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- Did you think there was a practically endless supply
of crude oil in the world and that we would be knee deep in cheap gasoline
for generations to come?
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- Forget everything you thought you knew about oil!
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- Gas prices have been reaching record highs nearly every
day this year but newly emerging studies suggest the recent run-up in gasoline
prices may just be a shot across the bow. The mother of all oil shocks
could be just 5 or 6 years away!
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- Experts now say that regardless of how much crude remains
in the ground, what really matters the most is when oil production passes
its peak. That could happen soon worldwide. The marketplace could then
treat oil as a scarcity driving prices skyward -forever.
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- What's more, the amount of energy produced per barrel
of oil may soon be just equal to the amount used to obtain it leaving nothing
left to run the engines of commerce.
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-
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- WHEN DRILL HOLES BECOME RAT HOLES - THE END OF
OIL (AS WE KNOW IT)
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- By Stuart H. Rodman info@elsi.org
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-
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- You're probably thinking that there is plenty of cheap
gas to go around. Why worry? Let's hope so, because our current lifestyles
are dependent on oil for everything from manufacturing to transportation
to agriculture. Despite this and even in the face of the recurrent oil
shocks of the last decades, very little has been done worldwide to lessen
our addiction to the "black gold" from within. Consider this
though. Regardless of how much petroleum resides in the bowels of the earth,
when the production of a given amount of fuel requires the industry to
first consume the equivalent amount to discover, extract, refine, and deliver
it, its all over. You might as well be out of gas. And guess what? Despite
advances in technology, that day may be much closer than you think.
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- Picture this. Suppose you wanted to drive to the nearby
filling station to buy some gas and you only had a gallon in your tank.
What if you suddenly remembered that you would have to use all your gas
to get there though and that you had been told that the station would only
allow you to buy just one gallon. You would have enough gas then to get
from the station back to where you started from but no more. If you have
to use all your fuel just to get an equivalent amount there would be no
point leaving home in the first place.
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- The issue is known as "net energy" and it may
be more important to understanding our future than worrying about all the
tea in China or for that matter, all the oil available for future extraction
from our planet. Here's why.
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- "The Best Kept Secret in Washington"
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- Speaking of net energy, oil industry watcher Jay Hanson
states, citing the laws of thermodynamics, http://www.dieoff.com/page175.htm#_edn5
"By definition, energy 'sources' must generate more energy than they
consume; otherwise, they are 'sinks'."
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- But net-energy analysis first reached public attention
in 1974. At that time, Business Week reported that oil scientist Howard
Odum had developed a "New Math for Figuring Energy Costs." To
the surprise of many, Odum's new math indicated that stripper oil well
operations were energy sinks and not energy sources.
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- According to this analysis, these operations could be
profitable only when "subsidized" by cheap, regulated oil, which
was used to produce deregulated oil. Because the industry is subsidized
in this way in terms of net energy and also from direct taxpayer "allowances",
the industry can continue to produce oil at a monetary profit, at least
for a while. Hanson observes, "Even without direct and indirect subsidies
of $650 billion a year it's conceivable that energy companies could make
money but lose energy by burning one $10-barrel of oil today in order
to pump one-half of a $50-barrel tomorrow."
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- But how much longer can they keep this up? Hanson says,
"Based on the best information we have at hand today, sometime during
the coming century [the 21st] the global economy will 'run out of gas',
as fossil energy sources become sinks. One can argue about the exact date
this will occur, but the end of fossil energy and the dependent global
economy is inevitable."
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- But major oil companies may have private reserves of
fuel which can be used to underwrite the energy costs of future production.
However, if the energy produced for distribution to society is not sufficient
to also pay back the overhead, the reserves themselves will eventually
evaporate.
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- And some might think that oil supplies will last forever.
In reality though of course, the oil supply is finite. Jim Bell, author
of<http://jimbell.com/book.htm "Achieving Economic Survival on
Spaceship Earth", compares oil exploration with picking apples from
a tree, "We tend to pick the ones that have fallen from the tree and
those that are closest to the ground first. Later though we may need a
ladder as we expend more effort to find the ones that are harder to reach.
The oil companies have to try harder and harder each year to find extractable
oil. They have already harvested the easiest pickings."
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- Jim Bell points out, "We are always told that there
is plenty of ultimately recoverable oil left in the ground and so we naturally
assume the supply will last practically forever, certainly through our
lifetimes. What really matters though is not the amount of petroleum that
lies within the earth planet, but the price we pay for it, in terms of
our wallets and the consequences for our planet. And higher fuel prices
will raise the price of everything else. As the production of petroleum
begins to decline, market forces will push the price of hydrocarbon based
products, if you can find them at all, higher and higher."
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- So then, as the oil companies expend more and more energy
to extract and refine petroleum, they eventually reach the point of diminishing
returns, as proven reserves are depleted. Although there may be more ultimately
recoverable crude in the ground, the new sources tend most often to be
smaller or technologically unexploitable. At that point, production "peaks",
then declines rapidly.
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- And when oil production peaks worldwide, most experts
agree it will be a whole new ballgame. That day of reckoning is inevitable.
But when? It is a known fact that oil production peaked in this country
in the 1970s, catastrophe being averted only by the at times undependable
availability of imports upon which we rely for over 50% of our oil use.
However, impressive evidence suggests that oil production worldwide will
peak during the next twenty five years or sooner, some say as early as
2010. And , based on private documents, Hanson states that "the petroleum
industry itself has announced that global oil production will 'peak' in
less than ten years!"
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- You wouldn't know that from the official reports however.
According to petroleum industry's own spokespersons, there is at least
another 93 years of known petroleum reserves worldwide to keep us in gas,
at the current rate of consumption. That's not much time really though
in geological terms considering the earth is several billions of years
old. The U.S. government though is even more optimistic. Government studies
cite advances in technology and the promise of synthetic fuels and methodologies
as being cause to expect the continued availability of petroleum based
fuels for generations to come.
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- However, when the peak comes, whenever it does, all bets
are off. And, it could be preceded by serious production shortages, which
could occur even sooner. But Hanson warns the peak will come sooner and
not later. When it does, Hanson states, "The price of oil is expected
to rise sharply and permanently."
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- And he has good reason to say so. In another paper, "The
Best Kept Secret in Washington", Hanson discusses a private study
that was conducted by worldwide industry expert, "Petroconsultants"
(now known as IHS Group). The study suggests that when the peak comes,
the markets will treat petroleum as a scarcity and that the days of "cheap"
petroleum will then be gone forever. The study is available for sale and
can be purchased directly from the IHS Group (the world's leading provider
of data and analysis for oil exploration and production). Its cost- $32,000
a copy. He adds, "In 1995, Petroconsultants published a report for
oil industry insiders titled WORLD OIL SUPPLY 1930-2050 which concluded
that world oil production could peak as soon as the year 2000 and decline
to half that level by 2025. Large and permanent increases in oil prices
were predicted after the year 2000."
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- And they are not the only experts sounding the alarm.
In a recently published report from The New Republic, (http://www.tnr.com/051500/easterbrook051500.html),
Gregg Easterbrook reports that highly respected industry analyst Colin
Campbell holds similar views: "Campbell bases his thinking on something
called the Hubbert Curve, perfected by M. King Hubbert, patron saint of
petroleum geologists. Hubbert found that production tends to peak almost
exactly when a petroleum reservoir hits its halfway point--meaning that
once a well's output begins to decline, the amount left in the ground is
roughly equal to what has been pumped out. In 1956, when oil optimism was
universal, Hubbert used his curve to forecast that U.S. petroleum production
would peak in 1969. The actual peak came in 1970; this dead-on prediction
has given Hubbert legendary status."
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- Easterbrook goes on to say: "The evidence is legion.
In the United States, which contains 75 percent of the world's oil wells,
petroleum production has been in decline since the 1970 peak. Prudhoe Bay,
the last "elephant" oil find in the United States, peaked in
1988. Production in the former Soviet states also peaked that year."
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- Some experts say in fact that there are nearly 500,000
wells sites in the U.S. that produce less than a single barrel of oil per
day. An added exclamation comes from Campbell's own work with Laherrer,
http://dieoff.org/page140.htm,
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- "By 2002 or so the world will rely on Middle East
nations, particularly five near the Persian Gulf (Iran, Iraq, Kuwait, Saudi
Arabia and the United Arab Emirates), to fill in the gap between dwindling
supply and growing demand. But once approximately 900 gbo (900 thousand
billion barrels of oil) have been consumed, production must soon begin
to fall. Barring a global recession, it seems most likely that world production
of conventional oil will peak during the first decade of the 21st century."
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- And after the peak? Campbell says, "From an economic
perspective, when the world runs completely out of oil is thus not directly
relevant: what matters is when production begins to taper off. Beyond that
point, prices will rise unless demand declines commensurately."
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- Sinking Ship
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- A non renewable resource, the end of cheap oil is inevitable,
although some may choose to argue the timeline. Debate aside, the next
great oil shock however, may have nothing to do with money or supply and
everything to do with that other problem, the one no one wants to talk
about, net energy. Hanson notes,
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- "The key to understanding energy issues is to look
at the 'energy price' of energy. Energy resources that consume more energy
than they produce are worthless as sources of energy. This thermodynamic
law applies no matter how high the 'money price' of energy goes. For example,
if it takes more energy to search for and mine a barrel of oil than the
energy recovered, then it makes no energy sense to look for that barrel
no matter how high the money price of oil goes."
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- Consider this illustration from University of Wisconsin
at Stevens Point professor Thomas Detwyler link
- "The useful energy to be obtained from nonrenewable
resources, such as fossil fuels (mainly crude oil, coal and natural gas)
and uranium, is subject to diminishing returns through time. It takes energy
to get energy. And because we exploit the easiest-to-get energy resources
first, each subsequent unit of gross energy (e.g., oil in the ground) requires
greater energy subsidy to obtain than did the previous unit, thus leaving
less net energy:"
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- No doubt. Energy costs in the oil industry are on the
rise and are reflected in the increasing depth of wells: 300 feet in 1870,
1,000 feet in 1900, 3,000 feet in the 1920s and more than 6,000 feet by
1980. Campbell notes,
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- "The cost of drilling oil and gas wells (which is
largely a function of energy subsidy) rises exponentially with increasing
depth. By the mid-1970s, about half the petroleum produced in Texas was
also consumed there as production-related subsidies, so that at best net
energy was only half of gross energy ".
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- It is for this reason perhaps that net energy returns
have been falling consistently despite improved technology. Campbell adds,
"The dynamic of shrinking net energy means that the usefulness of
gross energy reserves may be vastly overrated. In fact, a large portion
of any given gross reserve will be energetically unexploitable, though
perhaps technically extractable. The following diagram illustrates this
consequence. Beyond the resource cutoff line, the system is an energy sink
requiring more energy as subsidy than is returned as net energy."
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- Just how bad is it? Citing recent work by analyst Richard
Duncan, http://dieoff.com/page125.htm, Hanson states that in the '50s the
industry could produce 50 barrels of energy for every barrel consumed producing
finished products for the market. By the nineties, the ration had fallen
to 5 barrels to 1. By the year 2005, the industry will just break even-it
will be necessary to use as much energy to produce any given quantity.
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- Hanson adds, "Under that latter scenario, even if
the price of oil reaches $500 a barrel, it wouldn't be logical to look
for new oil in the US because it would consume more energy than it would
recover."
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- Good Money After Bad
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- It takes energy to make energy. As supplies shrink and
prices rise, market forces may drive us towards other fuel sources. But
we will need to have an infrastructure in place capable of assuring an
uninterruptible supply. Professor Robert Costanza of the University of
Maryland (1984) cautioned though that there is an "embodied cost"
of energy, whereby manufactured goods, like machinery, power cable, relays,
switchboxes, or any finished goods, exist only after a given amount of
energy was consumed by industry in their manufacture.
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- And Jim Bell explains, "When the amount of net energy
available in society begins to shrink it is harder to harness the resources
necessary to manufacture the solar panels, the wind mills, and the other
equipment needed when we begin the inevitable task of creating a large
scale alternative infrastructure."
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- But if energy efficient replacements are not developed
soon we will find ourselves to be living in an "energy limited economy".
Hanson offers this bleak view, http://dieoff.com/page185.htm
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- "An 'energy-limited economy' is one where more energy
cannot be had at any price. The global economy will become 'energy-limited'
once global oil production peaks in less than ten years (perhaps much less)."
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- That could mean more trouble than just lining up at the
filling station. Consider the problem facing agriculture. Hanson points
out, http://dieoff.org/page185.htm
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- "Food grains produced with modern, high-yield methods
(including packaging and delivery) now contain between four and ten calories
of fossil fuel for every calorie of solar energy." Hanson adds,
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- "It has been estimated that about four percent of
the nation's energy budget is used to grow food, while about 10 to 13 percent
is needed to put it on our plates. In other words, a staggering total of
17 percent of America's energy budget is consumed by agriculture!"
Again citing other sources, Hanson states,
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- "By 2040, we would need to triple the global food
supply in order to meet the basic food needs of the eleven billion people
who are expected to be alive. But doing so would require a 1,000 percent
increase in the total energy expended in food production."
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- Following the peak of oil production, absent an alternative,
Hanson notes: "It will be physically impossible -- thus economically
impossible -- to provide enough net energy to agriculture: "
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- Hanson adds grimly, "Obviously the death sentence
for billions of people has already been issued".
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- So what can be done? Observers, like Bell and others
suggest that unless industry recognizes the need to shift now from a mind
set that views energy resources in terms only of dollars instead of in
terms of diminishing returns in real energy units, they will be planting
the seeds of their own destruction, simply throwing good money after bad.
Hanson notes, "To have more energy in the future means that energy
must be diverted now from non-energy sectors of the economy into future
energy generation."
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- In reality, because there is an ever-dwindling supply
of energy that can be sucked from the well, absent an alternative, without
a successor infrastructure built today with what remains useful, there
will be no way to "pass the torch". The pilot light in the furnace
of industry will flicker into darkness and we will be "out of gas",
forever!
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- But what about the so called "unconventional oil"
the oil found in shale deposits and sand tars? Sinks, all. In just a few
short years then, the net energy value of oil could be zero and its fate
as the world's dominant energy source will be sealed. Light's out! When
civilization can only produce the amount of energy needed to cover the
energy expended to produce itself, nothing is left to power your car, run
your business, or even grow you food. At that point, the price of gas and
the size of the worlds crude reserves will be irrelevant. Oil would then
become of greater interest to historians than to consumers as the Age of
Petroleum joins the Bronze Age and the Stone Age as footnotes in the chronicling
of civilizations. _____
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- About Stuart H. Rodman
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- Stuart is the Director of Communications for the Ecological
Life Systems Institute, a twenty two year old California non-profit corporation
advocating for sustainable living.
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- Stuart's reports on power and related issues have been
broadcast on national radio, on TV, and in other media.
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- He has served as a featured panelist for the White House
Council for Year 2000 Conversion and recently at George Washington University
as a guest of The Research Program in Social and Organizational Learning.
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- Stuart's book about how the electric power industry prepared
itself for the Year 2000, The Last Days of Power? The True Story is available
from Amazon.com
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