Sacramento Post-carbon Action Network (SPAN)

http://www.peakoilassociates.com/PeakOilAnalysisOctober6-2007.pdf

PEAK OIL: ALTERNATIVES, RENEWABLES, AND IMPACTS

Clifford J. Wirth, Ph.D.
October 6, 2007 (Updated Monthly)
www.peakoilassociates.com
clifford.wirth@yahoo.com
603-668-4207

SUMMARY

This paper examines scientific and government studies in order to provide reliable conclusions about Peak Oil and its future impacts. Independent studies indicate that global oil production peaked in 2006 (or will peak within a few years) and will decline until all recoverable oil is depleted within several decades. Because global oil demand is increasing, declining production will soon generate high energy prices, inflation, unemployment, and irreversible economic depression. Alternative sources of energy will replace only a small fraction of declining oil production. Because oil under girds the world economy, oil depletion will result in global economic collapse and population decline. As oil exporting nations experience both declining oil production and increased domestic oil consumption, they will reduce oil exports to the U.S. Because the U.S. is highly dependent on imported oil for transportation, food production, industry, and residential heating, the nation will experience the impacts of declining oil supplies sooner and more severely than much of the world. North American natural gas production has peaked, importation of natural gas is limited, and the U.S. faces shortages of natural gas within a few years. These shortages threaten residential heating supplies, industrial production, electric power generation, and fertilizer production. Because U.S. coal production peaked in 2002 (in terms of energy provided by coal), the U.S. will experience significantly higher coal and electric prices in future years as coal production declines. The U.S. government is unprepared for the multiple consequences of Peak Oil, Peak Natural Gas, and Peak Coal. Multiple crises will cripple the nation in a gridlock of ever-worsening problems. Within a few decades, the U.S. will lack car, truck, air, and rail transportation, as well as mechanized farming, adequate food and water supplies, electric power, sanitation, home heating, hospital care, and government services.

CONCLUSION

This examination of Peak Oil studies indicates that global oil production peaked in 2006 or that it will peak within a few years. Because the global demand for oil is rising rapidly, increasing oil prices, inflation and economic recession will accompany declining production. Because the U.S. is highly dependent on oil and highly dependent on imported oil, the U.S. will experience major problems regarding Peak Oil. The figure below shows the widening gap between the share of imported oil and domestic oil consumed by the U.S.

Source: GraphOilogy February 27, 2006

The graph below (TrendLines) shows an array of global oil depletion scenarios. As indicated previously in this paper, the most reliable projections are those close to ASPO’s projection (yellow line). Many Peak Oil writers indicate that “Peak Oil means not running out of oil, but running out of cheap oil.” Although this statement is true for the short term, the world is running out of oil in the long term. Regardless of which projection is applied, the end result is the same – terminal depletion. And because more and more oil is used in the production and processing of crude oil, there is less and less net oil produced. The projection scenarios are therefore more accelerated for net oil produced.

Source: TrendLines Peak Oil Depletion Scenarios, August 2007

Also, because the world population is growing, the per capita consumption of oil will fall faster than the overall decline rate, as shown in the table “Oil Production (barrels per capita),” below:

Oil Production
(Barrels per capita)

USA World

1900 1.0 0.1
1920 4.0 0.4
1940 10.0 1.0
1960 14.5 2.5
1980 13.6 4.5
2000 7.0 4.0
2020 2.2 2.7
2040 0 1.4

Source: ASPO-Ireland

For the U.S., the decline in supply of oil will be far more accelerated than for the global oil depletion scenarios. As the price of oil increases, the U.S. as world’s largest debtor nation will lack the financial resources to buy the oil needed to sustain its economy. It is not clear whether the U.S. will use military power to attempt to obtain oil in the future, nor is it certain that military power would be effective in garnering oil from diverse global locations. Under the most optimistic oil supply scenario, however, terminal oil depletion would be pushed back some years, but the end result is the same—terminal depletion.

Alternative Energies

All alternative liquid energy sources combined could yield at most the equivalent of a few million barrels of oil per day. This supply would replace only a small fraction of declining global production of oil, leaving a large and widening gap between increasing demand and declining production. There are insurmountable obstacles in ramping up oil production from coal gas-to-liquid (GTL), Canadian oil sands, and oil shale. First, developing substantial oil production from coal GTL and oil shale requires the consumption of enormous quantities of finite water resources that are already stressed by urban populations and agriculture in western states. Second, the production of these three sources of energy damages the local environment and increases atmospheric CO2 levels. Third, the capital costs for these ventures would be enormous, and increasing inflation (that is generated by high energy prices) will limit coal GTL plant construction and constrain the production of these energies. Fourth, the high cost for imported oil will drain the financial resources needed for developing alternative energies. For example, the concept of producing biodiesel from algae farmed on-shore or off-shore will not be implemented on a large scale. Even though these two approaches show some promise of providing limited amounts of liquid fuels, the billions of dollars of capital investment needed for these ventures will be unobtainable in an era of high inflation, high energy costs, and high capital costs (oil and natural gas energy would be needed to build the infrastructure of these mega-projects). There are no scientific studies indicating that alternative energies can produce significant amounts of liquid fuels. On the contrary, the studies reviewed in this report indicate that alternatives will not provide significant amounts of liquid fuels.

Non-Fungibility of Energies

Efforts to manage the Peak Oil crisis will be circumscribed by the inability to substitute one form of energy for another (without making expensive and lengthy modifications). Shortages of one type of energy cannot be filled by other types. Trucks and cars use only diesel or gasoline, not electricity or natural gas; residential and commercial buildings use only one source of energy for heating; and electric power can only be generated by the current use of either, coal, natural gas, or oil (without making costly alterations). When the nation experiences shortages of natural gas, oil cannot be substituted and vice versa. Without costly modifications, electric power cannot replace oil and natural gas for heating homes, businesses, schools, and hospitals.

Solar, nuclear energy, and coal are primarily useful for generating electric power, but these energies do not provide liquid fuels needed for transportation or mechanized agriculture, nor do they provide raw materials for manufacturing or fertilizer. Thus, an unlimited amount of electric power from solar, coal, nuclear fission, or nuclear fusion would not fix the nation’s energy problems.

Interdependence in the Production of Energy

The production of each type of energy is highly dependent on other types of energy. Shortages or high energy prices for one type of energy will limit the production of other energies. Oil is critically important in the production of all forms of energy. Shortages in oil will mean shortages in gasoline, diesel, and jet fuel. Thus oil rig workers won’t be able to travel to the oil fields and off-shore platforms; coal won’t be mined or transported; electric power won’t be generated in some plants; roads and bridges won’t be maintained; and spare parts won’t be delivered for oil drilling and refining, electric power generation, and for natural gas production. Shortages of natural gas will constrain oil production from Canada’s oil sands.

Inflation and Scarce Capital

High energy costs will generate rising inflation in most sectors of the economy. Scare capital will result from the need to spend more and more national wealth on buying oil needed for food, transportation, heating, producing energy. The construction of nuclear power plants, coal GTL plants, and solar based alternative energy projects will become more and more costly as the price of oil rises. Individuals will lack the resources to build new homes close to agricultural production, buy energy efficient vehicles, (especially because the trade-in values for low-gas-mileage-vehicles will plummet), and retrofit homes with passive solar installations, super-insulated dormitories, or wood stoves.

Limits of Market Economies

Corporate enterprises exist mainly to make financial profits. Abundant fossil energies bolstered expanding economies and corporate profits. Oil and technology are the key factors that have expanded economies for over a century. Oil depletion and ever-deepening recession will erase profits and most corporations will fail.

In an era of rapid inflation and deepening depression, investments in banks, equities, and bonds will shrink in value. Individual investors will lack funds for investing. Investments in banks, bonds, equities, and pension and retirement funds represent promises to provide products and services derived from oil, natural gas, and coal at some time in the future. As the cost of energy increases, the real value of these investments will decrease. In a few years, such funds will be worth far less than today, and some years later those investments will be worthless. When investors and the public understand this future, they will avoid investing in financial institutions.

Because of ever-worsening economic depression and uncertainty about the future, banks will hesitate in making loans for ultra deep water exploration and production, development of coal GTL, construction of nuclear power plants and wind turbines, relocation of housing from metropolitan areas to agricultural areas, and development of cargo rail and public transportation.
Finally, as the cost of energy production rises rapidly, financial institutions and investors will hesitate to invest in energy producing ventures which may prove unprofitable in the future.

Pervasive Ignorance about Energy
The public and leaders in business, industry, government, the media, and even many scientists in the energy field are ignorant of many basics about energy and society. Very few understand that energy is not just one of many issues, rather, energy is the most critical issue -- because energy under girds modern society. Because few leaders lack a basic understanding of energy sources, the nation will continue to direct attention toward the hydrogen economy, corn ethanol, wind power, and solar energy -- even though the most authoritative sources agree that these are not solutions for the liquid fuels problems facing the nation. Similarly, the media will continue to provide misinformation regarding “new discoveries,” “new technologies” and “breakthroughs” (two examples: The New York Times and BusinessWeek). Very few scientists in the energy field are cognizant of “the limits to growth” studies by Mathews, Matthews and Randers showing that depletion of fossil fuels will cause global economic collapse. For the most part, scientists have assumed that energy problems could be overcome. Professor Kenneth E. Boulding made the following critique of the 1977 National Academy of Science and National Academy of Engineering (NAS/NAE) study “Energy in Transition 1985-2010.” (page 617):
“In preparing for the future, therefore, it is very important to have a wide range of options and to think in advance about how we are going to react to the worst cases as well as the best. The report does not quite do this. There is an underlying assumption throughout, for instance, that we will solve the problem of the development of large quantities of usable energy from constantly renewable sources, say, by 2010. Suppose, however, that in the next 50, 100, or 200 years we do not solve this problem; what then? It can hardly be doubted that there will be a deeply traumatic experience for the human race, which could well result in a catastrophe for which there is no historical parallel.
It is a fundamental principle that we cannot discover what is not there. For nearly 100 years, for instance, there have been very high payoffs for the discovery of a cheap, light, and capacious battery for storing electricity on a large scale; we have completely failed to solve this problem. It is very hard to prove that something is impossible, but this failure at least suggests that the problem is difficult. The trouble with all permanent or long-lasting sources of energy, like the sun or the earth’s internal heat, is that they are extremely diffuse and the cost of concentrating their energy may therefore be very high. Or with a bit of luck, it may not; we cannot be sure. To face a winding down of the extraordinary explosion of economic development that followed the rise of science and the discovery of fossil fuels would require extraordinary courage and sense of community on the part of the human race, which we could develop perhaps only under conditions of high perception of extreme challenge. I hope this may never have to take place, but it seems to me we cannot rule it out of our scenarios altogether.”
This same critique applies to many current energy studies. Many scientists appear to have forgotten several basic realities about energy. First, because energy can neither be created nor destroyed, energy cannot be invented. Second, energy must be consumed to produce energy. Third, a great deal of energy must be used to concentrate renewable energies, especially solar energy from the suns rays. Fourth, the world is consuming oil, natural gas, and coal in enormous quantities. Finally, unlimited production of electric energy would not address the transportation and food production problems facing the U.S.
The Governmental Response
Federal government has not been planning for Peak Oil and its multiple impacts. The House of Representatives sponsors a Peak Oil Caucus, but only 15 of 435 congressmen are caucus members. The Caucus’ most important accomplishments are to requisition the GAO study of the government’s response to Peak Oil and to record congressional testimony of scientists who warn about Peak Oil. The government has no risk management plans for Peak Oil. Below are the findings of the GAO study “Crude Oil: Uncertainty about the Future Oil Supply Makes it Important to Develop a Strategy for Addressing a Peak and Decline in Oil Production” (2007):
“Officials of key agencies we spoke with acknowledge that their efforts—with the exception of some studies—are not specifically designed to address peak oil. Federally sponsored studies we reviewed have expressed a growing concern over the potential for a peak and officials from key agencies have identified some options for addressing this issue. For example, DOE and USGS officials told us that developing better information about worldwide demand and supply and improving global estimates for non-conventional oil resources and oil in “frontier” regions that have yet to be fully explored could help prepare for a peak in oil production by reducing uncertainty about its timing. Agency officials also said that, in the event of an imminent peak, they could step up efforts to mitigate the consequences by, for example, further encouraging development and adoption of alternative fuels and advanced vehicle technologies. However, according to DOE, there is no formal strategy for coordinating and prioritizing federal efforts dealing with peak oil issues, either within DOE or between DOE and other key agencies.”
The GAO recommended that the Department of Energy (a large bureaucracy that is a captive of the energy industry) study this issue and develop a strategy to deal with Peak Oil. The Peak Oil crisis, however, requires independent scientific analysis, as well as presidential and congressional leadership. The GAO should advise Congress, the President, and FEMA to prepare risk management strategies for Peak Oil impacts. Studies by the DOE, FEMA, NAS, GAO, and CBO should warn the nation about the imminent catastrophe. Instead, these agencies have done nothing, or they hinged hopes on alternative energies, or they see the catastrophe ahead but issue no clear warnings. No government agencies have studied how industry, business, and government will deal with the catastrophic problems ahead.

Federal, state, and local governments will do little to adopt policies to prepare for Peak Oil. Interest groups and constituency preferences explain the voting of most U.S. congressmen, state legislators, and local officials. Government policy-making will not yield rational and scientific policies, but rather policies that interest groups and constituents think are in their best interest. The general public and leaders in business, government, the media, and the academic community believe that the U.S. can find more energy or we can develop some alternative energy and continue along a path of economic growth. Many citizens and leaders believe deeply that solar energy, hydrogen, biomass, ethanol, other renewables, or some invention will provide adequate energy for the economy. Deeply ingrained in the American psyche is the belief that we can accomplish almost anything if we apply technology and hard work to the task. As the energy crisis deepens, all available energy will be used in food production, transportation, heating, and in handling emergencies. The national government, therefore, will not make any major initiatives toward developing: real energy conservation policies, relocation of the population to agricultural areas, local farming infrastructure based on animal and human labor; community farming and food preservation; freight and passenger rail systems; alternative programs for providing domestic potable water; passive solar installations; highly insulated dormitory rooms in homes; and provisions for residential waste disposal.

Quicksand Effect

Chris Shaw has observed a “quicksand effect” for energy production: it takes energy to get energy, and because the highest quality oil is extracted first, high quality oil must be expended to get oil that is of lower quality. And as depletion progresses, we must spend more and more energy to get less and less in return, until the difference between energy invested and energy returned is zero. To produce oil, more and more oil must be consumed by constructing more and more oil rigs for drilling smaller and smaller oil pockets. For off-shore oil drilling, larger and larger rigs, platforms, and ships must be constructed to extract oil from greater and greater depths. Matthew Simmons indicates that the replacement of aging oil rig, refinery, and pipeline equipment and infrastructure will cost a great in the coming years. The manufacturing and transport for this equipment and infrastructure will use much in oil. The Canadian oil sands are another case of this quicksand effect. In order to get 3 units of low quality oil energy, 2 units of high quality natural gas are expended. The net energy gain is actually less when we count all of the energy costs in oil sands production: natural gas for processing and refining; oil and natural gas used to manufacture trucks, processing equipment, pipelines, and airplanes (for transporting workers); and the energy used by trucks, processing equipment, airplanes, and pumps. In addition, the oil sands operations pollute local water resources and generate much air pollution and carbon dioxide. Similarly, the GAO study found that “EOR [enhanced oil recovery] technologies [to get additional oil from depleted oil fields] are much costlier than the conventional production methods used for the vast majority of oil produced,” and “operating costs for deep water rigs are 3.0 to 4.5 times more than operating costs for typical shallow water rigs.” The same concept applies to the use of high quality oil and natural gas energy to produce alternative sources of energy, such as corn ethanol, bio-diesel, wind turbines, and nuclear power.

Multiple Crises

Peak Oil means that the U.S. lacks the energy necessary to provide for transportation, food production, industry, manufacturing, residential heating, and the production of energy. Oil shortages and natural gas shortages will generate multiple crises for the nation. A few examples are as follows. (1) Shortages in gasoline, diesel, and jet fuel will limit travel to work for oil rig/platform workers and technicians, coal miners, highway maintenance personnel, and maintenance workers for electric power generation stations and power lines. (2) Without truck and air transport, spare parts for virtually everything in the economy won’t be delivered, including parts needed for highway and energy production maintenance equipment (Simmons notes that 50,000 unique parts are necessary to create a working oil field; far more parts are necessary for ships and platforms for ultra deep water drilling).
(3) The states will lack the funds needed to maintain the Interstate Highway System, including snow plowing, bridge repair, surface repair, cleaning of culverts (necessary to avoid road washouts), and clearing of rock slides. A failure in one section of the Interstate means a cut off of transportation for that highway and everything it carries: food, emergency supplies, medicine, medical equipment, and spare parts necessary for energy production. (4) The power grid for all of North American will fail due to a lack of: spare parts and maintenance for power lines and electric power generators, as well as from shortages in the supply of coal, natural gas, or oil used in generating electric power. Power failures could also result from the residential use of electric stoves and space heaters when there are shortages of oil and natural gas for home heating. This would overload the power grid and cause its failure. The nation depends on electricity for: industry; manufacturing; auto, truck, rail, and air transportation (diesel fuel, gasoline, and jet fuel are pumped with electricity); oil and natural gas heating systems; lighting; elevators; computers; broadcasting stations; radios; TVs; automated building systems; electric doors; telephone and cell phone services; water distribution; water purification; waste water treatment systems; government offices; hospitals; airports; and police and fire services, etc. According to Railton Frith and Paul H. Gilbert, power failures currently have the potential of paralyzing the nation for weeks or months. In an era of multiple crises and resource constraints, power failures will last longer and then become permanent. When power failures occurred in winter, millions of people will die of exposure. There are not enough shelters for entire populations, and shelters will lack heat, adequate food and water, and sanitation. (4) Water distribution, water purification, and waste water treatment and systems will fail. (5) Untreated sewage will pollute the drinking water for millions of residents who use river water downstream. (6) Transportation and communications failures will cripple federal, state and local governments -- leaving and residents without emergency services, emergency shelters, police and fire protection, and sanitation etc. (7) Without oil, the U.S. will not be able to plant and harvest crops in large quantities, import food, or transport food from farms to markets just a few miles away. Food from the Midwest, California, Florida, and Mexico won’t be transported to the U.S. population. (8) Fertilizer, pesticides, and herbicides won’t be produced. (9) Due to limited farm acreage, most cities and towns will be unable to support their populations with sufficient food from local farming (see Patzek for documentation). (10) Homes across the U.S. will lack heating. Even if homes are retrofitted with wood stoves, there is not enough local biomass to provide for home heating, and it will be difficult to cut, split, and move wood in sufficient quantities.

In the coming years, the U.S. faces multiple energy crises, and each crisis will generate delays in addressing other crises, thus making it more and more difficult to address multiplying problems. The worse things get, the worse they will get. A grid lock of crises will paralyze the nation.

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© 2007 Clifford J. Wirth