Life After The Oil Crash
So who are these nay-sayers who claim the sky is falling? Conspiracy fanatics? Nostradamus fans? Apocalypse Bible prophecy readers? To the contrary, they are some of the most respected, highest paid geologists, physicists, petroleum engineers, and investment bankers in the world. These are logical, rational, and conservative people and they are absolutely terrified about the situation. This is why it's so scary.
The situation is so dire, even George W. Bush's Energy Adviser, Matthew Simmons, has acknowledged "The situation is desperate. This is the world's biggest serious question." In an August 2003 interview, Mr. Simmons was asked if it was time for Peak Oil to become part of the public policy debate. He responded:
"It is past time. As I have said, the experts and politicians have no Plan B to fall back on. If energy peaks, particularly while 5 of the world’s 6.5 billion people have little or no use of modern energy, it will be a tremendous jolt to our economic well-being and to our heath - greater than anyone could ever imagine."
When asked if there is a solution, Simmons responded:
"I don’t think there is one. The solution is to pray. Under the best of circumstances, if all prayers are answered, there will be no crisis for maybe two years. After that it’s a certainty."
Simmons' message has remained consistent. At a May 2004 conference on Peak Oil, he predicted oil will be priced at $182 per barrel in the near future - over five times its current price. Keep in mind, this is Simmons' prediction for oil prices in the near future. It's anybody's guess how high they will be in 10 or 15 years.
To put Simmons' predictions in perspective, consider the fact Osama Bin Laden feels $200 is a "fair price" for a barrel of oil.
The phrase, "politics makes strange bed-fellows," doesn't quite do this one justice.
The likely effects of such radically high oil prices are hard to over-dramatize.
When controlled for inflation, oil prices have never exceeded the $80 per barrel mark, which they broke during the 1979 oil crisis. The result was a worldwide recession second only to the Great Depression in severity.
If $80 oil can slam the economy into a severe recession, one can only imagine the damage $200+ oil is going to inflict.
Simmons isn't the only reputable source sounding the alarm. According to Secretary of Energy Spencer Abraham:
"America faces a major energy supply crisis over the next two decades. The failure to meet this challenge will threaten our nation's economic prosperity, compromise our national security, and literally alter the way we lead our lives."
The statements of Vice President Dick Cheney have been equally alarming. In late 1999, Cheney stated:
“By some estimates, there will be an average of two percent annual growth in global oil demand over the years ahead, along with, conservatively, a three-percent natural decline in production from existing reserves.”
Cheney ended on a disturbing note, “That means by 2010 we will need on the order of an additional 50 million barrels a day.”
This is equivalent to six times the amount of oil produced per day by Saudi Arabia, the world's leading oil producer.
A report commissioned by Cheney and released in 2001 was no less rosy:
“The most significant difference between now and a decade ago is the extraordinarily rapid erosion of spare capacities at critical segments of energy chains. Today, shortfalls appear to be endemic. Among the most extraordinary of these losses of spare capacity is in the oil arena.”
In May 2001, President George W. Bush himself stated, "What people need to hear loud and clear is that we're running out of energy in America."
It's not just members of the Bush Administration who are extraordinarily concerned about Peak Oil. Avowed leftist and democratic demigod Michael Moore believes it to be a life and death issue for the entire industrialized world. In his most recent book, Dude, Where's My Country?, Moore dedicates an entire chapter, "Oil's Well That Ends Well" to the unprecedented suffering the industrialized world will soon endure if people don't wake up to the reality of Peak Oil.
On a similar note, in a recent issue of the Financial Times, former UK environmental minister Michael Meacher stated, “It's hard to envisage the effects of a radically reduced oil supply on a modern economy or society. The implications are mind-blowing.”
Even the Saudis have acknowledged the scope of the coming crisis. Publicly, they make dubious assertions the kingdom can meet the world's oil needs for decades to come. Privately, they sing a different tune. They have a saying that goes, "My father rode a camel. I drive a car. My son flies a jet-airplane. His son will ride a camel."
Anytime George W. Bush, his energy advisor, Dick Cheney, and the Saudis are in complete agreement with Michael Moore and a high ranking environmentalist, it's safe to say the sh_t has hit the fan.
Yes, far worse. The oil shock of 1979, for instance, occurred when Iran cut its oil production by 1 million barrels per day, creating a shortfall in the world's oil supply of less than five percent. As explained above, this was enough to send the world economy into a severe recession.
Luckily, at the time, there were other swing producers such as Venezuela who stepped in to alleviate the crisis. Once world production peaks, however, there won't be any swing producers to turn to. The crisis will not be alleviated. It will just get worse with each passing year.
Furthermore, the coming shortfall in oil supply will eclipse the shortfalls seen during the politically-created oil shocks of the 1970's.
Once we pass the peak, oil production will decline (conservatively) by 1.5-3% per year. Oil demand, however, will continue to increase by 1.5-3% per year as the world's population continues to grow and industrialize.
This means that one year post-peak, we will experience a 3-6% shortfall in oil supply. This will plunge the economy into a 1979-style recession.
Unfortunately, the shortfall in oil supply will only grow, and the damage to the economy will only worsen. Ten years post peak, that shortfall will have increased to a staggering 30-60%. Fifteen years post-peak, that shortfall will have increased to a market shattering 45-90%
This ramifications of Peak Oil have led many commentators to refer to it as "Economic Hiroshima." As a recent L.A. Times article entitled, "$7.00 Per Gallon Gas" explained:
We won't "run out of oil"; a vast amount will still be flowing - just not quickly enough to satisfy demand. And as any economists can tell you, when supply falls behind demand, bad things happen.
During the 1979 Iranian revolution, the last time oil production fell off significantly, world oil prices hit the modern equivalent of $80 a barrel. And that, keep in mind, was a temporary decline. If world oil production were to truly peak and begin a permanent decline, the effect would be staggering: Prices would not come back down. Any part of the global economy dependent on cheap energy - which is to say, pretty much everything these days - would be changed forever.
And that's the good news.
The term "peak" tends to suggest a nice, neat curve. But in the real world, the landing will not be soft. As we hit the peak, soaring prices -$70, $80, even $100 a barrel - will encourage oil companies and oil states to scour the planet for oil. For a time, they will succeed, finding enough crude to keep production flat, thus stretching out the peak into a kind of plateau and perhaps temporarily easing fears. But in reality, this manic, post-peak production will deplete remaining reserves all the more quickly, thus ensuring that the eventual decline is far steeper and more sudden. As one US government geologist put it to me recently, "the edge of a plateau looks like a cliff."
As production falls off this cliff, prices won't simply increase; they will fly. If our oil dependence hasn't lessened drastically by then, the global economy is likely to slip into a recession so severe that the Great Depression will look like a dress rehearsal. Oil will cease to be viable as a fuel. Political reaction will be desperate. Competition for remaining oil supplies would intensify, potentially leading to a new kind of political conflict: energy wars.
Not really. The ability of renewable energy to replace oil is based more in myth and fantasy than science and reality.
Oil has had an Energy Profit Ratio as high as 100 to 1. This means it takes one unit of energy to produce 100 units. None of the alternatives have EPR's that even approach that of oil. Some of the alternatives, such as Hydrogen are energy losers, while others, such as biodiesel, barely break even.
The problem with these alternatives is not one of technical feasibility. They do work. The problem is they do not work anywhere near as well as oil. Even in the best of circumstances, they cannot produce anywhere near enough net energy to fuel even a fraction of our current oil-powered economy.
Furthermore, almost every advocate of alternative energy fails to realize two absolutely key points:
1. It takes a tremendous amount of oil to build alternatives to oil such as solar panels, windmills, and nuclear power plants. The construction of an average solar panel system, for instance, consumes about as much energy as the construction of a brand new SUV.
2. It would take even more oil to retrofit our multi-trillion dollar, fossil fuel based infrastructure to run on these alternative sources of energy.
If you have any questions, feel free to email me. I get back to most of my emails within 72 hours.
Sincerely,
Matt Savinar
P.M.B Box 141
2777 Yulupa Avenue
Santa Rosa, Ca 95405
"If there is to be trouble, let it be in
my day that my child may have peace."
-Thomas Paine, 1776
Copyright Matthew David Savinar, 2004
This ramifications of Peak Oil have led many commentators to refer to it as "Economic Hiroshima." As a recent L.A. Times article entitled, "$7.00 Per Gallon Gas" explained:
We won't "run out of oil"; a vast amount will still be flowing - just not quickly enough to satisfy demand. And as any economists can tell you, when supply falls behind demand, bad things happen.
During the 1979 Iranian revolution, the last time oil production fell off significantly, world oil prices hit the modern equivalent of $80 a barrel. And that, keep in mind, was a temporary decline. If world oil production were to truly peak and begin a permanent decline, the effect would be staggering: Prices would not come back down. Any part of the global economy dependent on cheap energy - which is to say, pretty much everything these days - would be changed forever.
And that's the good news.
The term "peak" tends to suggest a nice, neat curve. But in the real world, the landing will not be soft. As we hit the peak, soaring prices -$70, $80, even $100 a barrel - will encourage oil companies and oil states to scour the planet for oil. For a time, they will succeed, finding enough crude to keep production flat, thus stretching out the peak into a kind of plateau and perhaps temporarily easing fears. But in reality, this manic, post-peak production will deplete remaining reserves all the more quickly, thus ensuring that the eventual decline is far steeper and more sudden. As one US government geologist put it to me recently, "the edge of a plateau looks like a cliff."
As production falls off this cliff, prices won't simply increase; they will fly. If our oil dependence hasn't lessened drastically by then, the global economy is likely to slip into a recession so severe that the Great Depression will look like a dress rehearsal. Oil will cease to be viable as a fuel. Political reaction will be desperate. Competition for remaining oil supplies would intensify, potentially leading to a new kind of political conflict: energy wars.
may all who buy this book be blessed, prospered, and informed
The harsh truth is there are no true alternatives to oil. The so called alternatives are, in fact, simply derivatives of oil. The power of the sun, the wind, and the atom cannot be harnessed without tremendous and continuous investments in fossil fuels.
What makes the situation even worse is the fact our market economy won't begin to aggressively pursue these (modest) alternatives until it is too late.
Reason: the amount of energy contained in a barrel of oil would cost about $200 to get from renewable sources. Thus, energy companies won't begin heavily investing in renewable energy until oil prices breach the $200 per barrel mark.
At that point, however, it will be too late - we will be in the midst of economic anarchy. Under such conditions, it will be impossible to implement large-scale renewable energy programs, as these programs all require significant amounts of cheap oil, which will no longer be available.
Without an abundant supply of cheap oil, we will have no way to power a transition to something other than oil.
Thus, once we pass the oil production peak, a return to a medieval style of existence will become inevitable
Unfortunately, it is not that simple. We have a multi-trillion dollar infrastructure powered almost exclusively by fossil-fuels. Cars, trucks, roads, boats, docks, airplanes, airports, hospitals, schools, farms, manufacturing plants, food processing centers, water treatment plants - all run on fossil fuels. All plastics, pesticides, and fertilizers are derived from fossil fuels.
You can't just retrofit the entire economy, or even significant parts of it, to run on an entirely different source of fuel.
Furthermore, the emergence of a truly viable alternative to oil would be an absolute nightmare for the US economy.
The US dollar is the reserve currency for all oil transactions in the world - hence the term "petrodollar." This means that whenever oil is bought and sold - anywhere in the world, by anyone - the money exchanged circulates into the US economy. The strength of the US economy is directly tied to the strength of the petrodollar.
If a truly viable alternative to oil was to emerge, and the nations of the world began to use it, the petrodollar would collapse.
This would drive the US economy straight into a brick wall.
Not without instituting a complete financial meltdown. The reason is simple: we have an economy mired in debt: corporate debt, government debt, and consumer debt are all at record levels. In order to finance debt, you need economic growth. Economic growth requires a constantly increasing consumption of consumer goods - most of which are made from plastic, which comes from petroleum (oil) and are delivered by trucks, which consume diesel fuel (oil).
A truly successful conservation program would require us to drastically cut our consumption of consumer goods, which would halt economic growth dead in its tracks. This would cause indebted corporations, governments, and individuals to all slide towards bankruptcy. Banks would call in outstanding debts, businesses would close, government services would cease, and people would lose their jobs. The Great Depression would begin to look like the "good old days."
Yes. We can't invent or conserve our way out of this. As far as the US government is concerned, this leaves us with one option: fight and die for every last drop.
A report commissioned by Dick Cheney and released in April 2001 outlined the US plan to deal with the coming oil shortages.
The report explained that the "central dilemma" for the US administration is that "the American people continue to demand plentiful and cheap energy without sacrifice or inconvenience." It warned that the US is running out of oil, with a painful end to cheap fuel already in sight.
It argued that "the United States remains a prisoner of its energy dilemma," and that one of the "consequences" of this is a "need for military intervention" to secure its oil supply.
The level of military intervention necessary to secure the quantity of oil we need will require a large-scale reinstitution of the military draft.
To this end, the Pentagon has already posted a notice on its website asking for "men and women in the community who might be willing to serve as members of a local draft board." A process the military calls "Draft-Creep" is already underway. Several proposals to reinstate the draft are currently circulating in Congress. In addition, the Director of the Selective Service has proposed the draft be expanded to include all men and women ages18-34.
The fact that a large-scale military draft is planned for the Fall of 2005 has now been confirmed by the ultra-conservative website NewsMax.com.
Unfortunately, electing John Kerry won't stop the draft. He has all but promised to reinstate the draft if elected president.
Without an abundant supply of cheap energy, transportation and food delivery systems will break down. Electrical grids will collapse. Unemployment levels will skyrocket. Consumer goods will only be available to the super-rich. Food and water will become desperately sought after commodities. Riots and urban uprisings will become common.
Ultimately, the government may have no choice but to implement some of the more draconian provisions of the Patriot Act and related legislation in hopes of maintaining order.
Unfortunately, what you're reading is the optimistic outlook. As Matt Simmons has explained repeatedly to anyone who would listen: the situation is even worse than the most pessimistic of the pessimists thought it would be. In a recent interview, Simmons stated:
"The optimists turned out to be wrong. The jury has rendered the verdict. The optimists have lost. Much field data now proves their total thesis was wrong. The pessimists unfortunately, and ironically, might also be wrong. But most assume that this day of reckoning is still years away. They too might also be too optimistic. My analysis is leaning me more by the month, the worry that peaking is at hand; not years away."
As Simmons and numerous other experts with impeccable credentials are trying to tell you, Peak Oil is here and the ramifications are about to hit you, your family, and your future very hard.
When you're done looking through this site, I encourage you to do a google search for "Peak Oil," in addition to reading the links I've provided throughout this page.
You will find, much to your dismay as well as my own, that everything on this site is backed up by reputable sources, hard science, and undeniable fact.
Furthermore, you don't need to go further than the morning paper or nightly news to see the predictions of Peak Oil "doomsayers" coming true at a disturbingly rapid rate. The crash is already under way and you are running out of time to get informed.
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