The Stockopalypse: Wall Street, Peak Geeks and Reality 2.0
in this first section, I'll lay out two of the intractable peaks we're encountering: Peak Oil and Peak Metal.
Part I: Peak Oil, Peak Metal
For several years now, there have been a small number of commentators who’ve taken a contrarian position to the rah-rah, business-has-never-been-better attitude about the world. Even as stocks and houses were regularly accumulating ‘value’, these folks were speaking against the optimism. Beyond the mainstream contrarians such as Paul Krugman, there were others such as Max Keiser, Michael Ruppert, James Howard Kunstler and Richard Heinberg who warned of dire consequences based on weaknesses in a business model that assumes constant, unrestrained growth. Simply put, these writers and thinkers have compellingly argued that there are ghosts in our machine, monkey-wrenches in our gears, and sand in our Vaseline.
First and foremost among the unsung ghosts in the machine is the Peak Oil phenomenon. For those of you who weren’t paying attention heretofore, here’s the shorthand version. Almost none of what follows involves original thought on my part—the stories I relate here are captured in considerably more detail in James Howard Kunstler’s The Long Emergency and Richard Heinberg’s The Party’s Over: Oil, War and the Fate of Industrial Societies. There are primers (admittedly dry and somewhat technical) on the web at The Oil Drum and the Association for the Study of Peak Oil. If you’re not a reader, you can go online and order the seminal 2005 documentary The End of Suburbia. Get out some popcorn and hide any sharp objects you have in easy reach. I’m just sayin’.
In 1956, M. King Hubbert, one of America’s pre-eminent geologists, presented a paper at the American Petroleum institute. What Hubbert had done was study the way oil fields behaved over their lives—the cycle from discovery to exploitation to decline. Hubbert looked at wells that had stopped producing in places like Pennsylvania and Oklahoma and extrapolated their production. His finding: individual oilfields have a natural life cycle, and (therefore) the same was true of oil reserves worldwide. What Hubbert saw in the 1950’s was a leveling off of discoveries both in the US and worldwide. Based on these declining discoveries, Hubbert predicted that the US would reach peak oil production in 1971, and the world would peak in the 1990’s.
I need to explain here that 'Peak Oil' doesn't mean that we're out of oil. The best analogy I have is that 'Peak' means we've gotten all the low-hanging fruit, so to speak. The oil wells that I'm talking about are going to have oil in them until the planet burns up in a few billion years. The problem is that the oil that will be left after the peak is so hard to get out, we won't be able to extract it. Post-peak oil will also be of extremely low quality, full of sulfur and condensates, hard to process and hard to sell. Think of 'post-peak oil' as the really crappy candy in the bottom of the Hallowe'en bag that even your sister wouldn't eat.
Though Hubbert was not taken seriously by the oilmen, US oil production peaked at around 10 million barrels a day in 1971; after that, production tailed down even though new technology and increased exploration were in play. And even though US production has fallen to 60% of what we produced in 1971, our consumption of energy more than doubled, to 21 million barrels of oil and condensates a day by last year.
The arrival of the peak of oil for the whole world is a bone of contention—we didn’t peak in the 1990’s, but the recession after the oil ‘shocks’ of 1973 and 1980 scaled back world energy consumption dramatically for several years. There’s compelling evidence that the world reached the peak of oil production back in 2005-2006. We have never passed the peak production of about 84 million barrels a day, even though the price in this decade went from $20 a barrel to a high of $147 per barrel. Arguably, if the supply of oil were more fungible, we would’ve seen production go up at the top of the price spike. But the folks in charge of the big fields in Saudi Arabia and the Gulf of Mexico were not able to put out more product in order to take advantage of the price.
In fact, there’s considerable evidence that Saudi production is falling. It’s impossible to know this with certainty because the Saudis do not publish their production information. Matt Simmons, an oil company consultant (he was part of Cheney's Energy Task Force) and author of Twilight in the Desert (2005), argues that the Saudis have peaked and will never be able to keep up their current production. There are four ‘giant’ oilfields in the world, each with at least 50 billion barrels of reserves— and evidence is that all of them are in decline (the fields are Ghawar, in Saudi Arabia; Cantarell, in the Gulf of Mexico; Burgan, in Kuwait; and Daqing in China. This will not be on the final).
New oil discoveries ("Drill baby, Drill" aside) will not offset the old fields that are declining because they’ve been tapped out. The ‘new’ fields being discovered are in places where it’s difficult to drill (such as Chevron’s Jack 2 field, under a mile and a half of water and four miles of rock). The amounts of oil they have are relatively small compared with the need—Jack 2 might have 15 billion barrels, but only about half could be recovered --at current US consumption rates, this would only last a year. Most of what’s left of the world’s oil bounty is in places that are not politically inclined to help the West out of this jam. The places in Africa and Asia where oil is abundant seem to also be abundant with people who hate the US for its actions in the world. It won’t be an easy sell to get some wells set up for Exxon Mobil in these places.
As for the oil price run-up (and then collapse) in 2008, there was a not-insignificant group of speculators who bet that Peak Oil had arrived and the price would ultimately start to reflect competition for it among the industrial powers. Matt Simmons argued then (and continues to argue) that the day was coming when oil prices of $200/barrel would be looked on nostalgically. The speculators weren’t necessarily wrong, but they were premature—and in any case, they had to pull back their bets on Peak Oil when other investments started to flame out and they were called upon to meet their margin calls. Most people familiar with the industry and the issues are confident that the current price of oil will not stay low for very long. China is flush with dollars and needs energy—they will continue to bid up the price of oil. And India will produce its own automobile this year, the Nano Tata. There’s no reason to assume that India’s energy needs will not also experience growth.
As others have written, there is nothing that can replace oil. Natural gas has already peaked in North America, and it’s extremely hard to transport it by tanker from overseas. Nuclear power could be ramped up, but there isn’t really enough uranium 235 to go ‘all-nuclear’ for more than a few decades. There’s plenty of coal, but it’s of a lower quality than what we’re used to, and it requires lots of energy to get out of the ground. Alternative forms of fossil fuel such as biomass or shale oil can’t be scaled up to what the world needs to run. Ethanol uses up almost as much energy to grow and refine as it produces when burned. Hydrogen isn’t so much a fuel as a fuel storage--you convert energy into hydrogen, losing some in the process-- and in any case isn't practical on a big scale. Remember the Hindenburg? Do you want to be in an automobile full of hydrogen? Do you want to be on a highway next to a hydrogen tanker truck when it turns over?
Advanced windmills, solar panels and turbines can’t be built without significant inputs of certain rare metals. Their parts have a finite life and must be replaced--and since there will be less energy in the future, there's no guarantee we'll be able to maintain them down the road.
A side note: once liquid fuels are gone, so is commercial aviation. There’s nothing as portable and powerful as oil-derived gasoline and kerosene when it comes to running aircraft engines. We’re not going to convert to coal-fired 787’s (although if you hear of a test flight anytime soon, call me—I’d like to watch).
This brings me to our other peak crisis. We may be at the peak of certain metals. Copper and zinc are in short supply, with some metallurgists predicting an end of copper mining by 2037. Our newest electronic devices such as plasma displays and cell phones, use exotic minerals that aren’t common to begin with. Science fiction writer Robert Silverberg wrote about this phenomenon in Asimov. Commodity prices for most metals have fallen as a result of the current economic crisis, but there are physical realities we’re bumping up against. Gallium, a metal that makes LCD displays and solar cells possible, is relatively rare in the first place, and not easy to find. Professor Armin Reller, a materials expert from the University of Augsburg, Germany estimates that the planet will be completely out of Gallium by 2017.
The British journal New Scientist declared in 2007: "Take the metal gallium, which along with indium is used to make indium gallium arsenide. This is the semiconducting material at the heart of a new generation of solar cells that promise to be up to twice as efficient as conventional designs. Reserves of both metals are disputed, but in a recent report René Kleijn, a chemist at Leiden University in the Netherlands, concludes that current reserves "would not allow a substantial contribution of these cells" to the future supply of solar electricity. He estimates gallium and indium will probably contribute to less than 1 per cent of all future solar cells - a limitation imposed purely by a lack of raw material."
I bring up peak metal because the lack of certain metals is going to affect our remediation efforts on oil. Oil is still the biggest problem, but it’s important to understand the hole we’ve put ourselves in with everything else.
Unfortunately, most Americans think about oil only in terms of their cars. I'm sure it would be helpful if everyone in the US were driving itty bitty cars, but transitioning that way won't solve the problem--it takes upwards of 90 barrels of oil to build a new car in the first place, and the US would probably need to replace about 200 million cars to have a discernable effect on gas consumption. So... multiply 200 times 90, and remember that fractions round up... you get the picture, right? Replacing the current fleet of cars will not happen in a way that will help solve the problem. Even if you could change over to a total electric fleet, you still need to figure out how you're going to run the power plants to supply the electricity. And as for pollution, electric cars that get their power from a grid whose chief fuel source is coal are not a solution.
The other issue that most people forget when we talk about peak oil is that oil isn’t just the food for our cars and heating systems. Oil is virtually our food. In the US, we burn nine calories of fossil fuel for every single calorie of food we consume ("cheez doodles" are almost all energy). We use oil to grow our food (petroleum based fertilizers and pesticides). We can’t even GET our food without oil—James Kunstler and others have written about the American phenomenon of the ‘5,000 mile Caesar salad’ (the numbers on meat and especially fish are even worse—think of how far those fishing trawlers have to go to find king crab and salmon). The better part of the Green Revolution was based on increasing crop yields through applications of petroleum based additives—surely those crops won’t be planted properly, and yields may fall below those for the conventional crops the ‘green revolution’ seeds replaced. But that’s a slightly different story.
The only good thing about an understanding of Peak Oil is that it clarifies some other recent changes in politics. If you accept Peak Oil as a given, then many other actions around the world come into focus. There’s an intense competition right now for the future oil that’s out there. China and Japan are as close to a shooting war as they’ve been in the last 60 years over undersea oil in the Sea of Japan. The Chinese are best friends with Iran right now because Iran has oil (though it’s in decline). The Chinese vetoed UN action on Darfur because they’ve signed agreements to buy oil from Sudan. Etc.
It also makes sense that the US is lacking in refining capacity. Remember last summer when our Congressional primates dragged the Big Oil executives into hearings on the fact that lack of refining capacity was partially at fault for the run-up in the price of gasoline? While there’s some truth to this, the Peak Geek folks understand the reasons and ramifications. If you’re in charge of, say, Exxon and you know that the oil on the planet is limited, why should you dump a few extra billions into building more refineries—especially if those refineries will be idle in as little as (say) five years?
The same is true of electrical generation. The blackout of 2003 was caused by a lack of generating capacity in North America that tripped breakers in two countries and left over a hundred million people in the dark (some for several days). The problem was that too many people needed electricity at the same time. To my knowledge, there has been no increase of electric generation in the US since 2003. Think about it a bit—if electric companies make their money by selling electricity, why wouldn’t they expand their generating capacity to sell more? Is it because they know there isn’t enough oil or natural gas to power these plants?
I was trying to figure out a pithy way to end this, but my best here is oy.
Part II, peak earth, will be posted in the next few days.