gallon of fuel per soldier per day, according to the report. In the 1990-91 Persian Gulf War, about 4 gallons of fuel per soldier was consumed per day. In 2006, the US operations in Iraq and Afghanistan burned about 16 gallons of fuel per soldier on average per day, almost twice as much as the year before. Source
The report went on to explain the magnitude of the problem at hand, emphasis added:
Weaning the military from fossil fuels quickly, however, would be a herculean task — especially because the bulk of the US arsenal, the world’s most advanced, is dependent on fossil fuels and many of those military systems have been designed to remain in service for at least several decades. Moving to alternative energy sources on a large scale would “challenge some of the department’s most deeply held assumptions, interests, and processes,” the report acknowledges. Source
According to the December 26, 2005 issue of Fortune Magazine, Richard Rainwater, a multi-billionaire investor and friend of George W. Bush, reads this website regularly. In an article entitled “Energy Prophet of Doom” Fortune reporter Oliver Ryan writes:
“Rainwater,” the voice on the phone announces. “Now, type L-A-T-O-C into Yahoo, and scroll down to the seventh item.” Rainwater doesn’t use e-mail. Rather, he uses rapid-fire phone calls to spread the gospel he discovers every morning on the web. One day it might be the decline of arable land in Malaysia. The next it could be the Olduvai theory of per capita energy consumption. “L-A-T-O-C” stands for LifeAfterTheOilCrash.net, a blog edited by Matt Savinar, 27, of Santa Rosa, Calif.. Source
The Fortune article goes on to quote Rainwater as saying:

 The world as we know it is unwinding with respect to Social Security, pensions, Medicare. We’re going to have dramatically increased taxes in the U.S. I believe we’re going into a world where there’s going to be more hostility. More people are going to be asking, ‘Why did God do this to us?’ Whatever God they worship. Alfred Sloan said it a long time ago at General Motors, that we’re giving these things during good times. What happens in bad times? We’re going to have to take them back, and then everybody will riot. And he’s right. Source

“If this is all true, why has the price of oil dropped?”

Oil production peaked in late 2005 (source) even as global demand continued to soar. Consequently, the price rose almost 400% in only three years. By July 2008, the American economy could take no more and begun to buckle under the crushing weight of soaring energy and commodity prices. As food and fuel prices soared, more and more Americans – particularly those in the “subprime” category – were unable to pay their mortgages, By September 2008, the financial system began collapsing and oil prices began falling. Jeff Rubin explains in more detail:

Four of the last five global recessions were preceded by oil shocks. Yet the 2007-2008 spike in oil prices doesn’t seem to get any credit for what’s happening to the world economy now.

That’s odd because it should. Curiously, an over-500% increase in the real price of oil gets ignored as a culprit behind today’s economy, eclipsed by the crisis in financial markets. Source

Analyst Dmitry Orlov offers an explantion of the connection between the 2008 run-up in oil prices and the subsequent economic collapse of 2008-2009:

There to be a consensus forming that last year’s financial crash was precipitated by the spike in oil prices last summer, when oil briefly touched $147/bbl. Why this should have happened seems rather obvious. Since most things in a fully developed, industrialised economy run on oil, it is not an optional purchase: for a given level of economic activity, a certain level of oil consumption is required, and so one simply pays the price for as long as access to credit is maintained, and after that suddenly it’s game over.

The extreme price volatility has also severely hamstrung our ability to make adaptations to a rapidly declining oil supply. Author Jim Kunstler explains:

Many were stunned this year to witness the parabolic rise and fall of oil prices up to nearly $150 and then back around $36 by Christmas time. Quite a ride. I said in The Long Emergency that volatility would be the hallmark of post peak oil because it was obvious that advanced economies could not absorb super high prices and would crash in response; that at some point after crashing, these economies would respond to the new lower oil price, resume their cheap oil habits, and build to another price rise. . . and crash again. . . . in a declension of ever-lower industrial activity. Source

While the recent drop in prices is welcome by an already-overburdened consumer, the price drop will likely bring with it deleterious long term consequences for any mitigation efforts. Analyst Chris Nedler explains:

As oil prices crashed from $147 this summer to around $50 today, developers withdrew their commitment to drilling new wells and building new distribution and refining projects. Under a rule-of-thumb production cost for a new, marginal barrel at around $65 today, it simply doesn’t make sense to throw millions of dollars at drilling new wells when oil futures are selling for $50. A second, more insidious factor is quietly eroding hopes for our future oil and gas supply however, and that is the continuing credit crisis. As banks remain reluctant to lend each other money — credit has also become hard to come by for anyone trying to start a capital-intensive project. And all energy projects need a great deal of capital.

Consequently, a growing drumbeat of news reports about energy projects of all kinds being delayed, cancelled, slowed, or otherwise curtailed has been issuing from the energy sector. Yet the Street seems not to have recognized that the slowdowns will limit supply in just a few years. But by focusing on near term supply, investment is already falling short of what is needed to ensure a future supply of those marginal, expensive barrels that everyone is counting on. Source

The drop in oil prices is also devastating the alternative energy industry as most alternatives tend not to attract large amounts of investment capital unless oil stays well above $125 for several (5-to-7) years. Source

“Are Western governments preparing for this?”

Yes.

In January 2006, the Department of Homeland Security gave Halliiburton subsidiary Kellog, Brown, & Root a $400 million dollar contract to build vast new domestic detention camps within the United States. The camps are ostensibly being built to house and process an “emergency influx of immigrants”, which is exactly what the U.S. will be facing between 2008 and 2012 as Mexico’s oil production collapses.

See also: “Oil Depletion and Illegal Immigration”

This “emergency influx of immigrants” will almost certainly inflame domestic groups, leading to vigilantism and balkanization within the U.S. The expectation of this unraveling may be at least partially responsible for the Bush administration’s drive to pass draconian police-state style legislation.

In June 2007, the UK Register reported that the Pentagon has been running “war games on the grandest scale” to simulate how billions of people will react to food and fuel shortages, including shortages on the U.S. homeland:

. . . the U.S. Department of Defense may already be creating a copy of you in an alternate reality to see how long you can go without food or water, or how you will respond to televised propaganda.

Called the Sentient World Simulation (SWS), the program replicates financial institutions, utilities, media outlets, and street corner shops. By applying theories of economics and human psychology, its developers believe they can predict how individuals and mobs will respond to various stressors.

Yank a country’s water supply. Stage a military coup. SWS will tell you what happens next. Homeland Security is already using SWS to simulate crises on the US mainland. Source

According to a May 2008 investigation by Radar Magazine, the Department of Homeland Security has used artificial-intelligence powered “social networking analysis” tools similar to SWS to compile a list of 8 million Americans who may be detained during a national emergency:

According to a senior government official . . . “There exists a database of Americans, who, often for the slightest and most trivial reason, are considered unfriendly, and who, in a time of panic, might be incarcerated. The database can identify and locate perceived ‘enemies of the state’ almost instantaneously.” . . . One knowledgeable source claims that 8 million Americans are now listed in Main Core as potentially suspect. In the event of a national emergency, these people could be subject to everything from heightened surveillance and tracking to direct questioning and possibly even detention. Source

The Pentagon has also developed an “energy islanding” strategy in which the armed services and/or private contractors will seize large-scale domestic renewable energy installations once the crisis hits. Journalist Michael Kane explains:

The DoD plans to act in consort with utilities to implement “islanding strategies” for their domestic installations to deal with emergencies and fuel shortages. Think of this as an “energy island” that the military is on and you are not. When big wind and solar farms come online they are placed on the Pentagon’s map, and when that energy is eventually neede for one of their installations or industrial producers they will simply take it through a well-orchestrated alliance with gigantic energy firms. Source

The British government appears to be making similar preparations. According to a military report leaked to the press in April 2007, the British government is preparing to control middle class citizen “flash mobs” as the economy collapses under the combined pressures of resource shortages and climate change:

Information chips implanted in the brain. Electromagnetic pulse weapons. The middle classes becoming revolutionary [and turning into] “flashmobs”. Groups rapidly mobilised by criminal gangs or terrorists groups. This is the world in 30 years’ time envisaged by the Ministry of Defence. Source

According to investigative reporter Wayne Madsen – who happens to be a former NSA anaylst – key members of Congress were briefed in April 2008 that the U.S. economy would begin collapsing under the weight of crushing energy prices by September 2008 and that they should start preparing for citizen revolts:

WMR has learned from knowledgeable sources within the US financial community that an alarming confidential and limited distribution document is circulating among senior members of Congress and their senior staff members that is warning of a bleak future for the United States if it does not quickly get its financial house in order.

House Speaker Nancy Pelosi is among those who have reportedly read the document.

The document is being called the “C & R” document because it reportedly states that if the United States defaults on loans and debt underwriting from China, Japan, and Russia, all of which are propping up the United States government financially, and the United States unilaterally cancels the debts, America can expect a war that will have disastrous results for the United States and the world.

“Conflict” is the “C word” in the document

The other scenario is that the federal government will be forced to drastically raise taxes in order to pay off debts to foreign countries to the point that the American people will react with a popular revolution against the government.

“Revolution” is the document’s “R word”

The origin of the document is not known, however, its alarming content matches up with previous warnings from former Comptroller General David Walker who abruptly resigned as head of the Government Accountability Office (GAO) in February of this year after repeatedly publicly warning of a “financial meltdown” disaster if America’s $9 trillion debt was not addressed quickly. Financial experts have warned that the national debt, corrected for inflation, could reach $46 trillion in the next 20 years. A month earlier, Walker warned the Senate Banking Committee about the reaction of creditor nations in Asia and Europe if the U.S. did not address its debt problem. Source

“How is the oil industry reacting to this?”
If you want to know the truth about the future of oil, simply look at the actions of the oil industry. As a recent article in M.I.T.’s Technology Review points out:

If the actions – rather than the words – of the oil business’s major players provide the best gauge of how they see the future, then ponder the following. Oil prices have doubled since 2001, but oil companies have increased their budgets for exploring new oil fields by only a small fraction. Likewise, U.S. 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. Source

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:

If Chevron Corp. keeps buying back its stock at the current rate, the company will have liquidated all its shares by about 2023. Exxon Mobil is buying back about $30 billion of its shares each year. If that continues, Exxon will have repurchased all its stock by about 2024.

By 2011 or so, these companies, including Royal Dutch Shell Plc and BP Plc in the U.K., France’s Total SA and Conoco Phillips in the U.S., will no longer be able to increase their production . . . By 2014, their output will begin a long decline, says Maxwell, who has been involved in the industry for 50 years, mostly as an analyst. “They’ll be in liquidation,'” he says. Source

If you suspect the oil companies are conspiring amongst themselves to create “artificial scarcity” and thereby artificially raise prices, ask yourself the following questions:

Question #1. Are the actions of the oil companies the actions of friendly rivals who are conspiring amongst each other to drive up prices and keep the petroleum game going?

or

Question #2. Are the actions of the oil companies the actions of rival corporate desperados who, fully aware that their source of income is rapidly dwindling, are now preying upon each other in a game of “last man standing”?

You don’t have to contemplate too much, as recent disclosures from oil industry insiders indicate we are indeed “damn close to peaking” while independent industry analysts are now concluding that large oil companies believe Peak Oil is at our doorstep.

As the Bulletin of Atomic Scientists recently observed, even ExxonMobil is now”sounding the silent Peak Oil alarm.” In their 2005 report entitled, “The Outlook for Energy”, ExxonMobil suggests that increased demand be met first through greater fuel efficiency. The fact that ExxonMobil – one of the largest oil companies in the world – is now recommending increased fuel efficiency should tell you how imminent a crisis is at this point.

Equally alarming is the fact that Chevron has now started a surprisingly candid campaign to publicly address these issues. While the campaign fails to mention “Peak Oil” or explain how a drastically reduced oil supply will affect the average person, it does acknowledge that, while it took 125 years to burn through the first trillion barrels of oil, it will only take 30 years to burn through the next trillion. Source

For more information, see:

San Francisco Chronicle: Big Oil Faces Serious Threats to Future Oil Supplies

News.com: Cost of Extracting Oil has Increased Over 80% in Only Eight Years

David Strahan: Big Oil companies hold Secret Meeting to discuss Peak Oil Crisis

UK Independent: Oil companies Facing Devastating Rise in Oil Production Costs

“How do I know Peak Oil isn’t Big Oil propaganda that is being used to create artificial scarcity & justify gouging us at the pump?”
If Peak Oil is “Big Oil propaganda” (as some claim), why did Sonoma State University’s Project Censored declare it one of the most censored stories of 2003-2004? Surely, if “Peak Oil is Big Oil propaganda”, Big Oil would have found a way to get it off the pages of under-funded publications like Project Censored and into the 24/7 television news cycle years ago.

Likewise, if “Peak Oil is a myth propagated by the greedy oil companies to justify high prices”, why didn’t any of the greedy oil company CEOs offer “the peaking of world oil production” as a partial justification for high gas prices when they testified before Congress about high gas prices?

Yet “Peak Oil” was never mentioned during the hearings by either the executives or the Senators questioning them. Given the obvious importance of the issue, any reasonable person can’t help but to ask, “Why the heck not?”

The answer is simple: the true consequences of Peak Oil cannot be acknowledged in such a highly public forum without crashing the financial markets or begging the obvious yet politically-dangerous and “patriotically-incorrect” question:

Is the war in Iraq really a war for the world’s last remaining significant
sized deposits of oil?”

Although the answer to this question should be obvious, any member of Congress who were to broach the issue in such a highly public forum would likely face extreme consequences, both politically and personally.

Finally, if Peak Oil was just “Big Oil” propaganda ask yourself:

#1) Why is Exxon Mobil spending millions of dollars to convince people there is no such thing as Peak Oill? (See Exxon’s anti -Peak Oil advertising campaign)

#2) Why is its CEO, Rex Tillerson, going on MSNBC and denying Peak Oil?

#3) Why is Shell doing likewise?

The answers to these questions are simple if you understand how publicly traded oil comapnies work. An oil company’s share value is dictated first and foremost not by the price of oil but by how much oil that company reports having in reserve. A company can’t admit its reserves are now in decline or it risks seeing its share price drop relative to other companies who report more abundant reserves. In a May 2008 article entitled “Why Exxon Still Denies Peak Oil”, financial analyst Jim Kingsdale explains this in more depth:

The production sharing agreements between the major oil companies and various countries where they produce oil mean that as the price of oil rises, the share of production going to the major oil company declines. Thus, in accordance with their contracts, the oil company’s production shows a decrease even though its revenues increase.

Oil companies don’t like this because Wall Street analysts, in their wisdom, become discouraged by declining production. It causes the analysts to downgrade the stocks, which causes the stock prices to fall. Executives get a lot of their compensation (often most of their compensation) via stock options that are issued every year and sold every year by the executives when the stock price rises. So falling production levels caused by higher oil prices causes the executives’ compensation to fall. Ouch. That’s real money.

Executives, especially Exxon executives, have thought for some time that they could keep oil prices under control by pretending that Peak Oil is a left-wing myth. Or that it won’t happen until we’re all dead. Most executives (other than Exxon’s) have stopped that foolishness by now.

Yesterday, Exxon reported a “plunge” in oil production – in the words of The Financial Times. Revenues and cash flow, mind you, were pretty damn good. But the stock was downgraded by analysts because their oil production declined . . . Source

Big Oil companies are thus motivated to over – not under – report how much oil they have in reserve. This fact, unfortunately, is lost on several commentators such as film-maker Alex Jones, talk-show host George Noory, and minister Lindsay Williams who insist “Peak Oil is a scam by the oil companies to artificially raise prices.” Source #1, Source #2 If these individuals’ claims that “peak oil is just oil company propaganda to promote artificial scarcity” were true, then oil companies such as Exxon would not still be denying Peak Oil.

Companies such as Exxon have denied Peak Oil because they wanted to convey an atmosphere of abundance as this is conducive both to getting the public to keep on buying and to attracting investors. If people knew the truth, they would likely begin drastically curtailing their consumption of oil, which would drive the price down. which would impact the companies’ ability to get loans for future projects. Private investors would likely take action similar to those taken by famed Texas multi-billionaire Richard Rainwater who pulled $500 million out of the financial markets after learning about Peak Oil. Source Other consumers and investors are unlikely to take similarly drastic actions so long as they perceive the current price spikes as just “more of the same old-same old.”

For more information, see:

UK Telegraph: Shell fined $500 million for over-reporting gas reserves

Kuwait has likely grossly over-reported their reserves

Washington Monthly: Saudi Arabia has Drastically Over Reported Their Reserves

“Can’t we just explore more for oil?”
Global oil discovery peaked in 1962 and has declined to virtually nothing in the past few years. We now consume 6 barrels of oil for every barrel we find. Source

According to an October 2004 New York Times article entitled “Top Oil Groups Fail to Recoup Exploration Costs:”
. . . the top-10 oil groups spent about $8bn combined on exploration last year, but this only led to commercial discoveries with a net present value of slightly less than $4bn. The previous two years show similar, though less dramatic, shortfalls. Source
In other words, significant new oil discoveries are so scarce that looking for them is a monetary loser. Consequently, many major oil companies now find themselves unable to replace their rapidly depleting reserves. Source A June 2006 report indicated the world’s biggest five oil companies are now “focusing on developing existing reserves.” That’s a nice way of saying “there aren’t enough significant sized oil fields Sourceleft to find to make it worth our time an d money to look for them.”

Take a look at the above chart. During the 1960s, for instance, we consumed about 6 billion barrels per year while finding about 30-60 billion per year. Given those numbers, it is easy to understand why fears of “running out” were so often dismissed as unfounded, even by people who should have known better. Source

Unfortunately, those consumption/discovery ratios have nearly reversed themselves in recent years. We now consume close to 30 billion barrels per year but find less than 4 billion per year.

In light of these trends, it should come as little surprise that the energy analysts at John C Herold Inc. – the firm that foretold Enron’s demise – recently confirmed industry rumors that we are on the verge of an unprecedented crisis. Source

“What about that giant oil find in the Gulf of Mexico? It’s suppossed to be huge.”
Chevron’s recent find in the Gulf of Mexico, nicknamed “Jack 2”, is estimated to hold between 3 billiion and 15 billion barrels of oil. Source Let’s assume, for the sake of illustration, Chevron’s most optimistic estimate of 15 billion barrels is the most accurate estimate. A fifteen billion barrel field puts the global peak (the halfway mark) off by 7.5 billion barrels. This is less than a four month supply at current rates of consumption. At projected rates of oil consumption for the year 2015 it’s less than a three month supply.

This does not even account for the fact this “huge find” is almost 6 miles below the ocean (source) and thus much more expensive to develop than traditional oil fields where the oil typically bubbles up to ground level when first discovered.

The truth is the Jack 2 field is really a sign of how desperate Big Oil companies are getting when it come to replacing their rapidly dwindling reserve base. There is no reason to look for oil 270 miles off the coast and 6 miles below the ocean surface unless cheaper and easier to extract sources have already been exhausted. This is the whole point Peak Oil commentators have been making for nearly 50 years: once the peak is reached oil will still be available but only at prohibitive energetic and financial costs.

“What About the Oil Sands in Canada?”
Unlike conventional sources of oil, oil derived from these oil sands is extremely financially and energetically intensive to extract. Whereas conventional oil has enjoyed a rate of “energy return on energy invested” (EROEI) of about 30 to 1, the oil sands rate of return hovers around 1.5 to 1. This means that we would have to expend 20 times as much energy to generate the same amount of oil from the oil sands as we do from conventional sources of oil.

Where to find such a huge amount of capital is largely a moot point because even optimistic reports anticipate a peak production of 4 million barrels per day of oil coming from the oil sands around 2020. Source Even if the optimists are correct, a peak of 4 mbd in the context of global demand that is already 85 mbd and growing at a rate of 2-to-5 mbd per year is not going to do much to offest the coming decline.

For more information, see:

Oil Sands Production Costs Skyrocket

Oil Sands Production Costs up 55%

“What About the Oil Shale in the American West?”
The huge reserves of oil shale in the American west suffer from similar problems. While Shell Oil has an experimental oil shale program, even Steve Mut – the CEO of their Unconventional Resources Unit – has sounded less than optimistic when questioned about the ability of oil shale to soften the coming crash. According to journalist Stuart Staniford’s coverage of a recent conference on Peak Oil:

In response to questions, Steve guesstimated that oil shale production would still be pretty negligible by 2015, but might, if things go really well, get to 5 mbpd by 2030. Source
Disinterested observers are even less optimistic about oil shale. Geologist Dr. Walter Youngquist points out:
The average citizen . . . is led to believe that the United States really has no oil supply problem when oil shales hold “recoverable oil” equal to “more than 64 percent of the world’s total proven crude oil reserves.” Presumably the United States could tap into this great oil reserve at any time. This is not true at all. All attempts to get this “oil” out of shale have failed economically. Furthermore, the “oil” (and, it is not oil as is crude oil, but this is not stated) may be recoverable but the net energy recovered may not equal the energy used to recover it. If oil is “recovered” but at a net energy loss, the operation is a failure. Source
This means any attempt to replace conventional oil with oil shale will actually make our situation worse as the project will consume more energy than it will produce, regardless of how high the price goes. Plenty of money, however, will likely be thrown at attempts to develop the oil shale as most investors are as energy-illiterate as the general population.

Further problems with oil shale have been documented by economist Professor James Hamilton who writes:
A recent Rand study concluded it will be at least 12 years before oil shale reaches the production growth phase. And that is a technological assessment, not a reference to the environmental review process. If it takes 15 years to get an oil refinery built and approved, despite well known technology and well understood environmental issues, viewing oil shale as something that could make major contributions to world energy supplies in the immediate future seems highly unrealistic. Source

“What about the Bakken Oil Shale? I heard it’s absolutely huge.”

The Bakken oil shale field was discovered in 1953. In spring of 2008, a series of breathless reports regarding the Bakken shale began circulating the internet. Even if the reports are true, the 4.3 billion barrels supposedly contained within it will push the global peak back by only 2.15 billion barrels. That amounts to about one month’s worth of at current levels of global demand.

The reality is the Bakken “oil find” is not even actual oil, it is shale rock buried 9,000 feet underground that has a tiny amount of oil in it that might someday be extracted with extraordinary cost. An article in the Toronto Star explains:

Assuming all 4.3 billion barrels could be retrieved, it would represent nine months of oil consumption in the United States. Now, let’s consider the nature of the Bakken oil. It doesn’t sit in big underground pools where you can just pop in a metal straw and suck it out. This oil is trapped in layers of shale – a sedimentary rock – up to 3,000 metres deep. It will cost dearly to go after Bakken oil, just as Chevron will have to pay a bundle if it hopes to extract the 3 to 15 billion barrels it has discovered in the Gulf of Mexico, kilometres under the water at its “Jack” wells. The technology exists to get it – at least some of it. We can also have a manned mission to Mars if we truly wanted to pay for it. Source

If everything breaks just right, the Bakken oil shale might produce a maximimum of a few hundred thousand barrels per day albeit at great cost. Oil industry analyst Dave Cohen explains further:

If other parts of the Middle Bakken are as productive as the drilled parts of Elm Coulee, and constant large investment in drilling activity in the western Williston Basin continues, we might see peak production somewhere in excess of 100,000 barrels per day. This is an educated guess, but this estimate is not off by an order of magnitude, i.e. we are talking about peak production rates in the very low hundreds of thousands, not millions, of barrels of oil per day. Source

An extensive independent analysis posted at the peer-reviewed oil industry site The Oil Drum came to similar conclusions regarding the potential of the Bakken Shale:

The Bakken shale has produced about 111 million barrels of oil during the last 50+ years in Montana and North Dakota. Total Bakken production is still rising, and producing at the rate of 75,000 BPD in October 2007. Because of the highly variable nature of shale reservoirs, the characteristics of the historical Bakken production, and the fact that per-well rates seem to have peaked, it seems unlikely that total Bakken production will exceed 2x to 3x current rate of 75,000 BPD. Source

This will, of course, make some money for the companies producing the oil but given the fact global supply will be dropping by 2.5 million barrels per day (or more) per year once the decline really gets under way, a couple hundred thousand barrels per day won’t make much difference to the overall market.

To put 200,000 barrels a day in perspective, consider the fact the world now uses 1,000 barrels per second. Source What this means is that even in the most opitmistic scenario the Bakken oil shale might provide the world with about 200 seconds – or just over 3 minutes – of additional oil per day. That commentators such as Jerorme Corsi have hailed it as a “bonanza” and “proof that oil supplies are nowhere near peaking” (Source) should tell you more about their motives than anything else.

“What About So Called ‘Reserve Growth'”?
In recent years, the USGS and other agencies have revised their estimates of oil reserves upwards. Peak Oil “deniers” often point to this revisions as proof that fears of a global oil shortage are unfounded. Unfortunately, these upwards revisions are best classified as “paper barrels”, meaning they exist on paper only, not in the real world:

A.USGS Poor Track Record

As recently as 1972, the USGS was releasing circulars that estimated US domestic oil production would not peak until well into the 21st century, and possibly not until the 22nd century. (See Theobald, Schweinfurth & Duncan, U.S. Geological Survey Circular 650)

This was despite the fact US production had already peaked in 1970, just as Hubbert had predicted. Richard Heinberg reminds us, “in 1973, Congress demanded an investigation of the USGS for its failure to foresee the 1970 US oil production peak.”

In March 2000 the USGS released a report indicating more “reserve growth.” Colin Campbell responded to the report by reminding us of the ludicrous estimates put out by the USGS in the 1960s and early 1970s:
Let us not forget that McKelvey, a previous director of the USGS, succumbed to government pressure in the 1960s to discredit Hubbert’s study of depletion, which was subsequently vindicated in the early 1970’s after US production actually peaked as Hubbert had predicted. It did so in a very damaging report that successfully misled many economists and planners for decades.,
These deeply flawed upward estimates were released because the USGS is a political organization and optimistic estimates are looked upon favorably by both politicians and the markets. Source

B.EIA Admits Cooking Its Books

In 1998, the EIA released a report showing significant oil reserve growth. In a footnote to report, the EIA explained:
These adjustments to the estimates are based on non-technical considerations that support domestic supply growth to the levels necessary to meet projected demand levels. (EIA, Annual Energy Outlook 1998, p.17)
In other words, they predicted how much they think we’re going to need, and then told us, “Guess what, nothing to worry about – that’s how much we’ve got!”

C.OPEC’s “Spurious Revisions” AKA “Cooking the Books”

During the 1980s, several OPEC countries issued some rather “interesting” upwardly revised estimates of their proven reserves of petroleum. Ron Swenson, proprietor of the website HubbertsPeak.com explains:
Many OPEC countries have been announcing reserve numbers which are frankly very strange. Either their reported reserves remain the same year after year, suggesting that new discoveries exactly match production, or they have suddenly increased their reported reserves by unfeasibly large amounts. Source
The table 1/2 way down this page graphically illustrates Swenson’s points. How were such large increases in reserve size possible without correspondingly large discoveries? The answer is quite fascinating as it connects to the Reagan administration’s amazingly simple strategy to collapse the Soviet Union: bring down the price of oil. Professor Richard Heinberg explains:

Soon after assuming office in 1981, the Reagan Administration abandoned the established policy of pursuing détente with the Soviet Union and instead instituted a massive arms buildup; it also fomented proxy wars in areas of Soviet influence, while denying the Soviets desperately needed oil equipment and technology. Then, in the mid -1980s, Washington persuaded Saudi Arabia to flood the market with cheap oil. Throughout its last decade the USSR pumped and sold its oil at the maximum rate in order to earn income with which to keep up in the arms race and prosecute its war in Afghanistan. Yet with markets awash with cheap Saudi oil, the Soviets were earning less even as they pumped more. Two years after their oil production peaked, the economy and government of the USSR collapsed. Source
While Reagan’s strategy to collapse the Soviets was as simple as it was effective, it came with a catch: the amount of oil an OPEC nation such as Saudi Arabia could pump was tied to the amount of proven reserves it reported as compared to the other OPEC nations. The only way Saudi Arabia could continue to flood the market in support of Reagan’s strategy was to dramatically revise its oil reserve estimates upwards. (If they had not done so, the Reagan adiministration would have withdrawn their military protection of the Saudi Royal family.)

In order to stay competitive under OPEC’s proportional export rule, the other OPEC nations issued similarly bogus upward estimates. Thus most, if not all, of the so-called “reserve growth” in the Middle East is only on paper, not in the ground.

For more information, see:

Is there fraud in the House of Saud?

Saudi Arabia’s oil production in a nosedive

Saudi Arabia’s oil production close to collapsing

Kuwait’s reported oil reserves overstated by 50%

OPEC’s shocking reserve boondoggle

“If the environmentalists get out of the way, can’t we just drill in ANWR?”

While some folks desperately cling to the belief that oil is a renewable resource, others hold on to the equally delusional idea that tapping the Arctic National Wildlife Reserve will solve, or at least delay, this crisis. While drilling for oil in ANWR will certainly make a lot of money for the companies doing the drilling, it won’t do much to help the overall situation for three reasons:

Reason #1. According of the Department of Energy, drilling in ANWR will only lower oil prices by less than fifty cents;

Reason #2. ANWR contains 10 billion barrels of oil – or about the amount the US consumes in a little more than a year.

Reason #3. As with all oil projects, ANWR will take about 10 years to come online. Once it does, its production will peak at 875,000 barrels per day – but not till the year 2025. By then the US is projected to need a whopping 35 million barrels per day while the world is projected to need 120 million barrels per day.

“Won’t the market and the laws of supply and demand address this?”

Generally, when a commodity becomes scarce the price goes up. This causes people to use less of the commodity and begin look for alternatives for it. Unfortunately, energy is not just any commodity. As it is the very basis for all economic activity, including the generation of alternative sources of energy, it is nowhere near as “elastic” as most commodities. Economist Andrew McKillop explains:

One of the biggest problems facing the IEA, the EIA and a host of analysts and “experts” who claim that “high prices cut demand” either directly or by dampening economic growth is that this does not happen in the real world. Since early 1999, oil prices have risen about 350%. Oil demand growth in 2004 at nearly 4% was the highest in 25 years. These are simple facts that clearly conflict with received notions about “price elasticity”. World oil demand, tends to be bolstered by “high” oil and gas prices until and unless “extreme” prices are attained. Source

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
***Click Here to Go to Page Two***
Topics Covered on Page Two Include: Alternative Energy, Solar, Wind, Geothermal, Wave, Hydrogen, Nuclear, Coal, Ethanol, Biodiesel, Thermal Depolymerization, Solar-Nanotechnology, Space-Based Solar Arrays, Hybrid Vehicles, Conservation and Energy Efficiency, Jevon’s Paradox, Wars in Iraq, Iran, Syria, and Venezuela, Possible Solutions and Ways to Prepare.

Leave a Reply

Your email address will not be published. Required fields are marked *

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <s> <strike> <strong>