Friday, 8 October 2010

A Peak Oil Primer - Part One


It's been a while since I added anything to the blog, for which I have no convincing excuses. What follows is part one of an essay on Peak Oil and its implications. Part two has yet to be written.


INTRODUCTION
The subject of ‘Peak Oil’ is one that gets far less serious attention than it deserves. If a person were to say the words ‘Climate Change’ they would find few who would not be familiar with the concept or have an opinion based on the large amount of propaganda that has been issued from both sides of the debate. On the other hand, when I say the words Peak Oil, I tend to observe puzzled frowns or glazed expressions. Even for those who have heard the term, there is a large misconception of what the concept actually means and it’s relationship to our daily lives and businesses. I hope in this essay to explain the subject by demonstrating the relationships between energy and it’s siamese twins: money, environment and the laws of physics and thermodynamics.

This is not an easy subject to accept at first hearing, since its implications are those of an imminent and profound change, which flies in the face of recent decades of continued economic growth and general prosperity that we in the developed world have enjoyed, not to mention the ideology of ‘Infinite Growth’ espoused by vested corporate interests and governments. The following chapters will be an attempt to explain how the preceding decades of unprecedented economic, industrial and population growth, have been fundamentally underpinned and fuelled by a corresponding growth in the extraction and expenditure of fossil fuels. I will also be making the case that this growth in production of those fossil fuels has come to an end, and that in the absence of an increase in supply, the global economy and industrial activity will inevitably plateau then decline as those same energy sources also plateau and decline.

When this subject is raised, a usual reaction is to claim that the problem will be solved by “Market Forces” or “Nuclear Power” or other such arguments. However, as I hope to demonstrate, these viewpoints suffer from not only a lack of understanding of Energy and Money relationships, but also from belief in some flawed assumptions that are deeply embedded in our society as a result of our unprecedented period of growth, fuelled by the gift of fossil fuels bestowed upon us by nature. All I can ask is that the reader or listener keep an open mind and take the subject as seriously as it demands.

One more thought: Peak Oil is a subject that I used to view as a “standalone” problem. I did not realise at that stage, the fundamental underpinning of our Industrial, Consumer Society by this substance and the interconnectedness of this subject and a host of other issues now converging in a worldwide, globalised crisis. I'm no longer suffering from that myopic view. The big picture is now clear and I hope to be able to communicate it to the reader.

KEY CONCEPTS
I will be introducing certain concepts into this essay, some of which may be new to you, or at least a new angle of observation on how the world works. In the case of some, you may notice that a re-evaluation of certain components of our society that we currently take for granted may be necessary. I will place these Key Concepts under subheadings and explain them as I progress. These Concepts will be related to how certain things work in our economy and society and the relationships between them. Peak Oil itself, is naturally one of these Key Concepts, as are several of the Chapter Headings.

THE EXPONENTIAL FUNCTION
This is the first Key Concept and one little understood. Mathemetician, Doctor Albert Bartlett said that Man’s greatest failure is an inability to understand the exponential function. An understanding of the monetary system and Peak Oil, as we shall examine later, relate directly to this concept.

The Exponential Function is essentially the effect of Compound Interest, and how quickly this compounding can increase an amount. This compounding can be applied to anything to which there is a rate of increase - Money, Population, Resource Demand, etc.

To roughly calculate compound interest, we can use a natural logarithm called the rule of seventy. By using this rule, we can calculate the approximate period of time it will take for an amount to double, with a fixed rate of interest.

For example: imagine an island with a population of 1 million people, which is growing at a rate of 1% a year. If we divide 70 (the rule of 70) by our rate of 1% we can see that it will take 70 years for the population to double. However at the same rate of increase, it will take only another 70 years for the population to double again to 4 million people and another 70 years to double again to 8 million. We can see that the length of time it takes to add another million in population decreases every time. This is why the earth’s population has increased so dramatically in the last century and a half. The current global population is about 6.5 billion people. In a mere 14 years there would be another billion people on the planet at this 1% rate of increase, yet the current statistics for global population growth stand at 1.5%.

As we shall see, the exponential function is even more worrying when we examine our global monetary debt and resource consumption. Consider China, whose current growth rate of (conservatively) 7% a year, means that it is doubling every ten years. This is indeed showing up in statistics - China’s Coal consumption has doubled in the last ten years.

Naturally, it doesn’t take much analysis to realise that these kinds of growth rates are unsustainable bubbles - the housing market crash and the derivatives and banking crashes showed yet again the lunacy of such bubbles.

It is also worth mentioning that the Exponential Function works in reverse. Think of the consequences of a 5% decrease in tax revenues due to a combination of unemployment and stagnating wages and imagine what effect that would have on Public Services.

WHAT IS MONEY?
It might seem strange that I am beginning a discussion of Peak Oil by talking about the concept of Money, but in order to understand our current unfolding predicament, it is necessary to explain one of the major factors behind the model of Economic Growth which has brought us there. The very nature of our monetary system is one in which Perpetual Growth is not only desired, but is a fundamental requirement for the system to work. I will attempt to explain the inherent flaws in this system.

Key Concept: FIAT CURRENCY
Fiat Currency is paper money, or nowadays more often than not, electronically exchanged figures moving between banks and businesses via computers and communication lines. Fiat Currency is simply a note with a government guarantee behind it, which declares that it is ‘Legal Tender’ to exchange for goods and services. Although our currencies were at one time directly underwritten by Gold and Silver reserves in 100% deposit “Giro” Banks, this is no longer the case. A currency is now generally valued by the economic status of the issuing country and by speculative trading of it on the worlds markets. Naturally this makes it potentially unstable and there have been a number of occasions where currencies have collapsed in value in the last 100 years - e.g. the Weimar Republic of Germany in the 1930’s, Yugoslavia in the 1990’s, Argentina in 1999 to 2001 and Zimbabwe over the last few years. Money is issued into the ‘Money Supply’ by Central Banks such as the Bank of England and the US Federal Reserve, who also control interest rates in an attempt to keep the currency stable. However, as we shall see, the very nature of Fiat Currency is inflationary and this causes all such ‘Notional’ currencies to eventually return to their default value of Zero.

Key Concept: ALL MONEY IS LOANED INTO EXISTENCE
This is the first concept that might raise a few eyebrows. The Manufacturer Henry T. Ford is reputed to have said the gist of: “If people understood how money was created, there would be a Revolution tomorrow”, and the legendary Economist John Kenneth Galbraith said “The creation of Money is so simple, it repels the mind”. The modern economy, as I will demonstrate, is underpinned by a fundamentally debt-based, inflationary system.

So how does it work? It is a common misconception that the Central Banks such as the US Federal Reserve and The Bank of England are ‘State’ owned Establishments and therefore, essentially owned by the taxpayer. However, this is not the case. In reality, each of these institutions is a privately owned cartel, controlled by some of the largest Banking Families in the world. In the US, this is families such as the Rockefeller and Morgan families and in the UK and Europe, families such as the Rothschilds. There are more owners than those few I mentioned but the actual list of shareholders in these cartels is not fully known by the general public. Through political manoevering, bribery and economic coercion these banking families were able to institute legislation via their political servants which empowered them with the monopoly of issuing and controlling the money supply.

These Central Banks have created what is probably the biggest swindle in the history of mankind by creating their respective currencies, literally out of thin air, and exchanging the money at interest for Government Bonds, which are a promise of future ‘repayment’ of this ‘debt’ from tax revenues. The currency, is then released into the money supply. Of course since the money supply has a debt attached to it with interest, it means that the debt in the system is always greater than the money supply and in order that this debt can be serviced, the economy must continue to grow thereafter. This brings us to another key concept:

Key Concept: FRACTIONAL RESERVE BANKING
This is the next stage of the creation of money by loaning it into existence and another part of the great swindle of modern banking. As the name implies, only a fraction of the money the bank has on deposit is required to back up loans. For instance, if a Commercial bank receives a deposit of £10,000 in savings from a customer, it can use that amount to create a loan of £100,000 of which the £10,000 is the ‘Principal’. In reality, with the deregulation of banking in recent years, lobbied for by the industry, this same Principal is probably creating loans of £200,000 and even greater. When the bank does this, it is literally creating money out of thin air, for which only the debt, guaranteed by your house for instance, actually exists. Don’t forget also, that there is an interest payment attached to this non-existent money, and you end up paying back much more than the original ‘loan’. Clever eh?

What this means, is that we have an ever increasing set of concentric circles: the first is the money loaned into existence by the Central Banks via government bonds. The second is the Fractional Reserve banking of Commercial banks that individuals and businesses rely on for credit. The third is the interest payments on all of the above. Then, there are Derivatives, Credit Default Swaps and other complex and convoluted financial instruments that make up a sizeable chunk of this tertiary ‘economy’. The result, is that the amount of money in the system that was actually issued by the Central Banks in the first place, only makes up about 3% of the total which should bring you to conclude the next Key Concept of this equation: Debt = Money.

You might be thinking at this point that this system sounds rather like a pyramid scheme. That’s because it is. You might also be thinking that pyramid schemes are inherently unstable and at some point, they always implode. You’d be right about that as well. So far I have not explained the relevance of this issue to Peak Oil, but for now, bear in mind that the underlying driving force behind all this creation of debt/money is economic activity such as retail consumer spending and the expansion of businesses, all which requires large amounts of credit and large amounts of energy.

I’m going to bring two more Key Concepts into the mix now which I will come back to later:

1. ENERGY = MONEY
2. ENERGY AND MONEY ARE SIAMESE TWINS


ENERGY AND PEOPLE
Humans have existed on this planet for many thousands of years without needing money, and still do to some extent in certain societies, but they cannot exist without energy. Aside from the small amount of energy provided to our surface environment by the superheated core of the planet itself, almost all of the energy on this planet is directly or indirectly derived from the sun. At the beginning of this relationship, plant life converts the sun’s energy via photosynthesis in order to grow, with the help of water and the earths natural minerals. This energy is converted by herbivores through consumption and digestion of that plant life, then again by the predators of those species, with omnivores such as humans benefiting from both methods of acquring the necessary energy to survive and reproduce.

Essentially, Energy is the means ‘to do work’. In the case of hunter gatherer societies, the energy to survive is mostly obtained by gathering food, with some domestication of animals to exploit their energy and the use of simple methods of creating and using fire. Societies are able to become more complex in the presence of a SURPLUS of energy. Without this surplus, there is little energy available to do much other than gather more food and perform the other tasks of creating clothing and shelter and the tools to enable these tasks. Although there is a distinction between food energy and fuel energy, as we will see later, there is also a close relationship between the two - especially in our modern civilisation.

One point that we can deduce from this is our next Key Concept: IT TAKES ENERGY TO GET ENERGY

This is implicit in the above reference to hunter gatherer societies, where a certain amount of energy - in this case food energy - must be expended to gather more food energy. The amount of energy that is gathered must be substantially greater than the energy expended to obtain it, or there will not be enough energy left over for other essential activities. Due to this small surplus of available energy, such societies tend to remain simple unless conditions prevail which enables the easy acquisition of food and other energy sources. As humans, one of our first developments was to use a little of our surplus energy to develop simple tools and weapons, which were then employed to acquire even more surplus energy. We also discovered how to domesticate animals and employ their energy - e.g. dogs to assist in hunting and oxen to assist in agriculture - and we learnt how to use fire to generate enough heat to work metals, thereby creating even more complex tools. We should also not forget the exploitation of people. Slavery was (and still is unofficially), the foundation of most Empires. The Roman Empire for instance, acquired slaves as an energy resource in the same way we now gather fossil fuels.

Initially, the greatest source of fuel, particularly throughout Europe, was wood. Coal was used to some extent, in the few places it was found at the surface, but was considered to be a poor substitute until the decimation of our forests made the mining of coal a necessity. Steam engines were invented which exploited coal as a fuel and the technique of ‘Coking’ was used to make coal into a more refined and effective fuel which we were then able to combine with the new invention of dynamos to generate electricity. Gas was also exploited and was initially used for home and domestic lighting and only later employed as a fuel to turn generators in power stations or cook with, as electricity became the power of choice for lighting.

During this period, populations grew and ‘prosperity’ increased (at least for a privileged few). It should be understood that these increases in population and economic wealth occurred as a direct result of this newly exploited surplus of energy, which enabled the creation of ever more sophisticated machines, tools and manufacturing, around which sprung a complex set of new professions to service and market these products and the emergence of the tertiary culture of the economy which is now known by names such as ‘The Service Industry’ or ‘The City’. The discovery and exploitation of oil, initially as a replacement for depleting Whale Oil production, took this growth and progress up to a new gear. Notice that this increase in the use of energy also required an increase in the expenditure of that same energy to mine or drill for more.

The above Key Concept: It takes energy to get energy, is related to an important Key Concept known as NET ENERGY or EROEI (Energy Return On Energy Investment). This will be discussed along with Oil and Alternative Energy issues, as it is key in understanding the viability of an energy source.


WHAT IS PEAK OIL?
So far we have established that our monetary system is a debt based, inflationary system for which perpetual growth is a requirement, and that this growth is dependent on a corresponding growth in the production (extraction) and burning of fossil fuels.

First it should be emphasised that Peak Oil is not synonymous with ‘running out of oil’, but rather, is the point which is reached when about half of the world’s oil has been ‘produced’ - that is, extracted, refined and burned (or converted to other uses - such as chemicals). The estimated Peak of Production can be calculated if we have a fairly accurate estimate of existing reserves (plus those which we expect to be discovered), the figures for production to date, and an average percentage figure for the growth rate in demand. Also useful in this calculation is the Peak of Discovery which just happens to have been in 1964-5 for Global Oil Reserves.

There is a historical precedent for this. The Oil Geologist Marion King Hubbert is the ‘father’ of the Thesis of Peak Oil, after he accurately predicted the Peak of domestic US oil production would occur in 1970. When Hubbert made this prediction in 1949, he was ostracised by the Oil industry but his calculations proved to be extremely accurate, because he was blessed with an accurate data set from which to make his calculations. Hubbert realised that the Peak of Discovery in the Continental United States had been in about 1930. He then factored in production/consumption to date, and projected ahead with an average percentage of growth in demand, based on previous years. Since 1970, US oil production has been in terminal decline and is now down to about 10% of recoverable reserves. A short blip in this trend occurred when Alaskan oil came on line but then decline continued.

Hubbert also attempted to make a calculation of Global Peak Production, but although the methodology had proven to be sound, he did not have an accurate set of data for the world’s reserves and was unable to factor in unforseeable events such as the Political/Economic crises of the 70’s which precipitated the Oil Shocks which threw the Globe into recession. It was at this point in the 70’s that US President Jimmy Carter, having understood the Domestic Peak of Oil production, realised that the US was over-dependent on Oil and at some point soon, must begin to wean itself off hydrocarbons gradually, to prepare for a future global decline. However, as more recently with Climate Change, the sober facts were obscured by some alarmist scaremongering against which the public and industry reacted with denialism.

After Jimmy Carter lost the presidency to Ronald Reagan, the new occupant of the Oval Office reversed most of Carter’s moves towards alternative energy, including scrapping Carter’s installation of a Solar Powered hot water system from the roof of the White House. This squandered the only opportunity the United States, and by definition most of the world had, to make a smooth transition from exponential fossil fuel use, to a more efficient and lower energy intensive economy.

In recent years, the mantle of Peak Oil research has been taken up by others, in particular, Professor Colin J. Campbell a retired Petroleum Geologist, and Jean Laherrère, a Petroleum engineer who together co-authored the 1998 article “The End of Cheap Oil” in the influential “Scientific American” journal. They were joined by other notable individuals such as Kjell Aleklett, a professor of Uppsala University of Sweden where he teaches physics and Global Energy Research, and the late Matthew Simmons, one of the world’s most prominent Oil investment bankers, the author of the book “Twilight in the Desert” and advisor to the Bush Administration’s National Energy Policy Development Group of early 2001.

Campbell, who now lives in the Republic of Ireland, concluded from years of studying industry data and Oil Producing country Reserve figure ‘creativity’ that the Global Peak of Conventional Oil Production would occur by 2010. The evidence is becoming clear that this is an accurate estimate. In fact it would appear that production plateaued in 2005, which together with market speculation, caused the price spikes in energy that resulted in higher prices at the petrol pumps and corresponding hikes on gas prices. We all felt these price rises in our energy costs and the knock-on effect to food prices and other essentials during the period between 2000 and 2008 as demand began to exceed production, which made for volatile Oil prices and economic instability. Production has remained static at these levels and the Peak Oil community do not now expect production to exceed 95 million barrels a day, and even this figure is thought to be optimistic in the light of the recession which resulted in a price crash and the cancellation of billions of dollars worth of new oil projects due to the withdrawal of Capital Investment. In any case, geological limits could prevent this even if the capital was available.

SOME FACTS ON OIL

Global demand up to the economic crash in 2008 was an average of approx 87 million barrels per day (a barrel is 42 US Gallons)

85% of this figure was made up of ‘Sweet Crude’ also known as ‘Conventional Oil’

Conventional Oil is the highest quality with the best concentration of energy and the simplest to refine

Conventional Oil use annually, equals 1.02 Cubic Miles

Total Global liquid fuels consumption is approx 31 billion barrels per year

Discovery currently only averages 6-7 billion barrels annually

Saudi Arabia produces about 9.5 to 10.5 million barrels a day or about 12% of global demand

Global Oil Discovery peaked in 1964-5

Global Oil consumption rates exceeded discovery rates in 1980-81

The world now uses around 5 barrels of oil for every 1 new barrel discovered

100 millilitres of oil equals 1 Kilowatt hour of energy

Most of the major Oil producers are either about to Peak, or are already in decline

The United States uses 20-22 million barrels of Oil a day

Oil provides the world with the equivalent of 22 Billion Slaves with an average of 150 slaves per person in the developed world

World reserves (including estimates of oil yet to be found) are thought to be between 1.8 and 2.4 Trillion barrels, including the oil already produced (used)

As of the beginning of the 21st century, the world had used about 1 trillion barrels

The world relies for 60% of daily production on about 300 super and megafields or ‘elephants’ most of which are now in decline (the ‘low hanging fruit’)

The quality of oil extracted is declining as the ‘Sweet Crude’ which we have relied on diminishes, leaving heavier oils

The world’s refineries are mostly geared to ‘Sweet Crude’ and conversion to Heavy oil capability will require substantial energy/money input

More recent discoveries tend to be in smaller quantities, in more remote locations, more difficult conditions (e.g. deep water) and lower quality, sulphurous, heavy oil

We have established then, that Peak Oil, is not synonymous with ‘running out’ and is not a result of economics (although this is a factor as we shall see later). Rather, it is a Geological phenomenon. It is a feature of the laws of physics which govern all finite, non-renewable resources in that once half of the total amount is consumed, the rate of extraction will fall very soon after. Another point to be made at this stage is one inferred above, which is that we have already used most of the ‘low hanging fruit’ - the ‘Easy and Cheap Oil’ and that from here onwards, the ‘bottom half of the barrel’ will be more difficult to locate, extract, transport and refine and will be more expensive both in terms of Capital Investment and in terms of the aforementioned EROEI a.k.a. Net Energy. This latter fact means that since we are expending more energy simply getting our energy, we therefore have less and less surplus energy year on year to do other vital things. The conclusion that is unavoidable here, is that if Peak really has been reached, then economic growth is no longer possible because economic activity must decline in the absence of the available energy to fuel it, especially when that economy depends on a growth in surplus energy due to it’s inflationary nature.

WHAT IS EXERGY?
Whereas Energy can be defined as “The Means To Do Work”, Exergy, is about the concentration of such energy, in amounts that enable such useful work. In this context, it is a more specific definition of our predicament. Here are a couple of simple explanations of what Exergy means:

Most people would probably realise that the Sun outputs enormous amounts of energy, and it is widely known that more Solar Energy hits the earth in one day, than the equivalent in fossil fuels we use in an entire year. The problem though, is one of concentration. Even after a billion or so years of evolution, plants have only adapted to process about 1% of the Sun’s energy via photosynthesis. The Sun’s rays hit the earths atmosphere, but much is repelled or deflected and what remains is dissipated by the atmosphere, the oceans, the air and so forth. It is therefore difficult to harness because it is not concentrated enough.

Bear in mind also, that the distance travelled from Sun to Earth also serves to spread the Suns rays over a wider area, in much the same way as the curved surface of the spray of a watering can widens the spray of water while reducing its concentration. Therefore, the Planet Mercury has a very high concentration of sunlight per square metre, whereas a planet like Neptune a very low concentration.

A second example: You make a cup of tea. This contains energy in the form of heat which you can use to do the work of warming up your insides for a cold day for instance. However if you let the tea go cold, the energy is lost from the tea and therefore its ability to do said warming work. The heat has dissipated around the room where it still exists, but in too low a concentration to do anything useful. There will be an almost undetectable rise in the temperature of the room, but otherwise, the energy is lost and has therefore lost its Exergy.

Conversely, due to the millions of years it took to accumulate and ‘cook’, fossil fuel has an extremely high Exergy. Unfortunately, our use of this high concentration of millions of years of stored sunlight energy is not very efficient. Consider for instance the waste when sitting in a traffic jam with your engine running as millions of us do every day. Consider the heat that comes from your engine, most of which is wasted even on a cold day, and serves no purpose in transportation.

So this is the predicament of our modern society. Many of the tasks we take for granted require an energy source with an extremely high Exergy. Especially since many of those tasks are so Energy-Inefficient. Those alternative energies we would hope to replace fossil fuels, by contrast, largely have a much lower Exergy. This means they will be inadequate to supply our future needs unless we learn to live on much less energy and a vastly more efficient use of the energy we do have.

ENERGY AND THE ECONOMY
Earlier, I discussed the monetary system, at the end of which I introduced two new Key Concepts:

ENERGY = MONEY
ENERGY AND MONEY ARE SIAMESE TWINS

Energy = Money
When we really stop to think about it, energy is the only real currency there is. All economic activity is merely an exchange of energy in some form or another. When you and I go to work, whether it be a ‘Blue Collar’ or ‘White Collar’ job, we are giving of our energy in order to do so. The manufacture, supply and distribution of goods all requires vast amounts of energy. The mining and extracting of the natural resources used to make these things also depends on a massive fossil fuel input. Try sitting on a bench in a shopping precinct and consider just how much energy was and is being expended on everything around you. The glass in the shop windows, the dressed paving stones, the buildings, the clothes and mobile phones of the passers by, the products in the shops, the air conditioning and lighting, the cars and buses and trucks. Can you think of anything or see anything that did not require some kind of energy input? Even the bench you’re sitting on was manufactured, transported and fixed in place, directly or indirectly by fossil fuels.

It is the endowment of fossil fuels which have underpinned our entire modern civilisation. Because of the existence of these substances, most of us have been able to eschew the natural tasks of finding or growing our own food and making our own clothing and shelter because these tasks have been assigned to a minority of specialists armed with mechanised devices and vehicles to make the job easy and do the work of many people. It is no misrepresentation to say that Oil is our Slave. In fact it has been estimated in studies that Oil provides the equivalent of 22 billion slaves, with the average in the western world being 150 slaves per person - due to the fact that many third world people use none or almost no oil and therefore have no slaves.

So for most of us in the developed world, a removal has taken place between ourselves and the natural world and the everyday necessities of survival. A complexity of society has arisen which could not possibly have done so either on such scale or rate of consumption without the aforementioned endowment of fossil fuels. One of these complexities, and the most abstract, has been the emergence of the Financial or Tertiary economy - a leveraged and illusory bubble of vast proportions whose notional and unsustainable ‘value’ is many times that of the resources on which it is based. This tertiary economy has seen exponential growth in the past 100 years and cannot possibly continue, especially when the very substance that created and supports it, has reached the limits of it’s own potential to grow in supply.

Energy and Money are Siamese Twins
Now is where we come to a major paradox of this system. Although energy creates money (rather than the other way around as economists would have you believe), it is also true that money (as well as energy) is a requirement to obtain energy. Here’s an example:

The few years prior to the Economic Crash of 2008 saw an unprecedented rise in the cost of our energy. Some will remember the trips that Gordon Brown undertook to Saudi Arabia, ostensibly to persuade OPEC to increase production in order to stifle this dangerous price rise. However, the price rose to $147 a barrel in July of 2008 and soon after, the economy collapsed. With the plethora of stories in the media about Subprime Mortgages, Credit Default Swaps and Mortgage-Backed Derivatives etc, the price spike in energy was all but forgotten, and it’s underlying blame for the toppling of a fragile economy, dependent on perpetual growth and cheap energy to fuel it were essentially missed by the mainstream media.

Of course the crash immediately entailed a rapid fall in Oil prices as demand plummeted. This is where the conjoining of Money and Energy become obvious. The price for a barrel of oil dropped to less than $30 a barrel. Due partly to this and also due to the lack of available credit from banks, the Investment Capital which had been earmarked for various vital new or refurbishing energy projects vanished, with billions of dollars worth of contracts cancelled or mothballed. At such low prices and with such little spare capital available, it was not commercially viable to invest in such ventures. Oil companies and Investors simply stopped spending money. Of course this had two main effects. The first, was that much needed replacement production capacity due to come online over the next few years will not now do so, which means that capacity will be lower than before the crash so that any ‘recovery’ will hit the ceiling of supply even sooner. The second was that realising this, Oil prices soon went up - more than doubling in 12 months to around $80 a barrel - a price that could be close to another tipping point for the fragile world economy.

On this basis, we are now, as of 2010, in a possible catch-22 situation where if demand increases and the Oil price rises, then the price will be unaffordable even sooner than before the 2008 crash and the economy will once again shut down; or the demand will fall, perhaps due to another fiscal crisis and the price will again fall below the threshold of profitability and viability to develop the required energy resources for the next few years. Either way, the result is the same: a declining economy with depleting resources and a continuing reduction in our ability to offset the decline of existing production with the development of new production.

ENERGY AND FOOD
This subject, is without a doubt the single most important aspect of Peak Oil, and unfortunately, one of the least understood, although the concept is simple enough.

Key Concept: OIL IS FOOD
As was indicated earlier, modern food production is heavily mechanised, which has caused agriculture to be the province of a very small number of specialists. In the UK, only about 150,000 farmers are still working the land, and those numbers are still declining. The average age of farmers is 60 years old. Aside from the heavy mechanisation of modern agriculture, it is also dependent on huge amounts of oil and natural gas based chemicals and fertilisers.

As we have moved from a small scale, more natural crop rotation and human labour intensive agricultural model, to a large scale mono-cropping fossil fuel/chemical intensive model over the last 100 years, we have progressively (and exponentially) destroyed the natural ecology of the land and soil to a point where it is infertile, polluted and eroding and can no longer produce our increasing demand for food without a parallel increase in the amount of fuel and chemicals that we throw at it.
Studies have shown that it takes an average of 10-12 hydrocarbon (fossil fuel) calories of energy to create one calorie of food energy in our modern industrialised agriculture. To demonstrate this let’s lay out the general process of how food gets onto your plate:

The soil is ploughed using a fossil fuel powered vehicle and seed sown also using a vehicle. Irrigation is done by electric or diesel pumps and fertilisers, pesticides, fungicides etc (all based on oil or natural gas) are sprayed on, again using another fossil fuel powered vehicle. Harvesting either directly or indirectly involves more mechanisation after which the produce is packed or processed by more mechanisation then transported, often in refrigerated trucks to food processing plants or supermarket distribution centres, from which it is re-distributed to your local food outlet where it is lit and refrigerated until you arrive in your fossil fuel powered vehicle to do your shopping and pack it into oil-based plastic bags and pay for it with your oil-based credit card. Then of course you refrigerate and cook it. It is not an exaggeration to say that our food is literally dripping with oil.

Two obvious consequences of depleting fossil fuels on this fragile and complex system are rising prices and shortages. Most will have noticed how the prices for the basic food commodities have increased in recent years (not all due to energy costs). It makes sense to conclude that the current system is unsustainable and that a more resilient model, dependent on a less destructive and much lower chemical/energy input is required. Likely, more of us will be reacquainting ourselves with the source of our food over the coming years, either by growing some ourselves and/or buying/bartering from local farmers and allotment growers. Organic and Permaculture methods are not only more environmentally friendly and in harmony with nature, they also require a lower fuel input.

A further point should be made, that even if energy depletion was not an issue, the current industrialised agricultural model would not be sustainable because of the over exploitation and destruction of topsoil and water sources that it causes. Transition to a sustainable model is not just an option - it is a pre-requisite of society avoiding food shortages and in extreme cases, starvation.

Part Two to follow.

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