Is a Run on the (Resource) Bank Behind Rising Inequality?

How, then, can society tell if it is in overshoot?...[One symptom is] declining respect for the instruments of collective government as they are used increasingly by the elites to preserve or increase their share of a declining resource base.
    ---Limits to Growth: The 30-Year Update, p. 177

Most people alive today have never experienced a genuine bank run. Today, we are nearly oblivious to such a possibility. Beefy construction workers, college students, elderly men and women, and middle-aged executives all respect each other's place in the teller line, confident that their money will be available when they arrive at the counter.

But, how would this scene look if everyone in line believed there wasn't enough money to go around? Would those who are more powerful--either because of their position or physical strength--force their way to the head of the line? Would the business executive call over the vice president of the bank on whose board he sits and ask that vice president to get his money? Would the construction worker stand idly by as the college student in front of him withdraws the last of the bank's money--money the worker needs to feed his family? (In an ideal world everyone in line might agree to divide up what money is left based on who has the most pressing needs. But I digress.)

Rewind to 1980, the year after the last oil shock. Oil and other commodities had been rising in price for more than a decade. The message of books such as "Limits to Growth" and "The Population Bomb" had entered the popular culture. The perception was that critical natural resources were only going to become more scarce over time. For those aware of the implications a run on the resource bank--the basis for all wealth--seemed imminent.

How did this manifest itself? For the middle class and the poor it meant narrowing life choices and declining living standards (experienced as higher prices without a commensurate rise in income). For the rich it must have seemed a mortal threat to their future power and wealth. To maintain their relative position, they sought to get to front of the line and get what they could before it was too late.

Along came a new president with an ideology that meshed perfectly with this desire. He introduced supply-side economics to the American public and assured them that by giving tax breaks to the wealthy, America would return to its former prosperity as those wealthy people invested and created jobs. What took place, however, was the devastation of the industrial economy and continued high unemployment which did not consistently reach low levels until the late 1990s. But the rich got richer, much richer. Through their powerful alliance with government they were able to get to the front of the line and redirect resources financial and otherwise to themselves.

Long after the fears of scarcity abated, the trend toward greater concentration of wealth continued as the influence of the wealthy over government policy increased. It is all too easy to believe that the dramatic shifts in income distribution in the United States and much of the world over the last 25 years are simply related to free market ideology, supply-side economics, globalization or merely greed. But if we view the evolution of economic and social policy during this period as the long tail of an initial response to natural resource scarcity--a response directed by the wealthy and powerful that put them at the front of the resource line--we can see that the contest over who will benefit from the Earth's remaining natural bounty continues to this day.

The logic in 1980 was that even to maintain one's living standard, one had to secure an increasing share of the world's remaining resources. In other words, henceforth one's own well-being would have to come at the expense of someone else's well-being. That turned out not to be necessarily the case as economies eventually expanded and natural resources ultimately glutted world markets.

But those initial policies and practices have remained and even intensified. In 1980 a new economic ideology, supply-side economics, gave convenient cover to the rich to portray their rush to the front of line as a virtuous and selfless act. That ideology is now more than ever deeply embedded in the minds of policymakers and people worldwide (though it is by no means universally accepted or praised). As we enter a new age of resource scarcity, we are already well into the next run on the resource bank. The most visible manifestations are a global contest over energy resources and a new round of tax cuts in the United States for the wealthy aimed at "stimulating" the economy. (Here I must point out that "stimulating" the economy is really nothing more than increasing the rate of drawdown of finite resources.)

Supply-side ideology promised a rising economic tide that would reduce inequality. While many people throughout the world have indeed been raised into the middle class in the last 25 years, inequality has greatly expanded not only between the rich and the poor, but also between the rich and the middle class.

Now, the renewed scarcity of vital natural resources, especially oil and natural gas, has initiated another scramble to get to the head of the resource line. But unlike 25 years ago the policies that make it easy for the rich and powerful to cut in line and grab an increasing share of the world's wealth are already firmly in place. It is a tragic irony that those policies will provide no solution to resource depletion and will ultimately undermine the social and ecological stability upon which the wealth of the world's most privileged depends.

Demand Destruction: Who Gets Destroyed?

Economists who comment on the possible effects of world peak oil production love to ridicule those who make statements such as "demand at some point will exceed supply." Strictly speaking, those economists are right that supply and demand are always in balance. The variable that changes to make it so is price.

So an economist who accepts the possibility of an oil peak may still believe that the marketplace will allow us to make a relatively smooth transition to a new energy economy as the price encourages the development of alternatives to oil and as demand is destroyed. The latter phrase is often glossed over. But demand destruction is at the core of misconceptions by economists about the likely course of events leading up to and following an oil peak.

A smooth transition away from oil mediated entirely by market prices essentially assumes two things: 1) a very gradual decline in oil supplies after the peak and 2) a recognition in the market price that the peak is coming long before it arrives.

Both assumptions are called into question by Robert Hirsch's study of oil depletion curves in various countries across the globe. Hirsch's study indicates that any world peak is likely to have a sharp crest followed by a swift decline in oil production--anywhere from 3 percent to 13 percent per year if the historical record can be relied upon. Hirsch also notes that "in all cases, it was not obvious that production was about to peak a year prior to the event." This would help explain why the second assumption listed above is likely to turn out to be wrong as well. Market participants are unlikely to see the peak coming. This means that prices will only start to signal that alternatives are needed for oil long after it is too late to prevent tremendous disruptions.

Douglas Reynolds gives a more detailed explanation of how energy and other mineral markets misinterpret price signals as indicative of future supplies. When finite mineral resources are involved, the market typically creates "the appearance of decreasing scarcity," something I've commented on previously in Faith-based economics II: The case of oil's sudden scarcity.

The final argument on which the smooth transition idea rests brings us back to demand destruction. An economist will properly point out that people will stop using oil for some applications and will turn to alternatives where they are available. All that is true enough. But it is worth asking what they mean by "applications." In reality, it is the poor who will stop using oil for "some applications," both in industrialized countries and across the world. If alternatives are not available or are just as expensive, they will simply have to forgo the benefits of those "applications." That will help keep a lid on oil prices, but it won't solve the problem: too little oil for all the activities that power and feed 6 billion people.

With a sudden decline in oil availability it is almost certain that agriculture, which is heavily dependent on oil and oil derivatives, will be less productive; that many marginal factories will close in short order; that tremendous financial turmoil will occur in world markets; that many people will have to do with less heat or without heat at all; that skyrocketing prices for transportation will prevent commodities including food from freely circulating around the world, and so on. In short, there would be no smooth transition.

The heightened price of oil would certainly encourage conservation--i.e., demand destruction--but that conservation might come in the form of terrible hardship for millions and perhaps billions of people and possibly death for many. That would give a rather gruesome connotation to the notion of demand destruction. High prices would also encourage the development of alternative energy sources, but that's assuming that world society does not become so disoriented and chaotic that such efforts cannot actually be effected.

If one assumes that the oil peak is far off and that technology will allow us to make a smooth transition to the next energy economy (and solve other related problems that threaten to annihilate us such as global warming), then there is no need to worry about the effects of sudden demand destruction in the oil markets. But, if the peak arrives soon, say, within the next 10 to 15 years, then no bloodless abstraction such as "demand destruction" will be able to obscure the fact that it is people who are going to get destroyed, and lots of them.

After the Peak: What will become of the Joffrey Ballet?

For those who have begun planning for a low-energy future, the main concerns are rightly food, transportation, heat, health care and local production of goods of all kinds. On a recent trip to Chicago, however, I began thinking about the fate of our great artistic and cultural institutions. In the spirit of the oft-quoted Biblical saying, "Man does not live by bread alone," I wondered whether anyone will conclude that Chicago's world-renown Joffrey Ballet is worth saving as energy supplies become more and more scarce.

Chicagoans of all types nearly filled the auditorium for a recent performance of The Nutcracker which I attended. I found the performance intensely beautiful and occasionally (and intentionally) delightfully amusing. It involved not only the professional Joffrey dancers but also young singers and dancers from the Chicago community. Can we do without such unifying community events? Can we live by bread alone?

Everyone who thinks seriously about a post-peak world will probably agree that the arts need to be an integral part of that world. Yet, we know only too well how easily they are neglected in our current world even though we have been rich in energy for a long time. How much more might the arts be slighted in an energy-deprived world!

While in Chicago I also visited the Shedd Aquarium and wondered how such a place might function in a post-peak world. Both the Art Institute of Chicago and the nearby Field Museum of Natural History seemed much more likely to remain viable since their exhibits are largely static and, of course, inanimate. The Shedd Aquarium, on the other hand, must continuously filter 3 million gallons of water, hold the temperature of that water as low as 38 degrees (for the penguins) and feed an entire underwater zoo of animals daily. The aquarium seems certain to be shuttered even under the most mild assumptions of a post-peak world. Perhaps marking it as an inevitable casualty would allow us to go in search of less energy-intensive ways to teach the public and especially our children about the natural world which lies beneath the sea.

At the other extreme, a local jazz singer I listened to in a hotel bar and a one-man show on the life of George Gershwin both seemed much more likely to survive a peak than any of the other forms of entertainment or cultural attractions I saw. The relatively low energy content of these two performances seem to favor them in an energy-challenged future.

Still, should we close down the more energy-intensive Joffrey Ballet in a post-peak oil world? Should we let all the great theater, opera and ballet companies in the world go defunct? Should we close the museums and aquariums? Should we shutter the world's symphony orchestras? And, what about our libraries? Will we allow these great storehouses of cultural memory and knowledge to fall into disrepair and disuse?

No doubt popular entertainments will survive, kept alive by small groups in every community. And, arts and crafts are likely to flourish in a world where household objects are increasingly the product of local craft work. Folk knowledge will become an important part of our education again. But what about knowledge of the remarkable scientific and cultural achievements of the fossil fuel age? Will that knowledge be lost?

Without planning, decisions about the great artistic, cultural and scientific institutions of our society may end up being afterthoughts. Under the cloud of an emergency we could lose many of the most important parts of our heritage. And, should that happen, we would surely end up testing whether man can live by bread alone.

Coal And The Question No One Is Asking About Carbon Sequestration

The new watchword in the coal mining industry is carbon sequestration. Those who mine coal and those who burn it (primarily electric utilities) are less likely than their counterparts in the oil and gas business to discount the dangers of oil and gas depletion. And, they have an entirely predictable solution: Mine more coal. The natural followup question is: What about global warming? From coal advocates we get another entirely predicable answer: carbon sequestration (i.e., storing the carbon dioxide created by the combustion of coal someplace other than the atmosphere).

These advocates are eager to turn coal into liquid fuel, into slurries for pipeline transport, and into cleaner burning synthetic gas for fuel and chemical feedstocks. In fact, they envision a return to a coal economy as the oil and gas economy declines. They do have one very important fact in their favor: The world still has gigantic reserves of coal, one quadrillion short tons according to the U. S. Energy Information Administration.

Of course, there are questions about the energy content of that remaining coal. Will we reach a point (sooner than we expect) at which the net energy from coal begins to decline precipitously and even turns negative making it an energy sink instead of an energy source? Will we find that as we increase our use of coal, a worldwide peak in production will come much earlier than we thought? And, wouldn't we then face the same challenge all over again of having to move quickly to renewable sources of energy?

But, let us set all these concerns aside for the moment and focus on the question of carbon sequestration. Not too long ago I spoke about oil depletion before a Chamber of Commerce-sponsored gathering. I suggested that we as a world society might decide to return to a coal economy. While that might prove practical in the short run, I explained, it would probably be disastrous in the long run because of the damage it would do to the climate.

Afterwards an engineer who works for a large utility approached me. He explained that his company was already successfully sequestering carbon dioxide underground in a pilot program at a generating plant in Virginia. I asked him how long the company was planning to test its program before expanding it. Would it be five years? 10 years? How long will the company wait to be sure that the carbon dioxide doesn't leak out at a later date, possibly by some process as yet unknown? What if any failure of the company's sequestration method doesn't show up until the 11th year?

He responded, "Well, maybe any leakage will be slow."

Are we really willing to bet the future of human civilization on coal based on that response?

Peak Oil's Richard Pryor Problem

Comedian Richard Pryor, who passed away last week, was famous for saying, "Who you gonna believe? Me or your lying eyes?" In a way, those who believe that a peak in world oil production is not far away (or possibly already here) are asking the American public the same question.

A somnolent and self-satisfied American citizenry awakens each day to a world with no gas lines, warm homes in winter (or cool homes in summer), an economy which appears to be gaining speed and a gasoline price which has dropped below where it had been before it spiked to record levels.

It is as if we in America were all on a great luxury liner, one brimming from bow to stern with food and entertainment 24 hours day. Our ship is cruising through calm tropical seas under clear blue skies. As part of the afternoon entertainment someone gets up on the stage and starts talking about a huge storm not far ahead. He says the storm is in an area where some ships have simply disappeared and others have been so damaged that they had to be abandoned. At first the crowd squirms uncomfortably at the thought. But after looking out the window they are relieved; the sea is calm and the sky is blue to horizon. They begin murmuring among themselves that this guy is truly crazy.

Is our hypothetical speaker not asking the audience to deny the evidence of their senses? Is he not asking them to believe him rather than their lying eyes?

So, we are left with indirect approaches and appeals to statistics--over which there is admittedly much disagreement. We have no photos of the ancient Maya as their society collapsed. And, even if we had them, it took more than a century for Mayan civilization to disappear under mounting ecological pressures. Could that have been captured in a Kodak moment? In Pompeii we can actually see tortured faces preserved by the hot spewing ash; those faces speak eloquently of a people unprepared for a sudden disaster. And, yet Pompeii was really an isolated event, not a worldwide cataclysm. Even if we somehow had a time machine and could bring back pictures from the future, would anyone know how to interpret them? Even if we could interpret them, would anyone believe them?

We are only now beginning to see the outline of a visual presentation that will be crucial to explaining the risks of peak oil to a television-addicted society. Robert Hirsch's fast declining depletion curves can at least be fitted with the emotions of the market crashes of 1929 or 1987. But, the lesson in both instances is that eventually recovery comes.

America has always been a sucker for the apocalytic story. But, those stories have almost always had religious overtones. Even technological tales of the end times are often filled with moralizing about our unwillingness to control technology. It simply isn't within the American narrative to say, "We ran out of everything and people died."

There are signs of the peak, of course, for those who can interpret them: The global contest for the Earth's remaining energy sources. The inability of Saudi Arabia to increase its oil output as promised, not just over a few months, but over a couple of years. The unexpected rise in oil prices and their resilience in the face of energy analysts' calls for $20 or $30 oil. The sudden and suspicious growth of oil reserves in the Middle East in the 1980s with no new major discoveries, reserves upon which predictions of a peak far into the future are predicated.

But all this assumes a coherent narrative on which to hang these facts. And, that is the thing which hasn't yet emerged in the public mind. Perhaps peak oil is just too contrarian for the ingrained cornucopian expectations of a sated American public. Perhaps its ramifications are just too complex to get across. More important than either of these, peak oil does not yet come with compelling pictures that can be beamed into every home on FOX and CNN.

In our society, talk is good, pictures are better, and narrative is critical. But, in the end, the play's the thing. Can we find a peak oil narrative with pictures and players compelling enough to awaken the public before it's too late?

Energy: Fairy Dust for Techno-optimists

Peter Pan knew that anyone could fly after receiving a light sprinkling of fairy dust. And, so he sprinkled three young acquaintances and lured their levitating bodies out a bedroom window for a flight to Neverland.

Today, the world's techno-optimists regale us with tales of a future technological Neverland filled with such miracles as climate engineering (to save us from global warming); vertical farming--something along the lines of farming in a high-rise office building; photographic communications portals between cities--a virtual reality picture phone of sorts; personal fabricators--think the replicator on the Star Trek television series; roving self-powered fish ranches (to make up for the overfishing we've already done); and even Martian terraforming to give us an extra "Earth" when we're ready to throw out the one we live on.

Such stories can truly make us feel as if we could fly without any outside propulsion. But, whatever their merit, these ideas almost never include an explanation of where the energy to accomplish them will come from. The techno-optimists just assume that the necessary energy will show up somehow. It is as if energy were fairy dust to be sprinkled on any energy-devouring scheme we can think of.

Of course, there are techno-optimist schemes for getting all the energy we'd like, too: great solar panels in space, nuclear breeder reactors, clean-coal technology, methane hydrates, biodiesel from soy, to name a few. Some of them might work. The operative word is might.

Often these energy schemes fail to include an adequate explanation of 1) how we will get more energy out of the proposed technologies than we put in, 2) how we will scale them up to meet all our projected needs, 3) how we will deal with the enormous expansion of problems associated with them such as strip mining, nuclear waste or global warming or 4) how long such schemes are likely to sustain us. Perhaps we shouldn't make such a fuss. Peter Pan will find some special fairy dust to solve these problems as well. It's called technological innovation, and like fairy dust, it will arrive at precisely the moment we need it.

The one thing that does not figure into the techno-optimists' future is the possibility that we may have to live simpler, less technological lives. But then, that would require hard choices, clear thinking and careful planning and cooperation. How much easier to fantasize that some technological Peter Pan will arrive and take us to a technological Neverland where the inhabitants never run short of fairy dust--or energy.

Money and Energy: The Map Is Not The Territory

The map is not the territory. To any thinking person this statement is axiomatic. But, an important corollary is more difficult to discern, namely: Money is nothing more than the right to command energy to do what you want it to do.

To understand how the two statements above go together you need first to understand that money and credit make up what's called the symbolic economy. The symbolic economy merely represents what is happening in the real economy of goods and services including energy goods. Second, it is useful to know that only a fraction of one percent of all energy which goes into the products and services of an industrial economy comes from physical human labor. All the rest comes from a mix of fossil fuels (86%), nuclear power (7%), hydro power (6%) and alternative sources (1%). Since nothing gets mined, grown, harvested, processed, manufactured or delivered without energy, it follows that energy is the true currency of modern civilization. And, without energy sources that go beyond human and animal labor, we would revert to a pre-industrial lifestyle.

But some very smart people who should know better insist that money has a life of its own dancing through the hands of merchants, miners and manufacturers and able to conjure goods and even energy resources out of thin air. Such people treat energy as just another item in the marketplace. A recent commentary took that line of thinking as outlined in the linked article above to its logical conclusion by proposing that we run our entire economy on AAA batteries.

Yet, even the most noted cornucopian of our times, Julian Simon, recognized that energy is the "master resource." If energy is in short supply, that is, if it is costly, then our standard of living cannot be high. If it is plentiful and cheap, we can theoretically use it to transform everything else on earth into what we need and want. In his book, "The Ultimate Resource," Simon essentially admits that without cheap energy modern industrial civilization wouldn't be possible. His main argument on energy is that in the long run human ingenuity will always allow us to find whatever amounts and types of energy we need.

That is the real point of contention between energy pessimists and cornucopians. Intellectually honest cornucopians will recognize that no amount of money will elicit movement from a tractor, flight from an airplane, or the flow of electricity from generator, if there is no energy to make it happen. The quest for profit may motivate people to find and extract new energy resources, but no prospector in his right mind would build oil derricks on top of maps.

What we truly need is to start spending much greater sums of public money--that is, energy allocated for public purposes--to jumpstart the creation of a sustainable, renewable energy society. We don't have much time to prepare.

[Thanks to James Howard Kunstler in his November 28 commentary for pointing out the pieces cited above.]

"Risk" and "Probability": MIA in the Peak Oil Debate

People desperately want to know the one thing which they cannot know: The future. All sides in the peak oil debate are only too happy to oblige with confident predictions about the future which flatly contradict one another. Strangely, it is not only the charlatans who offer such cocksure pronouncements, but also many thoughtful, accomplished people who are competent in every other way, yet who feel compelled to share their opinions as if they were channelling Nostradamus.

The result can be a game of journalistic ping-pong in which unequivocal pronouncements from various sides of the peak oil debate leave the public confused. Many in the public simply dismiss this debate; after all, if the experts can't agree, let them sort things out before they bother me.

While it is true that the public is looking for definitive answers about the complex issue of oil depletion, it is also true that there are none. We are all groping forward in a twilight of partial and often uncertain knowledge. What the public desperately needs to know are the risks we run as fossil fuels deplete. In short, they need a brief course in probability and risk that can prepare them to think clearly about the path we should all take individually and collectively.

When I speak before groups I often ask who has fire insurance on their homes or apartments. Usually, nearly every hand is raised. Then, I ask how many have ever actually collected on a claim for a fire. Only very rarely does even one person raise his or her hand. "Why do you have the insurance then?" I ask rhetorically. The answer, of course, is that even though house fires are quite rare, their consequences can be quite severe. "And so," I continue, "we routinely insure against events which are rare because they have severe consequences." We do this with life insurance. We do it implicitly with many health insurance plans which have coverage into the millions of dollars--even unlimited coverage--that in all likelihood we will never need.

Another useful illustration I use is the stock market. "If I could prove to you that you could be certain the stock market will go up nine years out of the the next 10," I begin, "you would be at ease with your investments in stocks and you might even increase your investment in them." Everyone seems comfortable with that thought.

"Now, let me add one more piece of information to this scenario," I continue. "In one of those years the stock market is almost certain to go down 80 percent." This completely changes the calculus because the element of probability is combined with the element of severity.

We must combine these things in our discussion of peak oil. No one knows when oil will peak for certain. The range of opinion is such that one could feel justified in remaining entirely unconcerned about oil for another 30 even 40 years by which time, we are told, a new energy infrastructure will be in place. But should we really speak in terms of whether a prediction for the peak of 2008 versus 2037 versus 2050 is correct? No one will know which is correct until after the fact. While the actual date of the peak has huge implications for what we should do now, it is the severity of the consequences of a peak which should be our focus. Are we adequately prepared for a peak even if we believe there is a low probability that it will occur in the next few years?

We should talk in terms of probability rather than absolutes. For example, can we rule out a peak entirely in the next few years? Can we reasonably say that the consequences of a peak are something we don't really need to worry about? In the world of probability, it matters whether you are worrying about a minor risk such as getting a hangnail or a major risk such as getting your arm chopped off. When it comes to the consequences of peak oil, "getting your arm chopped off" is a closer analogy.

Even the oil optimists agree that predicting a precise date or even year for peak oil is problematic. That is part of the reason for their skepticism concerning predictions of a nearby peak. But, oil optimists such as Daniel Yergin and Michael Lynch should be challenged in public to say whether they believe there is a zero chance of an oil peak before 2010. Do they also believe there is a zero chance before 2015 or 2020 or 2030? On what do they base their 100 percent confidence? Can they show us that they have perfect knowledge of the world's oil resources and the path of consumption and technological innovation through these dates?

Of course, both these optimists and their followers are merely assigning a high probability to a later peak. They cannot rule out an earlier one, but can only say that they regard it as unlikely. This means they must agree that with each year the possibility of a peak grows. Since oil is a finite resource, we know that we are depleting it once and for all with every fill-up. And, that means that even in the face of uncertain knowledge we know we are drawing ever closer to the peak as each day passes.

A nearby peak--and by this I mean within the next 10 to 15 years--would be, at the very least, highly disruptive and, at worst, civilization-destroying. Doesn't the possibility of such severe consequences demand our attention even if we believe that the probability of a nearby peak is small? This is the question we must pose to move the argument away from mere point-counterpoint where the validity of precise predictions on both sides is always questionable.

Most of us are not so foolish as to leave all our worldly goods exposed to the risk of a house fire without insurance. Unlike house fires, however, the risk of a peak in world oil production grows every day. Isn't it time to take out some insurance against that day based on the risks we already know about?

[For my suggestions on what form that insurance might take, see my previous post, Peak Oil 'To Do' List: Why We Should Do These Things Anyway.]

Out of Control: Do senators really hate oil price manipulation?

The U. S. senators who recently held hearings to vilify oil company presidents about high oil prices don't so much oppose price manipulation as have a preference for its direction, namely down. But those same senators may soon be wishing that their favorite villains actually had the power to control prices. Such power would imply that considerable extra production capacity still exists.

It should come as no surprise that there is a basis for the senators' suspicion. From the early 1930s onward the Texas Railroad Commission limited supplies from Texas oilfields to keep prices high. Huge discoveries in East Texas during the Great Depression had caused oil prices to plummet below the cost of production--down to 10 cents a barrel at one point. The commission successfully obtained the power to allocate (read: restrict) production among all of Texas' wells, a process called proration. Federal intervention was eventually required to prevent so-called "hot oil," oil illegally pumped from the Texas fields, from moving across state lines. It was a system that had been initially resisted by Texas oilmen, but which they soon realized worked to their advantage. Thus, began the first formal government-run quota system for oil production.

That system allowed regulators to manage world oil prices because Texas alone had the world's largest excess production capacity. From the mid-1930s until 1970 regulators could flood the world market to bring down prices when they got too high or restrict production to keep prices from falling below the level necessary to encourage new drilling and investment.

In 1970 U. S. and world demand outstripped the ability of Texas to play the role of swing producer. The state's wells were allowed to run at 100 percent from that year to this. At the same time a new swing producer emerged, Saudi Arabia. Until recently the Saudi government, through its now government-owned oil company, Saudi Aramco, had been the price maker in the world oil markets. Its close relationship with the United States had resulted in favor after favor for the U. S. government and its allies. In both Gulf Wars, for example, the Saudis pumped extra crude to stabilize prices.

But something seems to have gone awry. Even as it appears there might have been some manipulation of gasoline prices made possible by strained refinery capacity in the United States, the price of crude oil remains stubbornly resistant to gravity. The Saudis have been saying for almost two years now that any day they will be swamping the world market with extra oil to moderate the price. The results so far: nothing.

Investment banker Matthew Simmons--now famous in peak oil circles--contends in his new book, "Twilight in the Desert," that Saudi Arabia recently reached the point that Texas reached some 35 years ago. The country has run out of excess production capacity. In other words, if everyone in the world is pumping at 100 percent, there is no extra oil left to be produced to increase supplies and bring down prices.

But, Simmons contends that the problem goes beyond infrastructure. He believes that Saudi and therefore world oil production are at or near their all-time peaks. Only time will tell.

Of course, none of the august senators who specialize in sniping at oil executives either seems to know about the idea of a peak or seems to care enough to ask about it. And none seems to understand that oil prices have been managed for decades by government as much as industry. (Beyond this, a peak in world oil production would, of course, get the oil companies off the hook since there would be nothing the companies could do about it. But that would ruin the senators' fun by forcing the Senate to address the real problem: oil depletion.)

Sen. Charles Grassley of Iowa seemed to sum up the ignorance of the Senate well when he told National Public Radio this in a recent interview:

You know, what makes our economy grow is energy. And, Americans are used to going to the gas tank and when they put that hose in their tank and when I do it, I wanna get gas out of it. And when I turn the light switch on, I want the lights to go on. And, I don't want somebody to tell me I've gotta change my way of living to satisfy them. Because this is America, and this is something we've worked our way into, and the American people are entitled to it. And, if we're going to improve our standard of living, you have to consume more energy.

Petroleum, however, is completely immune to the bad tempers of senators or the presumed entitlements of Americans. Petroleum sits indifferent and silent under the earth. As we scour the globe for the last remnants of it, it resists us more and more in its discovery and extraction. And, when we do find it, it comes to the surface not at rates determined by wishful thinking, but at those ordained by the laws of physics alone.

Oil Famine:Surviving a Post-Oil Future/Class Outline

I'll be teaching a two-session class on world peak oil production this fall. Below I am posting information on the course.

Course Description

Cheap oil is coming to an end. Within the next decade or two world oil production is likely to reach a peak and then begin an irreversible decline. The end of cheap oil threatens to stall and even reverse economic growth worldwide. It could lead to profound disruptions in our way of life, especially in the areas of transportation and food production.

This course examines the inevitable collision between our growing thirst for oil and the certain decline in its availability in the years to come. What might the consequences for the world economy be? Can we find alternatives to oil before its production begins to decline? What can an individual do to help us make a successful transition to a post-oil economy? Alternative energy, lifestyle changes, conservation and efficiency measures will be discussed.

The course will emphasize discussion and interaction among all the participants.


Meeting Times:  Oct. 25, Nov. 1
                        6 p.m.- 9 p.m.

Location:           Regional Manufacturing Technology Center
                        Kellogg Community College
                        405 Hill Brady Road
                        Battle Creek, Michigan 49015

Instructor:         Kurt Cobb

Cost:               $49

Registration:     Click here to register
                        or call (269) 965-4134.

Purpose

The purpose of the course is to familiarize participants with the concept of world peak oil production, an event that almost all reputable geologists agree will happen within the next 30 years. Predictions range from 2005 (Deffeyes) to 2037 (U. S. Energy Information Administration). Because so much of our way of life is dependent on oil and oil-based products, this event has profound implications for how we will have to change our society.

The closer the peak is, the more urgent the need for action. A recent U. S. Department of Energy report evaluating the possible effects of world peak oil production recommended a 20-year head start on a crash program to develop other liquid fuels to replace oil.

Key Concepts

Fossil Fuels - Also known as mineral fuels, are hydrocarbon-containing natural resources such as coal, petroleum and natural gas.

World peak oil production, often "peak oil" for short - The time after which the rate of world oil production will begin an irreversible decline.

Net energy - The amount of energy yielded by a resource minus the amount of energy it takes to find, extract, refine, transport and utilize that resource, i.e., it takes energy to get energy. If the net energy is positive, the resource is an energy source. If the net energy is negative the resource is an energy sink. (Also referred to as Energy Return on Energy Invested (EROEI) and Energy Profit Ratio.)

Renewable Energy Source - includes all sources of energy that are captured from on-going natural processes, such as solar power, wind power, water flow in streams (hydropower), biomass, biodiesel and geothermal heat flows. Most renewable forms of energy, other than geothermal and tidal power, come from the Sun.

Plan of Course

Session 1 - Peak Oil and the Oil Predicament

In-class video: The End of Suburbia

Session 2 - Consequences & Responses

Please read the following articles and listen to the interview before coming to class. The reading totals only 30 pages:

1. Do high oil prices foreshadow a deeper crisis?
Kurt Cobb, October 25, 2004

2. Oil: It's Everywhere, Attached

3. Energy Evaluation Criteria, Handout from The Party's Over by Richard Heinberg.

4. The Long Emergency, James Howard Kunstler, Remarks in Hudson, NY
                        OR
listen to Kunstler's 2003 Interview with Julian Darley. Scroll down to where you can see the choices that include "Complete Interview", "mp3" and "Transcript." The mp3 is a large file but can be easily downloaded if you have high-speed Internet access.

5. Peak Oil 'To Do' List: Why We Should Do These Things Anyway, Kurt Cobb, April 9, 2005

6. Alternative Energy Sources, Walter Youngquist

Recommended:

Some perspective from two optimists. See if you can spot the flaws and strengths in their thinking:

7. The Art of Energy - The future will not be painted in oil. By Peter Huber and Mark Mills Slate, Feb. 1, 2005