Oil is under $40 as I write this, which is down from over $147 sometime in July. So isn’t it high time to go out and buy those bargain basement Hummers to start burning up this cheap oil? I’m kidding of course, but some people never learn apparently as they are falling for lower oil prices and incentives from auto-manufacturers to continue down gas guzzling alley.

It’s not all that surprising actually. Gas is now down to the $1.30 range in some of the US. Even on Maui we’re down to $2.58 (we tend to have the most expensive gas in the country), which is as low as I can remember.  With gas this cheap, it seems easy to fall back into thinking that the recent rise in oil prices was nothing more than an unnatural energy futures bubble. While some of the price hikes were caused by speculation, another just as important aspect of high oil prices was that world supply for some time was running at full production capacity in relation to demand, with barely any oil to spare and national reserves drained near record low levels. Oil prices are largely determined by the interplay of supply and demand and as we all know by now supply can be a very fickle beast where the smallest interruption can cause price hikes. The current price drop is largely due to the projection that oil demand is going to be dropping drastically due to the current economic downturn with industrial production reduced and consumer spending curbed significantly.

With the drop in oil it’s back to the old days when people forget momentarily the pinch of $5 a gallon of gas and it’s written off as just another ploy by the oil companies, or what was it this time – oil speculators. But just because oil is cheap now doesn’t mean that it can’t go back up and go back up very, very quickly just as quickly as it went down. Certainly the current level of oil prices is a lot lower than where even our historical average should be (which based on historical averages is somewhere between $60-$70 a barrel + some offset for the low dollar) so I wouldn’t expect oil prices to stay this low for long, economic downturn or not.

Should we worry?

Our society and way of life is so intricately linked to oil, that it’s hard to not worry about the stability of oil prices.

From our society – especially in the US - that is so intricately dependent on cars and trucks for all transportation needs for lack of alternatives in most parts of the country (Suburbia Hell), to our agriculture that depends on oil based products for fertilizer, pesticides as well as the fuel to power farm machinery, to the myriad of consumer items that depend on oil based manufacturing as well as the energy inputs to produce actual products. Hi tech gadgets like our computers, phones, TVs etc. – even though often small -   require massive amounts energy to produce. There are very few industries that aren’t dependent on large scale energy usage and a lot of that energy comes from oil.

Oil is a near perfect energy source – it’s (at the moment at least) ridiculously cheap for the amount of energy it contains. It’s also easy to transport and store (as it’s liquid) so this energy can be easily transported around the world without significant loss of energy (other than transportation costs). To put this into perspective consider this quote from oil industry analyst Matthew R. Simmons:

“At $100 per barrel, oil costs about 15 cents a cup. A cup of oil converted to transportation fuel such as gasoline will carry a vehicle loaded with six people about 1.5 miles.”

Try getting that kind of output from human labor or even animal labor (think feed cost) at this rate or anywhere near it. Oil is damn convenient with its high energy output and portability. And that’s even with the inherent inefficiency of engine technology which wastes 20-30% of the energy available.

We’ve lived through 150 years of continuous growth in oil production with only a few small breaks in continuity – the biggest of which was in the 70’s during the energy embargo which forcibly reduced production, which also caused a severe recession, and brought about the first efforts of creating energy efficient cars, and household utilities etc which actually resulted in reduced energy usage for an extended period.

Oil usage started picking up early in the 20th century and since than has affected just about all aspects of the growth of our modern societies. It’s also been the main driving factor for population growth as the increased productivity of human population and our machines as well as oil based agriculture has driven up the count of the human population.

The dependence of our society on energy and specifically oil as the primary energy source has become a primary driving force of growth both real and economic. Imagine what would happen if that growth was no longer supported by an adequate supply of energy to go along with it.

Pure production doesn’t tell the whole story either. For the most part in this tremendous time of growth since the early 1900’s energy demand and supply were pretty closely matched. Our society grew from a mostly agricultural base to a mostly industrial one in a matter of 100 years. With a few exceptions – the oil shocks in the 70’s specifically – energy supply and demand have been largely in sync or at least in a positive balance with supply larger than demand. But earlier last year supply was once again starting to outrun demand which in large part resulted in the run up of oil prices up until the middle of the year.

This is a scary thought: it’s almost as if there was some anticipation – although not publicly made – that oil supply would continue to run short for the foreseeable future which in turn made in  or the speculation in oil futures that only made things worse. There’s been a lot of talk about demand increasing rapidly from emerging markets like China and India with production flattening out.

If there’s indeed some credence to the concept of Peak Oil (which says that oil production will peak and thereafter flatten and slowly decline when the half way point of oil reserves are produced), then even a moderate climb in demand quickly results in a large discrepancy between the actual production and world demand for oil which gets worse every year.

Last year’s divergence and shortage was fairly minor and mostly caused by interruptions in the supply chain rather than real shortages in production, but it gives a damn good taste how quickly the price of oil can shoot up and how adversely it ends up affecting the economy. Another disturbing sign is that oil production actually peaked in 2005 – since which production has stayed flat and has actually very slightly declined. In 2008 the numbers are going to be even lower although in this year the numbers aren’t going to be driven by production shortcomings but by the drastic drop-off of demand in the latter half of the year after the economy collapsed.

But imagine if you will that energy available is reduced even by very small percentages each year, especially in light of how our economy’s growth over the years that has pretty much always been accompanied by increased energy consumption. If you remove any amount of energy output from the economy it stands to reason that this reduction will also translate into reduced economic output and activity. Energy is extremely tightly coupled with our economy and whole way of life that we’ve been used to. Most people alive in the ‘western’ world at least don’t know any different – constant growth and no shortage of energy has been a given over the last 100 years when oil has been exploited.

Peak Oil?

The current situations of plummeting oil prices pretty much flies in the face of the Peak Oil theory which takes a fairly depressing view of oil production and when production of oil reaches its apex. The idea is that production (as well as discovery which proceeds it) follows a bell shaped curve the top of which is reached when half of the oil resources have been produced.

The production curve ramps up as the oil discovered is exploited and pulled out of the ground. At first both curves climb steeply as new discoveries of previously unexplored areas occur and production can pry off the easy pickings of top level easy to access oil (and often natural gas). As time goes on discoveries slow down and finally peak as ever more sophisticated (and expensive) discovery mechanism are used to track and find resources, that eventually are ever more difficult to find. In production the curve is similar – steep rise as the easy locations and wells are tapped and then slowly become more expensive and energy intensive to retrieve the oil out of the ground. The production curve eventually peaks where a maximum amount of oil has been retrieved after which the curve flattens out and then starts an steady and unstoppable decline.

The problem with Peak Oil is that it’s not easily quantifiable. Oil production rates are known, but the amount of reserves available in the world are obscured in that most of the big producers do not allow inspection of fields to determine actual production capacities. This has resulted in speculation on when the actual peak is supposed to occur. This naturally is an easy counter argument for this phenomen since it can’t be quantified exactly, so naysayers have plenty of counter arguments to field.

However, from a purely common sense perspective the idea of Peak Oil makes sense. The problem isn’t that we’re going to run out of oil, but that the oil that is left around the half way point – which most of the proponents of Peak Oil point to at this point in time or very soon – is going to be much more difficult to retrieve and get out of the ground. Whether it’s existing oil fields that have been drained and require pressurization to bring up oil, or new fields that are buried deep in the soil or under miles of ocean water (like some of the newer oil discoveries off Brazil and Mexico) procuring that oil is more difficult, expensive and most importantly more energy intensive.

The problem with energy production is that one has to overcome the energy deficit – the amount of energy required to retrieve the resource without expending large amounts of energy. Most of the ‘easy’ oil has been produced and now we’re into the phase of producing oil that requires more energy to retrieve. This means a barrel of oil produced today has a lesser net energy value than a barrel of oil produced say in the 1950s when the US was still the leading oil producer.

It wouldn’t do to expend more energy to retrieve oil than the energy that is contained in the actual oil retrieved. We're not there yet but a lot of the ‘alternative’ fossil fuel resources like extremely deep reserves or tar sands are very energy intensive compared to the easy oil that literally came spilling out of the ground in the early days of oil exploration. Half way in exhaustion of reserves is thus much further along the way, because 100% retrieval is likely to hit the point of diminishing returns way before resources are completely used up.

Nobody can say reliably when Peak Oil will hit but certainly I feel like there will be a peak. The question is whether it’s imminent, has already happened or still a few years off. Peak oil production currently is 3 years back in 2005 – 2006 through 2008 has not touched the 2005 peak production rates. However, it’s unclear whether that’s due to production limitations or whether it’s simply been due to supply chain issues – wars, natural disasters that got in the way of getting the oil to market. 2008 has seen a drastic drop in demand and usage that in turn has resulted in cut backs in production. If the economy continues its downward spiral demand is bound to continue low for some time to come producing a dip in the statistic similar to the one in the 70’s oil shocks and following economizing of energy consumption.

Still – while these are seem like small reprieve’s from a potentially disastrous problem, this slowdown is all but delaying the inevitable – which is that oil is a limited resource and it will get more scarce no matter what, even if it takes a little longer.

One of the scariest issues surrounding this problem is that modern society is so ill prepared to deal with even  modest reduction in energy resources available. Imagine a United States with gas at $10 a gallon or more and tell me that you can see things not get out of hand very quickly. Our suburban lifestyle, our food distribution network would break down very quickly. Again think about the last year prior to last summer has resulted in massive inflation in food prices. I know my food prices both on Maui and on the Mainland in Oregon had gone up by at least 40% and often much more year over year (while the gov’t numbers lie and exclude energy and food pricing in core inflation). Imagine what further rises along these lines could do to an economy that’s already in decline and where most people can’t do much else but spend their income on basic survival needs.

What alternatives?

What sucks about the current situation is that oil has plummeted so low, so quickly just at a time when serious thinking about alternative energy usage and more importantly the viability of alternative energies was finally gaining some steam. One way or another we need to re-focus on energy alternatives to get off the sinking ship that is massive oil consumption. There’s been a lot of talk about the general issue during this election cycle, but the discussion has been superficial at best with vague hints of addressing unspecified problems. But rarely does the discussion enter any state of urgency about how critical any reduction of energy resources would be for this country both on the national as well as on the individual, personal level.

There’s no way that the folks in the national security branch of the US don’t have this on their radar – they’re just not putting out the word to the public. Our energy dependence on foreign oil is a huge national security threat to say the least especially with most of our petro dollars going to foreign countries that are not friendly towards Western countries.

Yet even with the prospect of potentially disastrous changes in the energy balances of the world there are precious few alternatives that have any chance of providing a reasonable replacement for the cheap and easy to manage energy that comes from Oil. It’s no big surprise that innovation in energy has been shunned for so long while oil has been so relatively cheap because it’s impossible to compete with it on a calorie to dollar ratio.

The alternatives are slim and worse even once industries recognize the need to move to these alternatives they are very slow to do so. Bringing out hybrid cars is a baby step in the right direction but it sure seems like too little, too late. Look at how long cycle times are between a concept and actually having a car on the road. Even if a new technology was found, the replacement cost to produce the needed cars and infrastructure wouldn’t be able to ramp up for probably a decade or more. And that’s just for cars – factor all the aspects of the economy, agriculture etc. and the thought of switching to some other energy technology is staggering to the max.

Alternative fuels are practically non-existent – nothing more than vapor ware. There’s been a big PR push towards hydrogen power, but hydrogen is a storage medium rather than an energy source so something has to get the energy into it first. Volatility and energy inefficiency make hyrdogen a non-starter. Bio-fuels have horrible energy balances – it takes nearly as much energy to produce these non-waste bio-fuels than what they produce and the only reason that they are viable at all is that the crops in question (corn/sugarcane) are typically heavily gov’t subsidized. Without the subsidy there’s no way growing current bio fuels would make any sense. Nuclear power is often mentioned as an alternative and while it can produce a lot of power there’s of course the disposal issue plus the fact that large scale use would eat up all available uranium with a 20-30 years – it’s not a long term solution. Renewables like solar and wind have potential for small scale localized applications, unless adopted in large scale where every household and building becomes a part in a solar grid. Solar is getting very popular as a renewable, but currently it’s still so inefficient (with the best panels converting less than 40% of captured energy – with common more around 25%) and at the same time expensive. Solar equipment is also extremely environmentally unfriendly in production requiring much of the same processes used for computer/hardware production – it has a tremendous energy footprint that has to be made up.

Almost any alternative power proposed ends up having to do with electricity. But  electricity alone is not a complete replacement for what liquid fuels provide today. Heavy machinery – trucks, industrial machines, large airplanes etc. are not likely to run on electricity alone. Pure electricity also has the problem of not being very portable – the longer it has to be routed the more signal loss there is reducing the overall power output due to travel from site of generation to site of use. Storage of electricity is also a problem as power stored in batteries slowly drains and storage mediums available currently are very innefficient both in charging and then releasing energy resulting in significant power loss. Electricity use makes most sense near the source.

All in all the picture for alternatives look slim, yet it seems we – as a society – are relying on technology to save us from a potential energy shortage. If there is innovation in this space it’s happening behind closed doors and in baby steps. I doubt that if there was some great solution out there – even if it was in a pre-production stage - that we wouldn’t know about it. If it was private industry somebody would want to captilize on it. If it was the gov’t – somebody would want to take credit for it. :-}

It’s safe to say that if we run into problems with energy availability there’s not going to be one single technology that will help us out of the situation – it’ll have to be a combination of strong energy preservation and a combination of alternate energy technologies combined. But even then it will be hard to make up for the shortcomings that are likely to occur through oil shortages.

The problem is once such an energy shortage hits it will become that much harder to find a solutions to the energy problem as resources and any sort of funding will become less and less available in a declining energy and economic environment. Our best chance is to have some sort of Plan B in place before that happens, but it looks like this problem whether it hits soon or 5 years from now will catch us unprepared.

All of this may sound alarmist and unfounded and heck maybe it is. As mentioned above, the theory of Peak Oil can’t be pinned down exactly without reliable reserve numbers that are not available. But you can certainly search around on the Internet in relation to Peak Oil and find plenty of validated and scientifically backed analysis of this concept by many varied sources some of which would seem to have a conflict of interest even. The material is available, but in the end it is a very negative scenario and as we all know politicians are afraid of being harbingers of bad news. The other thing is that the Peak Oil concept has proven itself in many smaller scale scenarios of specific oil producing regions. The US was the prime example that M. King Hubbard (the originator of the Peak Oil theory) himself  used and predicted fairly accurately. There’s the North Sea example, Mexico, Russian production all of which are now in decline and all of which followed the Hubbart curve model.

If you want to find out more about peak oil there are a number of books and videos available. Here are a few I’ve looked at over the years that are worth mentioning (yes there’s also a lot of complete whacko stuff out there so reader/viewer beware holds).

The Party's Over: Oil, War and the Fate of Industrial Societies by Richard Heinberg New Society Publishers (April 1, 2003) Read more...

There are also a few videos you can check out including the 2006 Crude Awakening:

A Crude Awakening - The Oil Crash by n/a DOCURAMA Read more...

and The end of Suburbia:

The End of Suburbia: Oil Depletion and the Collapse of the American Dream by Matt Simmons, Colin Campbell, Steve Andrews, Michael Ruppert, Michael T. Klare Microcinema DVD Read more...

Both of these are not very recent and fairly alarmist, but they both provide the background on Peak Oil and discuss some of the issues at hand. Crude Awakening focuses more on the general issue of peak oil and where we are at in the world currently (or as of 2006 anyway), while The End of Suburbia is much more speculative and aggressively argues through some of the potential effects an end of oil scenario might have. You may not agree with the ideas and conclusions especially of the End of Suburbia, but both videos are interesting to start thinking about the what if implications that an end of oil scenario engenders.

What me worry?

I’ve long held the belief that our current path of development on this Earth is simply not sustainable. We can’t expect limitless growth to keep going forever and not to run out of the resources available on this finite planet’s resources. Additionally our use of conniving financing practices and debt to finance consumption and public expansion is only accelerating the dramatic explosion of populations and resource use of the world. Warnings about hitting some of our limits in expansion and never ending growth seem only reasonable. It’s happened many times before in history. Check out Collapse by Jared Diamond for some interesting case studies on how pissing into your own backyard doesn’t usually work out so well, even when in hindsight it only seems so extremely obvious with reality staring you in the face. We’re much on the same path today except that now we’re looking at it on a global scale for the first time.

The idea that oil resources running out are going to cause major changes in the balance of the world is the understatement of the millenium. The question is just whether this is something we really need to worry about or not at this moment in time. I think that some healthy skepticism at the very least is in order because a lot of the signs are pointing in the direction that there is a problem brewing…

For me personally I’ve thought about this quite a bit for some time which is why I’m writing about it here in this personal message on my blog. I think that while we can’t be sure whether there is an immediate problem in resource and energy shortages on the planet it stands to reason that at some point in the not too distant future we are going to be facing these issues head on. It seems incredibly childish not to address this possibility now while there is still time to soften the blow that a potential energy shock would have.

Think about it, even if you do nothing more than a little thought experiment with yourself. How would you live if you had to make do with a more primitive society that doesn’t run on power or power that is treated as a luxury rather than an abundant ever available resource as it is now? Or even one that doesn’t run with private cars? Do you live in the suburbs with no way to even get to a store by foot and no public transportation? How will you get to work if your job is in the city that’s 20, 50 or 80 miles away? Will you even have a job? In a drastically shrunken economy that has paid a heavy energy tax that is bound to deflate any economic growth that isn’t likely to come back, do you think you’ll still have a paper pushing job? Or an abstract job like programmer for example? How do you code when there’s no consistent electricity and which business would still need abstract work.

Once you start on this path of thinking there are a million other little things that pop up that make you realize how much of our lives depends on technology and most of all power to get us through the day. If nothing else, it might make you more energy aware, to show you how you are using energy in your daily life and you can possibly reduce your energy footprint.

The thoughts are not pleasant to say the least. Most of us have grown up in a society that has always been growing  – always with the assumption the next generation will have it better than the last (until fairly recently when we’ve flattened out and even have reversed the growth trend). Many of us have never worked with our hands. Instead we sit in offices or park our butts in front of computers and push paper and bits around rather than producing something tangible that has material value. Ask yourself, what would you do if you couldn’t do this sort of abstract work? What other skills do you have? Could you keep yourself alive self-sufficiently for any period of time without the comforts of modern day life – without electricity? Do you know how to build something, grow food? And would you die of boredom (hardly – survival tends to keep you awake?) not knowing what to do with out a computer, TV or video games to drain your brain in?

These are some uncomfortable questions at least to me, because I know the honest answers I have for them are not the way I would like them to be. Yet even a few years after thinking about this I’ve not been motivated enough to do a heck of a lot about it although it continues to be on my mind. Procrastination or lack of motivation – or to some degree seeing nobody else being the least bit concerned makes these kind of thoughts feel like ‘crazy thoughts’ at best. But they nag nevertheless.