Tuesday, February 16, 2010

Peak Oil

Crude Awakening: The Effects of “Peak Oil”
By Monica Perez Nevarez

“My grandfather rode on a camel, my father rode in a car, I ride in a jet, my children will ride in cars, and my grandchildren will ride on camels.” Sheik Rashid bin Saeed Al Maktoum, Prime Minister of the United Arab Emirates and Emir of Dubai 1912-1990.

Don’t think that just because gas prices have been inching down recently, that oil will ever be cheap again. Civilization is facing the peak of world oil production, and that has some startling repercussions.

Fossil fuels in general and petroleum in particular have been one of the most important stimuli of economic growth and prosperity in history, allowing humans to live comfortably, but beyond their environmental means. Since oil is a finite resource, when oil production decreases, modern technological society will be forced to change drastically in order to adapt to its new reality. Or at least to the reality of the late 19th century, before fossil fuels became the premier source of energy. And that is precisely what a small cadre of geophysicists, scientists and academics have been saying will happen for decades.

“There is no comprehensive substitute for oil in its high-energy density, ease of handling, myriad end-uses, and in the volumes in which we now use it. The peak of world oil production and then its irreversible decline will be a turning point in Earth history with worldwide impact beyond anything previously seen. And that event will surely occur within the lifetimes of most people living today.” Youngquist, 2004

Decades of Whispers
The consequences of running out of oil to industrial society was envisioned by historian Henry Adams in 1893, quantified by architect Frederick Ackerman in 1932, and graphed by geophysicist King Hubbert in 1949.

Henry Adams, Historian (1838-1918) and great grandson of the second President of the United States defined energy broadly to include not only steam engines or electricity but also any force capable of organizing and directing people. Adams concluded that electrification was part of a larger process of historical acceleration, which would lead to an inevitable social decline. It seemed probable to him that the ultimate result of exploiting new energy systems would be the apocalyptic end of history. (David E. Nye, Electrifying America. 1990)
Frederick Lee Ackerman, Architect (1878-1950): In 1919, Ackerman was a founding member of the Technical Alliance (later Technocracy Inc.). The group consisted of a broad spectrum of eminent professionals. In 1932 Ackerman published his seminal paper “The Technologist Looks at the Depression”, wherein he observed that new energies were accelerating social change.
From about 4000 B.C.E. to 1750 C.E., Ackerman noted, the common welfare was limited to the work that man could do with his hands and a few crude tools. Social change, he concluded, involves a change in the techniques people use to live and work. A “social steady state” is any society in which the quantity of energy expended per capita shows no appreciable change as a function of time, whereas a society where the average quantity of energy expended per capita undergoes appreciable change exhibits “social change.” So the energy per capita equals the total amount of energy expended divided by the population. (Ackerman, 1932)

Hubbert’s Peak
In 1949 geophysicist M. King Hubbert, noted that world energy consumption per capita, after historically rising very gradually from about 2,000 to 10,000 kilogram calories per day, then increased to a much higher level in the 19th century. Further, he believed it possible for global society to maintain a high level of energy consumption indefinitely (later he labeled this “Course I”). But he also realized that society could permanently collapse back to “the agrarian level of existence” (“Course III”).

The historical data through 2003 now rules out Hubbert’s most optimistic Course I. This leaves global society with only two feasible futures: Course II (an orderly decline of energy consumption to a medium steady state) and Course III (collapse to the agrarian level of existence).

After many revisions, Hubbert’s “Peak Oil” theory predicted that United States oil production would hit its highest point between 1965 and 1970. According to Hubbert, the production rate of a limited resource follows a roughly symmetrical bell-shaped curve based on the limits of exploitability and market pressures. His model has since been used by many others to predict the peak petroleum production of the whole world. To his credit, worldwide oil discoveries have been less than annual production since 1980, and no new “light sweet crude” fields have been found since the 1960’s even though billions of dollars have been spent looking for them.

Back from the Future? The Olduvai Theory
In 1976 Richard C. Duncan, Ph.D., posited a theory that when fossil fuels run out society would slide into a post-industrial Stone Age which he named the Olduvai Theory. He concluded then that the “life expectancy of Industrial Civilization is horribly short and measured in world energy-use per person” (see a copy here http://postindustrialcivilization.blogspot.com/ ). He based his theory on the facts that fossil fuel reserves were finite and that as population increased, energy demand increased. He named his theory Olduvai (also known as the Transient Pulse Theory) as a metaphor to suggest an impending return to an agrarian society when we run out of fossil fuels because some of the earliest human fossil remains have been found in the Olduvai Gorge in Tanzania. The “Transient Pulse” second name explains that because there is only a finite amount of fossil fuels on earth, their lifecycle is discovered, exploited, and then experiences a sharp drop off as the reserves are exhausted. Therefore the “Pulse” is transient, not recurring.

In October 1989 Duncan gave a speech at the American Society of Engineering Educators Conference in New York, titled "Evolution, Technology, and the Natural Environment: A Unified Theory of Human History", in which he concluded that the broad sweep of human history can be divided into three phases: The first, or pre-industrial phase was a very long period of equilibrium when economic growth was limited by simple tools and weak machines. The second or industrial phase was a very short period of non-equilibrium that ignited with explosive force when powerful new machines temporarily lifted all limits to growth. The third, or de-industrial phase lies immediately after the second phase, during which industrial economies will decline toward a new period of equilibrium, limited by the exhaustion of non-renewable resources and continuing deterioration of the natural environment. It wasn’t until 1993 that Duncan was able to test his theory with actual population numbers from the United Nations and British Petroleum which showed there had been a peak in 1978 and a steady decline after that.

Although all primary sources of energy are important, the Olduvai theory postulates that electricity is the essence of the Industrial Civilization, and currently demand can only be satisfied by fossil fuels. World energy production per capita increased strongly from 1945 to its all-time peak in 1979. Then from 1979 to 1999 - for the first time in history - it decreased at a rate of 0.33% per year (the Olduvai 'slope'). From 2000 to 2011, according to the Olduvai theory, world energy production per capita will decrease by about 0.70% per year (the 'slide') and may create unprecedented unemployment, economic hardship, and homelessness. Then around the year 2012 the theory posits there will be a worldwide rash of electrical blackouts. These blackouts, along with other factors, will cause energy production per capita by 2030 to fall to the same value it had in 1930, the year petroleum became society’s cheapest source of energy. The rate of decline from 2012 to 2030 is 5.44% a year (the Olduvai 'cliff'). Thus, by definition, the duration of Industrial Civilization is about 100 years.

The impact of Peak Oil will depend on the rate of decline, use of other fossil fuels to take up the slack, developing stringent conservation measures and adopting effective alternative sources of energy (wind, solar, water, fourth-generation nuclear). If alternatives are not found, the products produced with oil such as fertilizers, detergents, solvents, adhesives, and most plastics, would become scarce and expensive, not to mention the direct uses for oil such as transportation and generating electricity. This rise in the cost of petroleum will lower living standards, and in the worst case scenario could lead to worldwide economic collapse, particularly in light of its effect on food production. With increased tension between countries over dwindling oil supplies, political situations may change dramatically and inequalities between countries and regions may be exacerbated, posing a national security threat to many countries. As if that were not enough, the use of other fossil fuels to generate power, in particular coal, will have a much more deleterious effect on the environment than petroleum, with some scientists such as Dr. James Hanson, from NASA’s Goddard Space Center, going as far as saying that all coal fired electricity plants that cannot capture CO2 emissions should be bulldozed to the ground because they will damage the environment much more than petroleum ever will.

“Where mainstream forecasts showed output rising steadily each year in a great upward curve that kept up with global demand, Dr. Sadad Al-Husseini’s calculations showed [oil] output leveling off, starting as early as 2004. Just as alarming, this production plateau would last 15 years at best, after which the output of conventional oil would begin a gradual but irreversible decline.” Tapped Out by Paul Roberts, National Geographic, June 2008

Timing the Peak
So when is Peak Oil going to happen? Predictions of the timing of peak oil include the possibilities that it has recently occurred, that it will occur shortly, or that a plateau of oil production will supply world demand for several more decades. None of these predictions dispute the peaking of oil production, and disagree only on when it will occur. But the fact is that there’s plenty of evidence that oil production has already peaked, and growing demand from developing giants like China and India may skew these results even further.

Mathew Simmons, author of Twilight in the Desert: The Coming Saudi Oil Shock and the World Economy, and CEO of the largest energy investment house in the US, said in a recent Youtube video that "...peaking is one of these fuzzy events that you only know clearly when you see it through a rear view mirror, and by then an alternate resolution is generally too late." According to his calculations, oil production peaked in May 2005.

Kenneth s. Deffeyes argues that world oil production peaked on December 16, 2005. Data from the US Energy Information Administration show that world production leveled out in 2004, and reached a peak in the third quarter of 2006, and an October 2007 retrospective report by the Energy Watch Group concluded that this was the peak of conventional oil production. Sadad Al Husseini, former head of Saudi Aramco’s production and exploration department, stated in an October 29, 2007 television interview that oil production had likely already reached its peak in 2006, and that assumptions by the International Energy Agency and Energy Information Administration of production increases by OPEC are "quite unrealistic."

“All the easy oil and gas in the world has pretty much been found. Now it’s time for the harder work of finding and producing oil from more challenging environments and work areas.” William J. Cummings, major oil-company spokesman, December 2005

Texas oilman T. Boone Pickens, CEO of British Petroleum, stated in 2005 that worldwide conventional oil production was very close to peaking, and in August 2008 issued a challenge to America to convert to alternate sources of energy through the “Pickens Plan” (http://www.pickensplan.com/theplan/) . Pickens knows that a nation holding less than 3% of the world’s oil reserves while guzzling 20% of the world’s production will never be able to drill its way out of its dependency on foreign oil. He also considers it absolute madness — financially and in terms of national security — to be spending $700 billion every year on imported oil produced in volatile and in some cases hostile countries.

His answer is to develop wind power in states with steady, forceful winds (like Texas) and use it instead of natural gas to produce electricity (natural gas now generates about one-fifth of the power in the United States). He would then use the natural gas saved to fuel cars and trucks. He predicts that oil imports would drop by 40% and the country would save $300 billion a year. It is not clear whether natural gas is the right choice for Puerto Rico. On a macro scale, it is possible that one large intra-island railway and an efficient metropolitan mass transit system may open the door for electric cars as personal transportation options, and the added expense of changing to natural gas could be avoided. Currently there are electric cars being produced for all sectors of the economy: from “daily commute” vehicles to load bearing trucks, to luxury sedans, to expensive” exotics”. There is something for everyone. As for the dollars sent overseas, Puerto Rico spends $4 billion dollars a year at current prices; but what is even more enervating, one out of every seven kilowatt/hours of electricity produced is “lost”, or a loss of revenue of $602 million in 2007, and a cumulative $2.5 billion over the last six years.

Studies from around the world show that the Great Plains states are home to the greatest wind energy potential in the world. The Department of Energy reports that 20% of America's electricity can come from wind, and North Dakota alone has the potential to provide power for more than a quarter of the country.

There are, Pickens concedes, obstacles. The country would need to rebuild the power grid to transmit wind energy from the Great Plains to consumers in the big population centers. It would need lots of service stations capable of selling natural gas. And automakers would need to produce cars that run on natural gas. There are about 8 million such vehicles in the world, but only 142,000 in the United States.

Mr. Pickens is putting his money where his ideas are, and in Texas he has begun assembling the pieces of a huge wind farm. He estimates the cost at $6 billion to $10 billion (his Mesa Power is the lead investor). He confidently forecasts that this wind farm and others like it will not only reduce the demand for oil but create thousands of construction and operating jobs.

In Puerto Rico, a debate has been raging over a wind farm that was recently given permission to proceed on the southwest coast of the island. While wind power in general is a no-brainer as an alternative source of energy for Puerto Rico, placing the wind farm next to a migratory bird sanctuary was an unfortunate choice, as well as its leeward location on the island, which does not make the most efficient use of the Trade winds that constantly bathe the windward coast (the northeast edge) of the island. Business Puerto Rico tried unsuccessfully to communicate with its developer.

The Cost of Change
The problem is that most people don’t really understand the total cost of implementation; the direct costs to the electricity grid. Without electricity, nothing can be produced, and the investment required to maintain what already exists today is staggering. Richard Duncan thinks that “permanent blackouts are coming and sooner or later the power grids will go down and never come back up.” Why? The International Energy Agency (IEA, 2004) estimates that the cumulative worldwide energy investment funds required from 2003 to 2030 would be about $15.32 trillion. Thus the IEA projects that the worldwide investment funds essential for electricity will be 3.7 times the amount needed for oil alone, and more than all of that required for oil, gas, and coal combined. The already debt-ridden nations, cities, and corporations will not be able to raise the investment funds required by 2030 for world energy. (Not to mention the vastly greater investment funds required for agriculture, roads, streets, schools, railroads, water resources, sewer systems, and so forth.) And going after offshore or shale sands will only be a stop-gap solution that lengthens the use of fossil fuels by a few years, and is not a long-term solution.

“Highly hyped liquid substitute fuels, such as ethanol from corn and liquids from coal or oil shale, come with their own unique baggage. They can't be scaled up quickly, require huge energy and water inputs, and pose a range of environmental problems.” Huffington Post

The ramifications of Peak Oil are legion, because it is the basis of so many businesses, so many products, and is such a large part of everyday life. It affects all individuals, all companies, all nations, all foreign policy, the balance of power between nations, all industrial food production and the global economy in ways too numerous to be obvious to the individual consumer. Richard Holbrook, former US Ambassador, recently interviewed on Fareed Zakarias’s CNN show, Global Public Square (GPS) summarized it this way: “Every single day, $2.2 Billion dollars flow to oil producing countries from oil consuming countries; $1.3billion comes from the US alone. Venezuela rakes in $250 to $300 million dollars a day, which President Chavez spends by investing five times as much on Latin American Aid as the US does, in that way shoring up their support, as well as buying $50 billion dollar’s worth of military weapons from Russia last year, and in that way potentially destabilizing relations with the US. There is a huge transfer of wealth to countries that are at odds with US interests, and the petrodollars are changing the balance of power in this hemisphere. Petro power is no doubt changing the world. The problem is that economic decline weakens the US more than war.” Putting that into a local perspective, Puerto Rico may become the refuge of last resort for the rest of the poorer nations in the Caribbean.

“We need to mobilize for [an energy] war. It’s time to get going. It’s a matter of personal responsibility.” James Woolsey, former Director of the CIA, who owns a self-sufficient solar-powered home and a hybrid car, speaking about Peak Oil. We Were Warned: Running out of Gas, CNN Special investigations Unit, August 2008

“Solar powered homes are a hedge against Peak oil.” We Were Warned: Running out of Gas, CNN Special investigations Unit, August 2008

To further exacerbate the situation, oil producers will tend to keep a little more for themselves rather than selling it on the open market. One study, the Export Land Model, shows that the amount of oil available internationally drops much faster than production in exporting countries because the exporting countries maintain set-asides for their internal growth in demand and therefore deprive the global market of that amount of oil.
Peak oil would leave many people unable to afford petroleum-based fuel for their cars, and force them to move to cities or higher density areas, where walking and public transportation are more viable options. People will have to choose between their jobs in the city, and their homes and lifestyles in the suburbs. One theory being bandied about is that everyone will move into ten or twenty mega-cities. Who knows? Suburbia may become the slums of the future. There are solutions: mass-transit, long-distance trains and bullet trains, new pedestrian areas within cities, “smart growth” and “New Urbanism”, but they all entail planning, financing, and change. Inevitably, the hardest hit sector of the population will be the commuters. Unless suburbs can be transformed to include commercial, services and manufacturing companies within a twenty mile radius of where people live, those communities will be too isolated to make them useful living spaces.

"The peaking of world oil production presents the U.S. and the world with an unprecedented risk management problem. As peaking is approached, liquid fuel prices and price volatility will increase dramatically, and, without timely mitigation, the economic, social, and political costs will be unprecedented. Viable mitigation options exist on both the supply and demand sides, but to have substantial impact, they must be initiated more than a decade in advance of peaking." US Department of Energy, Hirsh Report, Peaking of World Oil Production: Impacts, Mitigation, & Risk Management, 2005

Peak Oil, Industrial Agriculture and Food Scarcity

Since the 1940s, agriculture has dramatically increased its productivity, due largely to the use of petrochemical derived pesticides, fertilizers, and increased mechanization (the so-called “Green Revolution”, when industrial farming was born). This has allowed world population to more than double over the last 50 years. However, every “energy unit” delivered in food grown using modern industrial techniques requires over ten energy units to produce and deliver. Many agriculture, petroleum, sociology, and ecology experts have warned that the ever decreasing supply of oil will inflict major damage to the modern industrial agriculture system causing a collapse in food production ability and food shortages. One problem stems from the fact that a field that has been doused with petrochemicals takes years, sometimes decades, to become productive again, so once the petrochemicals are gone, all the land currently under industrial farming practices will be unusable for organic farming: the land will be inert, and could turn to desert. This situation has given new impulse to the “local food” movement, which originally was an offshoot of organic farming, and now is fast becoming the only intelligent alternative to growing food.

Another example of the chain reactions which could be caused by Peak Oil involves growing biofuels; the problems caused by farmers raising corn, sugar and soy for inefficient energy production has lowered food production and caused food prices to rise. This “food versus fuel” issue will be exacerbated as demand for ethanol and biofuel increases. In Puerto Rico, farmers desperate to make a profit have decided to try anything in order to keep working, even if it means growing crops that have succeeded in other countries (sugar in Brazil), but are contraindicated for Puerto Rico considering the island must be food-secure, and every inch of land spent on ethanol will take away land that can be used for growing edible goods. In the absence of an overall plan for the economic development of the island, farmers have to keep their income stream flowing. This makes the publication of the Land Use Plan and a cogent Transition Plan back to sustainable agrarian methods important first steps towards a stable future.

One positive effect of oil shortages might be a full return to organic farming in order to satisfy the sustainability requirement of food production. In light of Peak Oil concerns, organic methods can be maintained indefinitely and they use no petroleum-based pesticides, herbicides, or fertilizers. Some farmers using modern organic-farming methods have reported yields as high as those available from conventional farming. Industrial farming may have to evolve back into smaller, family owned plots near their markets. Organic farming is more labor-intensive and would require a shift of a work force from urban to rural areas, and distribution may be limited to a couple of hundred miles away from the end-user, making local farms a small business opportunity for the future.


Based on finite fossil fuel resources, energy per capita is indeed headed towards a cliff, and this may lead mankind back to an agrarian society if action is not taken to address this problem. The journey back to Olduvai is basically unavoidable once the fossil fuels are used up. The only chance civilization has is deciding whether it wants to change in a managed and orderly form to sustainable practices or change abruptly and violently while blindly holding on to an ever decreasing resource.

Here at Business Puerto Rico we think it is within our capacity to build a new energy gathering infrastructure to substitute for the decline in conventional fossil fuels; Puerto Rico certainly has the talent. By combining energy efficiency measures with the simultaneous expansion of alternate energy sources, we can secure a civilized transition into the XXI century. A tremendous opportunity exists to build a more sustainable energy future and building this future will provide vast opportunity for economic growth and prosperity. But it will take dedication to sustainable methods of living and working, consensus from all sectors on a shared vision of the future, and a little sacrifice from everyone: individuals that must learn to conserve and use resources wisely, as well as businesses that must learn new ways of doing business, and a government that frames the business environment and the natural environment in ways that allow both to grow and thrive. Amassing great wealth in fewer and fewer hands will become harder to do; spreading the wealth may end up saving a company, as counter-intuitive as that may sound.

This generation faces the most daunting challenge ever faced by humanity: the effects of Peak Oil and Climate Change. Both have about a ten year window before catastrophic consequences permanently derail civilization’s progress. There can be no doubt that just as the Global Economy has shaken up our economic way of life, these two other factors need serious attention immediately, and any viable solution will have to respect all three world-wide trends.

“It’s hard to get a man to understand something when his income depends on him not understanding it.” -Upton Sinclair

Ultimately, what this situation calls for is letting go of preconceived ideas: how people “ought” to live, how much they “should” spend or consume, where they “must” work. The opportunity presents itself to visualize a totally different future than what we had expected; and that may not be a bad thing.