The end of the oil age

Features

Philippe Ames, © www.philippeames.com

The atrocities of September 11, 2001 so dominated world news, politics, military affairs, and the economy that popular discussion soon divided all of recent history into two categories: “pre-9/11” and “post-9/11.” For most Americans, the events were not only horrifying, but entirely unexpected.

The Bush administration’s response to the 9/11 attacks was to bomb Afghanistan, remove the Taliban regime from power, and install a compliant interim client government. A few commentators pointed out that Afghanistan was located near the strategically significant oil and gas reserves of the Caspian Sea, speculating that the war might be an effort to enforce the building of a gas pipeline through Afghanistan to warm-water ports in Pakistan. Others, including some oil-industry insiders, disputed the idea that the war was essentially about oil or natural gas, pointing out that Afghanistan wasn’t essential to the domination of energy resources in the region, and that the proposed pipeline was of minor economic consequence to the US.

But if not for oil, the US would have little interest in the Middle East. If not for US involvement in Saudi Arabia, Osama bin Laden might never have felt compelled to destroy symbols of American economic and military power.

The Bush administration quickly proclaimed that the Afghanistan campaign was only the beginning of its “war on terrorism,” and officials floated lists of other potential targets, numbering from three to nearly 50 nations. Critics of the Bush policy claimed that the administration had, in effect, declared war on much of the rest of the world. Most of the listed nations possessed important oil resources while many—including Iran and Iraq, both high on the lists—had little or no discernible relationship with bin Laden or Al Qaeda. Iraq, of course, has since been invaded, and the despotic regime of Saddam Hussein cast out. With “terrorism” as its ostensible but elusive enemy, the Bush administration appeared to be embarking on a plan to use its military might to gain footholds in strategic regions around the globe, and perhaps to seize full and direct control of the world’s petroleum resources.

On its face, this was a strategy that made little sense, as it risked destabilizing the entire Middle East. However, it was more understandable when viewed in light of information known by the administration, but obscure to the vast majority of the world’s population: the rate of the global production of crude oil was about to peak.

The ground giving way
In nearly every year since 1859, the total amount of oil extracted from the world’s underground reserves has grown—from a few thousand barrels a year to 65 million barrels per day by the end of the 20th century, an increase averaging about two percent yearly. Demand has grown just as dramatically, sometimes lagging behind the erratically expanding supply. The great oil crises of the 1970s were politically based; there was no actual physical shortage of oil.

In the latter part of the year 2000, the world price of oil rose dramatically: from $10 per barrel in February 1999 to $35 per barrel by September 2000. Meanwhile, a wave of mergers swept the industry. Exxon and Mobil combined into ExxonMobil, the world’s largest oil company. Chevron merged with Texaco, Conoco merged with Phillips, BP purchased Amoco-Arco. Small and medium-sized companies—such as Tosco, Valero, and Ultramar Diamond Shamrock Corporation—also joined in the mania for mergers, buyouts, and downsizing. US oil-company mergers, acquisitions, and divestments totaled $82 billion in 1998 and over $50 billion in 1999.

The oil industry appeared to be in a mode of consolidation, not one of expansion. As Goldman Sachs put it in an August 1999 report, “The oil companies are not going to keep rigs employed to drill dry holes. They know it but are unable… to admit it. The great merger mania is… a scaling down of a dying industry in recognition that 90 percent of global conventional oil has already been found.” Industry insiders expressed growing concern that fundamental limits to oil production were within sight.

If this were indeed the case—that world petroleum production would soon no longer be able to keep up with demand—it should have been the most important news item of the dawning century, perhaps dwarfing even the atrocities of 9/11. Oil was what had made 20th-century industrialism possible; it gave the US its economic and technological edge during the first two thirds of the century, enabling it to become the world’s superpower. If oil production slackened, the global economy would be structurally imperiled. The implications were staggering.

There is every reason to assume that the Bush administration understood at least the essential outlines of the situation. The President, Vice President, and National Security Advisor are former oil industry executives. Vice President Dick Cheney’s chief petroleum-futures guru, Matthew Simmons, had repeatedly warned his clients of coming energy-supply crises. Moreover, for many years the CIA had been monitoring global petroleum supplies. It had, for example, subscribed to the yearly report of Switzerland-based Petroconsultants, published at $35,000 per copy, and was surely also aware of their report The World’s Oil Supply 1995, which predicted the peak of global oil production would occur during the first decade of the new century.

Almost nowhere else was this information reported. The New York Times carried the stories of the oil company mergers on its front pages, but offered little analysis of either the state of the industry or the geological resources on which it depended. Discover and Popular Science blandly noted that “early in [the new century]... half the world’s known oil supply will have been used, and oil production will slide into permanent decline” and that “experts predict that production will peak in 2010, and then drop over subsequent years”—but these publications made no attempt to inform readers of the monumental implications of these statements. The average person had no clue the entire world was poised on the brink of an economic cataclysm—vast, unprecedented, and inevitable.

Yet there were individuals who did comprehend the situation. Many were petroleum geologists who had spent their careers searching the globe for oil deposits, honing the theoretical and technical skills that enabled them to assess fairly accurately just how much oil was left in the ground.

M. King Hubbert: energy visionary
During the 1950s, ‘60s, and ‘70s, Marion King Hubbert became one of the best-known geophysicists in the world because of his disturbing prediction, first announced in 1949, that the fossil-fuel era would prove to be very brief.

The idea that oil would run out eventually wasn’t original. In the 1920s many geologists had warned that world petroleum supplies would be exhausted in a matter of years. The early wells in Pennsylvania had played out quickly; and extrapolating that initial experience to the limited reserves known in the first two decades of the century yielded an extremely pessimistic forecast for oil’s future.

However, the huge discoveries in east Texas and the Persian Gulf during the 1930s made such predictions laughable. Each year far more oil was being found than was being extracted. The doomsayers having been proven wrong, most people associated with the industry came to assume that supply and demand could continue to increase far into the future, with no end in sight. Hubbert, armed with better data and methods, challenged that assumption.

Hubbert was born in 1903 in central Texas, the hub of world oil exploration during the early 20th century. In a long career working with oil companies, government, and the geology departments of several top schools, Hubbert made many important contributions to geophysics, any of which would have been sufficient to assure him a prominent place in the history of geology. But his greatest recognition came from his studies of petroleum and natural gas reserves. In 1949, he calculated total world oil and natural gas supplies and documented their sharply increasing consumption. In 1956, he predicted that the peak of crude-oil production in the United States would occur between 1966 and 1972. At the time, most economists, oil companies, and government agencies dismissed the prediction. The peak occurred in 1970, though this was not apparent until 1971.

Hubbert then devoted his efforts to forecasting the global production peak. With the figures then available for recoverable reserves, he estimated that the peak would come between the years 1995 and 2000. This forecast would prove pessimistic, due to inadequate data and minor flaws in Hubbert’s method. Yet other researchers would later refine both input data and method in order to arrive at more reliable predictions—which would still vary from Hubbert’s by only about a decade.

Hubbert grasped the vast economic and social implications of this information. He understood the role of fossil fuels in the creation of the modern industrial world, and thus foresaw the wrenching transition that would likely occur following the peak in global extraction rates. Starting in the 1950s, Hubbert outlined how society needed to change in order to prepare for a post-petroleum regime. Here’s an example, taken from his summary of a 1981 seminar he gave at the MIT Energy Laboratory:

The world’s present industrial civilization is handicapped by the coexistence of two universal, overlapping, and incompatible intellectual systems: the accumulated knowledge of the last four centuries of the properties and interrelationships of matter and energy; and the associated monetary culture which has evolved from folkways of prehistoric origin.

Despite their inherent incompatibilities, these two systems during the last two centuries have had one fundamental characteristic in common, namely exponential growth, which has made a reasonably stable coexistence possible. But… it is impossible for the matter-energy system to sustain exponential growth for more than a few tens of doublings, and this phase is by now almost over. The monetary system has no such constraints, and, according to one of its most fundamental rules, it must continue to grow by compound interest.

Hubbert believed that society, if it is to avoid chaos during the energy decline, must adopt a monetary system that would acknowledge the finite nature of essential resources.

Hubbert was quoted as saying that we are in a “crisis in the evolution of human society. It’s unique to both human and geologic history. It has never happened before and it can’t possibly happen again. You can only use oil once. You can only use metals once. Soon all the oil is going to be burned and all the metals mined and scattered.”

Statements like this gave Hubbert the popular image of a doomsayer. Yet he was not a pessimist; indeed, on occasion he could assume the role of utopian seer. We have, he believed, the necessary know-how; all we need to do is overhaul our culture and find an alternative to money. If society were to develop solar-energy technologies, reduce its population and its demands on resources, and develop a steady-state economy to replace the present one based on unending growth, our species’ future could be rosy indeed. “We are not starting from zero,” he emphasized. “We have an enormous amount of existing technical knowledge. It’s just a matter of putting it all together. We still have great flexibility but our maneuverability will diminish with time.”

Hubbert’s legacy
Since Hubbert’s death, other prominent petroleum geologists have used their own versions of his method to make updated predictions of the world’s oil production peak. Their results diverge only narrowly.

Colin J. Campbell is by most accounts the dean among Hubbert’s followers. After earning his Ph.D. at Oxford in 1957, Campbell worked first for Texaco and then for Amoco as an exploration geologist. He has published extensively on the subject of petroleum depletion, and is author of the book The Coming Oil Crisis.

Campbell’s most prominent and influential publication was the article “The End of Cheap Oil?”, published in the March 1998 issue of Scientific American. The co-author of that article, Jean Laherrère, had worked for the oil company Total (now Total Fina Elf) for 37 years in a variety of roles encompassing exploration activities in the Sahara, Australia, Canada, and France. Like Campbell, Laherrère had also been associated with Petroconsultants in Geneva.

The Scientific American article’s most arresting features were its sobering title and its conclusion:

From an economic perspective, when the world runs completely out of oil is ... not directly relevant: what matters is when production begins to taper off. Beyond that point, prices will rise unless demand declines commensurately. Using several different techniques to estimate the current reserves of conventional oil and the amount still left to be discovered, we conclude that the decline will begin before 2010.

Some of the essential elements of Hubbert’s message have been taken up by others who are not petroleum geologists. One example is Matthew Simmons, founder of Simmons & Company International, an independent investment bank specializing in the energy industry. Simmons describes himself as a lifelong Republican with 30 years of experience in investment banking. In a lecture called “Digging Out of Our Energy Mess,” delivered to the American Association of Petroleum Geologists in June 2001, Simmons notes:

Even the Middle East is now beginning to experience, for the first time ever, how hard it is to grow production once giant fields roll over and begin to decline. There is so little data on field-by-field production statistics in the Middle East that any guesses on average decline rates are simply speculation. But there is growing evidence that almost every giant field in the Middle East has already passed its peak production.

Are there other oil sources?
Technology rarely offers a free ride; there are new costs incurred by nearly every technological advance. In the technologies involved with energy resource extraction, such costs are often reflected in the ratio of energy return on energy invested (EROEI). How much energy do we have to expend in order to obtain a given energy resource? In the early days of oil exploration, when we used simple technologies to access large, previously untapped reservoirs, the amount of energy that had to be invested in the enterprise was insignificant when compared with the amount harvested. As oil fields age, and technology becomes more advanced and costly, that ratio becomes less favorable. Technologies will no doubt be developed to increase the amount recoverable from existing reservoirs; we will indeed be able to get more oil out of wells than we otherwise would have, but we will have to invest more energy to obtain that oil, with an ever-decreasing EROEI.

How important is EROEI? When the EROEI ratio for oil exploration declines to the point that it merely breaks even—that is, when the energy equivalent of a barrel of oil must be invested in order to obtain a barrel of oil—the exercise will become almost pointless. Even if oil remains a useful lubricant or a feedstock for plastics, it will have ceased to be an energy resource. EROEI is also an essential consideration in the substitution of one energy resource for another. If we replace an energy resource that has, say, a 4:1 EROEI ratio with an alternative that has a 2:1 EROEI ratio, we will have to produce twice as much gross energy to obtain the same net quantity. Thus, when a society adopts lower-EROEI energy sources, the amount of energy available to do work in that society will inevitably decline.

When Europeans began substituting coal for wood, they found that their substitute sometimes contained more energy per kilogram than the original resource. When industrial countries began switching from coal to oil, the substitute was much more energy-dense. Some suggest that industrial societies will deal with petroleum shortages by switching back to coal, but coal is substantially less energy-dense and thus unsuitable for supplying society’s vastly increased energy needs. Natural gas is also mentioned as an alternative, but is there enough available to substitute for oil? North American production of natural gas may be peaking as you read this.

Ah, you might say, but there is enough shale oil to last 5,000 years! Shale oil (or oil shale) is actually a misnomer: the rock is not shale but organic marlstone, and it contains no oil, but rather a solid organic material called kerogen. Promoters prefer the term “oil shale,” which facilitates the sale of venture shares. Efforts to develop an oil shale industry date back nearly 90 years, and so far all attempts have failed. The recovery process involves mining ore, transporting it, heating it to 900°F, adding hydrogen, and disposing of the waste, which is much greater in volume than the original ore and is also a pollution hazard. Processing and auxiliary support facilities require large amounts of fresh water—a resource intrinsically more precious than oil.

Oil sands are likewise reputed to be potential substitutes for conventional oil. The Athabasca oil sands in northern Alberta contain an estimated 870 billion to 1.3 trillion barrels of oil—an amount equal to or greater than all of the conventional oil extracted to date. Currently, Syncrude (a consortium of companies) and Suncor (a division of Sun Oil Company) operate oil sands plants in Alberta. Syncrude now produces over 200,000 barrels of oil a day. The extraction process involves using hot-water flotation to remove a thin coating of oil from grains of sand, then adding naphtha to the resulting tar-like material to thin it so that it can be pumped. Currently, two tons of sand must be mined in order to yield one barrel of oil. As with oil shale, the net-energy figures for oil sands are discouraging. Geologist Walter Youngquist notes “it takes the equivalent of two out of each three barrels of oil recovered to pay for all the energy and other costs involved in getting the oil from the oil sands.

The primary method used to process oil sands yields an oily wastewater. For each barrel of oil recovered, 2.5 barrels of liquid waste are pumped into huge ponds. In the Syncrude pond, 14 miles in circumference, 20 feet of murky water floats on a 130-foot-thick slurry of sand, silt, clay, and unrecovered oil. Residents of northern Alberta have engaged in activist campaigns to close down the oil sands plants because of devastating environmental problems, including displacement of native people, destruction of boreal forests, livestock deaths, and an increase in miscarriages.

Replacing conventional crude with oil sands to meet the world’s energy appetite would require about 700 additional plants the size of the existing Syncrude plant. Together, they would generate a waste pond the size of Lake Ontario. While oil sands represent a potential energy asset for Canada, they cannot make up for the inevitable decline in the global production of conventional oil.

Ultimately, we will only know after the fact when global oil production has peaked : one year we will notice that gasoline prices have been climbing at a rapid pace, and we will look back on the previous few years’ petroleum production figures and note a downward slope. It is possible (as noted geologist Kenneth Deffeyes—author of Hubbert’s Peak: The Impending World Oil Shortage—suggests) that the first global production peak has already happened—in the fall of 2000—and that the next decade will be a “plateau” period, in which economic recessions will lower energy demand, temporarily masking the underlying depletion trend.

The US reached a fork in the road in the 1970s. In some respects it is still hesitating at that juncture. The two conflicting paths of action with which we were—and still are—presented correspond fairly closely with the “two universal, overlapping, and incompatible intellectual systems” mentioned by Hubbert.

On the one hand is the path of the optimists, who proclaim that resources are effectively infinite, and that the more of any resource we consume, the more its reserves will grow. The human intellect is the greatest resource of all, the optimists tell us, and so population growth means that we all benefit from an increasing collective problem-solving capacity. Like money in the bank expanding inexorably through compound interest, humanity is growing a measurably brighter future with each passing year as it reproduces, transforms its environment, invents new technologies, and consumes resources.

On the other hand is the path of scientists who tell us that resources are limited. The Earth’s carrying capacity is finite, and the biosphere on which we depend cannot for long continue to absorb the rapidly expanding stream of wastes from industrial civilization.

As a result of their inaction, our leaders have in effect chosen the path of the optimists, which implies that we will continue to use fossil fuels at whatever rates are dictated by the market, since to do otherwise will hurt the economy.

This latter path involves less short-term intervention in the economy and works to the near-term advantage of the powerful in society (including the oil and automobile companies). By taking it, our politicians have simply followed the path of least resistance. The consequences—if the optimists are wrong and the physical scientists are right—will be devastating for nearly everyone.

Richard Heinberg is a journalist and educator, and author of four previous books. His monthly MuseLetter (www.museletter.com) was nominated in 1994 by Utne Reader for an Alternative Press Award and has been included in Utne’s annual list of Best Alternative Newsletters. He teaches courses on “Energy and Society” and “Culture, Ecology and Sustainable Community"at New College of California. He is also an accomplished classical violinist.

This article was adapted from Heinberg’s new book The Party’s Over: Oil, War and the Fate of Industrial Societies, New Society, 2003