Mike Neligh has died, of a heart attack. This is a tragic loss for his
family and also for the community of energy-science contrarians. In his last
private email to me, 2 days before his death, Mike described his plans for
future lecturing and writing. His absence will be felt.
Follows a classic piece of Mike Neligh on the End of Big Oil.
Mark.
----------------------------------------
Mike Neligh: The End of The Road.
Twenty-five miles north west of the small town of Kenai Alaska, at
the end of the Kenai Spurr highway, there is a State park. For the intrepid
voyager who is fortunate enough to reach Captain Cook State Park the views
are, to put it mildly, magnificent. To the west, across the Cook Inlet, the
peaks of the Alaska Range rise, seemingly, strait out of the bay, to lofty
purple spires approaching fifteen thousand feet. A chain of volcanic peaks
stretches from horizon to horizon like a bracelet on the wrist of a giant
arm. On the waters of the Cook, a string of oil platforms dots the surface,
their flare stacks glowing orange from burning of excess natural gas.
Among its other attractions, Captain Cook State Park is quite
literally the end of the road. It lies as far west on the continent of
North America as it is possible to drive. Beyond the park lies three
thousand miles of trackless wilderness, finally stretching to the eastern
shores of Siberia. Looking off into the endless expanse of western Alaska
one is humbled by the notion that here, civilization ends. Captain Cook
State Park is an extraordinary place, but it is also a prophetic place.
Standing on the headlands of the park, one can scarcely fail to notice the
erosion has claimed the last several yards of the road. The wind, tides, and
constant earthquakes for which Alaska is justifiably famous are taking their
toll - removing the underpinnings of the road and reclaiming the materials
from which it was constructed. In the thirty years since the park was built,
the forces of nature has devoured an acre of ground that was once a parking
lot. The end of the road is slowly working its way back toward the provinces
of the civilization that created it, and there is nothing that can be done
to stop it. And while natural forces are slowly erasing the products of
humanity at the end of the road, equally corrosive economic forces are
conspiring with the laws of nature to eradicate the intricate web of
socio-economic structures that the people there have built up over the past
three decades.
If the park is a preview of the future, the City of Kenai is no
less. For centuries this little fishing village was the center of society in
south central Alaska. When oil was discovered in the Cook Inlet, just west
of Kenai it became the focus or attention for the oil industry world-wide.
People came from all around the world to drill for oil, refine the oil, and
ship the oil to other places. More people came to sell things to the people
who came. Like ants drawn to a cookie crumb, the swarmed toward an
irresistible scent, and fought it out with each other for their share of the
scrap. For a time it seemed to the new residents Kenai that they had found
paradise. But like the roads they built, their economic paradise soon began
to crumble. When the construction was completed, many of the ants were laid
off. When the drilling was completed, many more people left. When oil
production began to decline, the shops closed, the jails filled up, and the
refineries were abandoned.
Now, the winter snows occasionally collapse the roofs of deserted
warehouses; the wind overturns a hastily set mobile home. The ocean and the
ice work steadily to eradicate the forsaken docks and piers that transgress
in a contest for dominion of the shore. Vagrants and idle youths set fires
in the abandoned refineries that issue plumes of smoke laden with what - God
only, knows. Once virile construction equipment sits, half buried and
stripped of its more valuable parts, like the skeletal remains of some long
dead creature perched in a museum of natural history. The forest wages
silent war against whatever was built of anything less substantial than
concrete ����� those being left to the winter�����s ice to deal with. The
few people
who remain spend their days calling Juneau or Washington DC to beg for
money. Some devise schemes to �����revive����� the paradise they see
slipping away.
Like Victor Frankenstein, they vainly contemplate the creation of yet
another monster (though they know not of what sort) in hope of appeasing
their former creation. They threaten and deride anyone opposing their
schemes, and go blindly about the business of prolonging their agony. They
can not see that it is over; There is no revival in the offing. The oil is
gone, and when the oil is gone, �����Things fall apart, the center can not
hold.����� (Yeats 134) For Kenai and its people, the end of the road is
near,
and getting nearer every day.
This small town in Alaska is only among the first to see the end of
the petroleum economy. Kenai, in its oil boomtown iteration, was built to
feed an oil based world economy, and when it could no longer offer
increasing production, it was abandoned in favor of some other more able
place. The worlds����� oil economy is particularly intolerant of people or
communities that do not produce. It has no sympathy for (and no ability to
sympathize with) people or places that can not �����hold up their end.�����
The
more poignant aspect of this is that the oil, and thus the oil economy, can
not last. Like Kenai, the world will run out of oil. And like Kenai, the
effects of diminishing oil supplies will begin to take their toll long
before the oil run out. Once oil production peaks, and production begins to
decline, the oil economy will turn on the world as it did on Kenai.
As it happened with the people of this remote Alaskan village, the
problems will begin cropping up sooner than most people think. We have seen
previews of this already. The OPEC embargoes of 1973 and 1979 put the US
economy in to a debt/inflation spiral that took nearly two decades to
recover from. These were temporary, politically contrived, events; once the
embargoes were lifted, the worlds����� economy went on about its business.
While
the economic damage was severe, the steadily increasing supply of cheap
energy made it possible for the worlds����� economic system to continue its
activities once the political problems were resolved. But the 21st century's
supply disruptions and soaring prices will dwarf the OPEC induced shortages
of 1973 and 1979. Not only will the shortages be greater in scope, they will
have no political solutions - there will be no return to the former high
production levels. These are �����real����� shortfalls; they are the product
of
depleting approximately the worlds����� supply of crude.
Once the midway point in crude oil consumption is reached,
production will begin a steady decline, mirroring the rise in production
during the consumption of the first half of earth�����s crude. Explaining
why
this is true requires technical understanding that is beyond the scope of
this paper but a simplistic explanation is that; the more oil that is pumped
out of a field, the harder it is to pump out what remains. This is
compounded by the fact that aging oil fields are drying up faster than new
ones can be developed.
Moreover, the �����cheap and easy����� oil is gone. New discoveries
are more
remote, deeper, and contained in less inviting geologic formations. A
comparison of Middle East, and Alaskan North Slope fields illustrates this
problem in monetary terms. The Middle East fields were discovered in the
late forties and early fifties. Production costs from those fields are
approximately six dollars per barrel, in 1999 dollars. However, the Alaskan
North Slope fields, discovered in 1970 require a wholesale price ten
dollars, fifty-cents per barrel to meet the cost of production. Production
costs for North Sea oil deposits are roughly the same as those for the North
Slope. Some of the smaller, and more recently discovered fields have
production costs of fifteen dollars per barrel. (Ivanovich)
A common view among economists is that the price of oil has a
limited effect on the economies of western nations. Their contention is that
during the past thirty years increases in industrial efficiency, and
increased productivity, have made these economies less susceptible to oil
price shocks such as those that occurred in the past. While this contention
may be technically correct, the practical effects of increased efficiency,
and productivity are far less certain. According to Federal Reserve Board
Chairman Allen Greenspan, �����An increase in the overall rate of inflation
in
1999 was mainly a result of higher energy prices.����� (U.S. House) This
assertion seems to have been borne out over the past year. During the period
from March 1999 to March 2000 the price of crude oil on the world markets
rose from a low of just under ten dollars per barrel to a high of just over
thirty-four dollars per barrel. During that same time, the Dow Jones
Industrial Average went ostensibly flat; it was at just over eleven thousand
at the end of March, 1999 and just over eleven thousand at the end of at the
beginning of April, 2000. The increases in cost of crude oil put an end to
seven straight years of ten percent, or higher, annual growth in this
critical economic index.
Oil price fluctuations of the March 1999 - March 2000 period
signaled a significant event in the history of the worlds����� oil based
economies. These historic low prices were the first tangible signal of the
peak in world production. One of the fundamental tenets of economics is the
Law of Supply and Demand. According to this dictum, the cost of a good is at
its lowest when the supply of the good is at its peak. The low prices of
spring 1999 were as low as oil prices can go. If prices had fallen any
further, production from the North Sea, and the Alaskan North Slope would
have become economically untenable, causing a cessation of production from
those fields. The North Sea and North Slope account for approximately twenty
percent of the worlds����� total production. If those fields had been shut
down,
the resulting shortages would have quickly forced prices back up. From this
we can infer that world price peaked economically in 1999. This economic
peak is the beginning of a period of relatively wild fluctuations brought on
by the world�����s economic system struggling to balance the competing
demands
of high production, and increasing costs. It is a struggle that the system
will ultimately lose. Once the physical peak happens and physical
production begins to decline, there will be no way to maintain any form of
price stability. Prices will begin to spiral upward - out of sight.
If the dollars and cents of oil production were the only problem,
the world economy might be able to struggle on for thirty or forty years
more or less as it is, but there is a more fundamental problem associated
with new oil discoveries. While there is a generally obvious economic cost
associated with oil production, there is a less obvious thermodynamic cost
that accrues from the production of oil. Economists predict that that when
oil prices rise sufficiently, the less efficient fields will become viable.
This is only partly true ����� true to the extent that some fields are, at
present, only inefficient in economic terms. But thermodynamic limits of oil
production don�����t allow for that kind of ideological reasoning; when an
oil
field is beyond the thermodynamic pale, no amount of money will allow for
production from that field. The thermodynamic limit relates to the energy
cost of producing oil, not the monetary cost. It reflects the energy value
of the oil produced minus the energy cost of producing the oil. The noted
British geologist Ted Trainer says, �����Beyond 2005, the energy required
to
find and extract a barrel of oil will exceed the energy contained in the
barrel.�����(Trainer 34) If it takes more energy to produce a barrel of oil
than the energy contained in that barrel of oil ����� that barrel of oil can
not
be produced. This is an issue that economists do not understand, and
consequently, never address. However, it is a defining aspect of the roll
that oil will play from now on; the thermodynamic laws apply no matter how
high the �����dollar price����� of energy goes.
Even if the economic and thermodynamic problems could be magically
overcome, there is one last issue for which there is no solution at all ����
�
absent the passage of a two or three hundred million years. There is not
much oil left to find. The geology of earth�����s lithosphere has, over the
past
forty years, become reasonably well-defined. Only particular geologic
structures are capable of bearing oil deposits and the vast majority of
those structures have been thoroughly explored; only a few extremely remote
regions have escaped examination. The highly regarded geophysicist L.F
Ivanhoe recently explained, �����It is commonly overlooked by economists and
the
general public that crude oil must be discovered before it can be
produced.�����
(Ivanhoe ) Also, during the last ten years new oil discoveries have become
increasingly rare.
Many people are of the opinion that technical advances will enable
the oil industry to postpone the looming peak in oil production for decades.
This notion not only drives the current economic, but it also sets a
political tone that prevents the development of projects that could lessen
the impact of declining oil production. This shortsightedness is related by
author, and geophysicist R. A.Kerr,
Optimists see at least several decades more of unfettered world oil
production--but a growing number of realists conclude that world oil
production is nearing its all-time peak, perhaps within 10 years. The
optimists, mostly economists, believe that new oil discoveries and enhanced
recovery from old fields will delay the world peak beyond 2040. The
opposition, mostly geologists, argue otherwise. (Kerr 1129)
A general consensus is developing among geologists that oil production at
current levels can not be maintained beyond 2010. Even if new oil fields are
developed, they will serve at best to delay briefly, the decline in
production. According to Richard C., Duncan, author of The World Petroleum
Life-cycle:
"Can new oil production delay the world oil peak?" Our answer
is, "Yes, new production brought on-stream well before the 2006 base-line
peak can delay it, but only by a few days per billion barrels of new
production. However, even large increments of new production brought
on-stream after the peak are not likely to have any effect whatsoever on
delaying the base-line world oil peak.����� (Duncan)
With perhaps twenty billion barrels left to be discovered, it is easy to see
why the production will soon peak. To be sure, there is oil that has been
discovered, and that can be produced, but even that amounts perhaps another
sixty billion barrels. By fully developing all remaining sources (something
that is probably not politically feasible) the peak of production might be
extended by as much as a few years.
Even a cursory survey of the economic developments of the past
century and a half reveal the strong connection between oil, and economic
growth. The complexity and sophistication of the western economic system was
built on a foundation of oil and it requires a huge leap of faith to believe
that it can be maintained in the face of a substantial and prolonged
decrease in the dimensions of that foundation. Assuming that a suitable
replacement for oil were available, and assuming that western economies
implemented full-force efforts to employ such alternatives, the chances for
success would be slim, given the lead-times required.
But alternatives are not up to the task. Most experts agree that a
comprehensive exploitation of all forms of alternative energy would result
in the production of only one third of the energy currently consumed in the
US. Only thirteen percent of the US landmass is suitable for the development
of wind turbines. Perhaps forty percent is usable by solar arrays and the
rivers have been damned nearly to their total capacity. Wind energy is
dependant, obviously, on the sporadic nature of the resource, an while
advances have been made in the field, the ability of wind to provide
consistent, wide-spread energy is still very limited. Photo-voltaic energy
is still nothing more than a dream. While it does work, the energy required
to product a photovoltaic cell exceeds the energy that the cell can recover
over any reasonable amount (dozens of years) of time. Hydro-electric energy
is clean and relatively cheap, but most of the usable dam sites have been
used. The tar sands and oil shales of the US mid west are often touted as a
plentiful future, �����once the price is high enough,����� but a critical
review of
the physics leads to a different conclusion.
Walter Youngquist, of the Colorado School of Mines writes:
Perhaps oil shale will eventually find a place in the world
economy, but energy demands of blasting, transport, crushing, heating,
adding hydrogen, and the safe disposal of huge quantities of waste material
are large. There appears to be a positive net energy recovery from oil shale
processing (Penner and Icerman, 1984), but it is low and does not compare
with net energy from conventional oil well drilling. (Youngquist 243)
While these �����near oil����� sources do exist, and may be usable, they do
not
offer the advantage of the high net energy that more traditional sources
provide. Oil may indeed be available for alternative sources but not in the
quantities, or prices necessary to keep the world economy function at more
than a fraction of its present level.
Further, for an alternative energy source to replace oil in a way
that would guarantee a continuation of the present economic systems, it
would have to share substantially all of the qualities of oil. Alternative
forms of energy would need to be inexpensive to exploit, both is financial
and thermodynamic terms; They would need to be easily stored, and
transported, and they would need to have the ability to be easily converted
to many types of products. These are all properties of oil that western
economies not only exploit, but also rely on to a degree that is not
commonly appreciated by the general public. A tank of wind in one�����s car
is
not particularly useful, and about the only other energy form that wind can
be converted in to is electricity. Electric vehicles are feasible, but not
yet practical (and absent huge advances in battery technology may never be)
and the cost of converting the worlds����� auto fleet to electricity would
be
immense. This single cost could be enough to bring western economize to
their knees. And that conversion is only hundreds that will have to be made.
Our relationship with oil is intricate beyond the intuition of
most people. At this juncture in history it is all but impossible to judge
clearly what is an oil effect and what is an oil affect. As USDA
archeologists Joseph Tainter states, �����Energy has always been the basis
of
cultural complexity and it always will be. [T]he past clarifies potential
paths to the future.����� (Taintner 34) Ultimately, it matters little what
is
the specific case; the important issue is the degree to which society has
specialized its functions in favor of the consumption of oil. The very
health of the economy depends on our finding, producing and consuming
ever-greater measures of oil. The average American has at their disposal
every day, the amount of energy comparable to the energy available to a
Roman who owned two hundred slaves. (Price 301) Short of the vast windfall
that oil provides us, the worlds����� economy would look today very much as
it
did in the pre-industrial past, and we would be forced to like as people of
those ages lived. Maintaining current lifestyles with only a small reduction
in available energy would be difficult for most and impossible for some.
Living with the thirty percent reduction in energy that we are likely to see
over the next twenty years will be impossible for most.
The people of Kenai have done their best to alter the local economic and
social mechanisms in a way that would allow them to continue to function as
they had before the oil began to run out. In the process they have created
more problems than they had to begin with. Despite their best efforts,
nothing was able to replace oil. The Kenai that they knew was built on oil;
it ran on oil and making it stand on some other social foundation and run on
some other economic fuel proved more than they could manage. Vain
blandishments notwithstanding, nature will yield no more oil that it has,
and no variety of self-flattery will produce any more than hot air.
The longer people hold on to the empty hope that �����somebody will
think of something,����� the more disastrous the drive off the end will be.
But
science may not be able to think of something, especially given the
extraordinary complexity of oils����� relationship to the world economy.
Politicians continue to dismiss the possibility of a permanently declining
resource. Their training, experience, and philosophy leave them critically
short of the insights necessary to provide effective leadership where the
future of energy is concerned. Clarifying this point, Jay Hanson recently
wrote, in ENERGY Magazine:
Although economists are trained to treat energy just like any other resource
when it comes to �����supply and demand�����, it is manifestly not like any
other
resource. Net energy is the pre-condition for all other resources. The
coming peak in global oil production signals the end of the consumer economy
because nothing can replace conventional oil. (Hanson 62)
The experience of Kenai is a version of the future writ small. The
world�����s oil based economic and social systems are nearing the end of the
road. There is little chance that either can survive even modest declines in
oil production, and no chance that they can exist in a world where energy
supplies are decreasing at an increasing rate. There is only so much oil in
the world. We have found ninety percent of the world�����s oil, and used
half of
what we have found. �����Well before 2010 the world will be vulnerable to
1970s-style oil shocks.����� (Banks 87)
Sometime in the next few years oil production worldwide will begin to
decline. The exact date can not be predicted with any socially acceptable
degree of accuracy, and probably isn�����t overly important in any case.
Unlike
the case of Kenai, where most of the people simply left for better economic
climes, there won�����t be any better place to go. The world at large did
not
suffer at Kenais����� distress because it was able to get its oil elsewhere.
But
when �����elsewhere����� is out of oil as well, the world will have to face
the same
problems that Kenai faced.
Changing personal habits is never easy. Changing the conduct of an
entire society is an even more imposing task, but change we must. The very
nature of petroleum based economics, and the political order that it has
occasioned prohibits any preemptory conduct. Any attempt to change basic
practices provokes the �����economic oil monster����� and frightens its
constituents. And that no other architecture will afford them similar levels
of comfort all the more convinces them of the imprudence of undertaking such
drastic alterations. But the oil monster is a transitory affectation and the
truly more imprudent process lies in continuing to follow, blindly, the
course that it has set for us. We do not have the option of choosing not to
change, for to the extent that we oppose change, nature itself will find us
in default and make the changes in spite of us.
We must change, but change as we now reckon it will not suffice.
Past notions of change relied on our ability to simply �����move on to
greener
pastures,����� but like Victor Frankenstein, we will find no respite in
flight.
In this world we can always find more of anything if we go far enough, look
hard enough and dig deep enough. But the world at the end of the oil road is
a place where oil, and other resources, will barely be available in amounts
that keep pace with life�����s demands, let alone its luxuries. We will need
a
philosophy that tells us, not how to do more with less, but how to live with
less. We are facing a new paradigm in human existence, and there is no
basis for making informed predictions about the results of the end of the
oil economy. But as noted petroleum geologists Colin J., Campbell and Jean
H. Laherre put it; �����The world is not running out of oil, at least not
yet.
What our society does face, and soon, is the end of the abundant and cheap
oil on which all industrial nations depend.����� (Campbell, Laherre 94) The
end
of the oil-road will not be the end of the world - it will just be the end
of the world as we know it.
Works Cited
Banks, Howard, Cheap Oil ����� Enjoy It While It Lasts: Forbes Magazine, 15
June, 1998 , 87-88
Campbell , Colin J., Laherre Jean , H., The End Of Cheap Oil: Scientific
American, March 1998, 91-97
Duncan, Richard C., The World Petroleum Life-cycle: Encircling the
Production Peak: Proceedings of the Thirteenth
SSI/Princeton Conference on Space Manufacturing, Space Studies Institute,
Princeton, NJ, 1997
Hanson, Jay, Energetic Limits To Growth: ENERGY Magazine, Spring, 1999
Ivanhoe, L. F., Updated Hubbert Curves Analyze World Oil Supply: World Oil,
Vol. 217, No. 11; November 1996.
Ivanovich, David, World May Learn To Wean Itself From Oil: Houston Chronicle
Oct. 23, 1999
Kerr, R. A., The Next Oil Crisis Looms Large -- and Perhaps Close: Science,
August 1998, , 1128-1131.
Price, David, Energy and Human Evolution: Population and Environment: A
Journal of Interdisciplinary Studies
Volume 16, Number 4, March 1995, , Human Sciences Press, Inc. 199, 301
Tainter, Joseph A., Getting Down To Earth: Practical Applications of
Ecological Economics, Island Press, 1996;
Trainer , Ted , The Death of the Oil Economy: Earth Island Journal, Spring
1997, 34-37
U.S. House of Representatives, Committee on Banking and Financial Services,
The Federal Reserve's Semiannual
Report On The Economy And Monetary Policy, Testimony of Chairman Alan
Greenspan, February 17, 2000,
http://www.federalreserve.gov/BoardDocs/hh/2000/february/testimony.htm
Yeats, William Butler, The Collected Poems of William Butler Yeats, New
York, Macmillan, 1967 [c1956]
Youngquist, Walter The Elusive Energy: Shale Oil -- Colorado School of
Mines, Hubbert Center Newsletter. 98/4 1998 N. pag.
http://hubbert.mines.edu/news/v98n4/Youngquist.html
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