Wednesday, April 23, 2008

What is Peak Oil? & What Will Be the Effects?

Peak oil is the point in time when the maximum rate of global petroleum production is reached, after which the rate of production enters its terminal decline. If global consumption is not mitigated before the peak, an energy crisis may develop because the availability of conventional oil will drop and prices will rise, perhaps dramatically. M. King Hubbert first used the theory in 1956 to accurately predict that United States oil production would peak between 1965 and 1970. His model, now called Hubbert peak theory, has since been used to predict the peak petroleum production of many other countries, and has also proved useful in other limited-resource production-domains. According to the Hubbert model, the production rate of a limited resource will follow a roughly symmetrical bell-shaped curve based on the limits of exploitability and market pressures.

Some observers, such as petroleum industry experts Kenneth S. Deffeyes and Matthew Simmons, believe the high dependence of most modern industrial transport, agricultural and industrial systems on the relative low cost and high availability of oil will cause the post-peak production decline and possible severe increases in the price of oil to have negative implications for the global economy. Although predictions as to what exactly these negative effects will be vary greatly, "a growing number of oil-industry chieftains are endorsing an idea long deemed fringe: The world is approaching a practical limit to the number of barrels of crude oil that can be pumped every day."[1]

If political and economic change only occur in reaction to high prices and shortages rather than in reaction to the threat of a peak, then the degree of economic damage to importing countries will largely depend on how rapidly oil imports decline post-peak.

Secondary Effects of Peak Oil

Peak Oil is a cascading effect problem. We know it, but we may not yet be informed enough to realize the cascading effect problem is so pervasive. We know that MOST of the energy we use and food we eat comes directly or indirectly from non-renewable petroleum deposits. It is often argued that our large population, though only occupying a small physical area on the earth itself, is only sustained through the use of all these non-renewable resources. The obvious fix to this is switch to renewables and sustainable agriculture so we can keep as many people from starving as possible. Why? Starvation leads to war, and with nukes available in the countries most affected (China and India), it would be a very bad thing.

Additional problems are power shifts. Russia used to be very powerful, then their economy collapsed and a lot of people suffered and the ruthless rose to greater power, a meritocracy of crime and influence. Now Russia has surpassed the Saudis for oil production and they currently provide most of the natural gas heating homes and powering industry in Western Europe. The Russians want more power and influence, so they play games with supply, chiselling its called. Chip a little here, a little there and soon the other guy will give you his last dollar and the shirt off his back to keep going forward to his dreams. This is a reason I don't respect those who "follow their dreams". The romantic times are over with the cheap oil. Following your dreams in today's world gets your frilly behind killed or jailed. I respect practical people. You should too. So Russia is going to continue to rise in power, and use that power to force its Will on the rest of Europe in a way Hitler only dreamed he could get away with. The only freedom from the tyranny of Russian influence in Europe will be renewable power. It will have to be cheap, pervasive, and reasonably efficient.

As the price of oil rises it will cause a severe contraction in the world economy. Most observers of this occurrence agree that this will translate into higher prices all the way down the food chain- literally- right down to bread and fruit- as not only road and air transportation will be affected directly but the price of nearly ever commodity and product consumed in the world economy will be impacted indirectly.

When world petroleum production peaks, energy prices will go up dramatically. There will be a recession similar to the recessions that followed the energy price increases of 1974 and 1979, but with one difference: the US Federal Reserve Bank is much more active in setting economic policy than it was then, and its main focus is fighting inflation, so we can expect much lower inflation and much higher unemployment than in the 1970s. As interest rates soar, housing prices will fall and the stock market will suffer.

Eventually, the rest of the decline in oil production would have to be absorbed by a prolonged economic depression. Whenever energy prices soar, the Fed will raise interest rates until they have slowed the economy enough to stop inflation. To keep the demand for energy from exceeding the physical supply, they might have to reduce the GDP by 10 or 15 percent over 15 or 20 years. That could mean unemployment over 20 percent - about as high as it was during the worst years of the Great Depression.

Vast amounts of oil and gas are used as raw materials and energy in the manufacture of fertilizers and pesticides, and as cheap and readily available energy at all stages of food production: from planting, irrigation, feeding and harvesting, through to processing, distribution and packaging. In addition, fossil fuels are essential in the construction and the repair of equipment and infrastructure needed to facilitate this industry, including farm machinery, processing facilities, storage, ships, trucks and roads. If the price of oil rises substantially- all of these sectors of the food industry will have to pass on the extra costs to the consumer.

Commercial food production is oil powered. Most pesticides are petroleum- (oil) based, and all commercial fertilizers are ammonia-based. Ammonia is produced from natural gas. Oil based agriculture is primarily responsible for the world's population exploding from 1 billion at the middle of the 19th century to 6.3 billion at the turn of the 21st Oil allowed for farming implements such as tractors, food storage systems such as refrigerators, and food transport systems such as trucks

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.

Most of the consumer goods we buy are made with plastic, which is derived from oil.

All manufacturing processes consume huge amounts of oil. For instance, the average car - including hybrids - consumes the energy contained in 25-50 barrels (or about 1,200-2,400 gallons) of oil during its construction, while the average computer consumes 10 times its weight in fossil fuels during its construction.

All electrical devices - including solar panels and windmills - make use of silver, copper, and/or platinum, all of which are discovered, extracted, transported, and fashioned using oil-powered machinery.

1 comment:

Torrance Stephens bka All-Mi-T said...

truthfully it is a function of production and especially in Ven, Brazil, and Nigeria. Good post, I wrote about a sim. topic last year, with specific ref to India and china


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