AN ANTI-ANTIPASTO
IN WHAT THE INTERNATIONAL PRESS SAW AS A MINOR BLIP IN THEIR unrelenting search for sensationalist headlines, Italian truckers blocked highways out of the largest cities and border points in Italy in December 2007 in a labor dispute over high gasoline prices and working hours. While the media no doubt saw this strike as just another “pro forma” strike, Italian style (i.e., not to be taken seriously), a look behind the scenes shows some disturbing facts about the fragility of one of the infrastructures we mostly take for granted in the conduct of everyday life.
By the end of the second day of the planned five-day strike, rotting produce was all that remained on supermarket shelves from Milano to Napoli. Fresh meat, milk, fruit, and vegetables had been cleaned out by hoarding consumers, as had many other staples such as flour, sugar, butter, and…pasta. Similarly, many gasoline stations had put up signs reading OUT OF FUEL, and long lines of scooters, cars, and vans stood in front of the few stations still operating. Gasoline association spokespersons said that 60 percent of the stations in the country were idle, and that within a day most of those remaining would be closed.
“Since yesterday we haven’t had any deliveries,” said Ruggero Giannini, sales manager at a supermarket in downtown Rome. “We are powerless in the face of such a situation.”
After just two days, an entire country was paralyzed by the failure of a fleet of trucks to deliver the goods everyone just assumes will “be there.” Nearly as amazing was the almost total lack of interest on the part of the international press in covering this story. Imagine, a major country on the edge of gridlock in just two days. Yet the antics of pop stars, pumped-up athletes, and politicians push a story like this back to the obituary page. What’s really going on here?
Two major messages come across loud and clear from this Italian strike. The first is the “just-in-time” inventory control aspect of the supply chain for commodities like food and fuel that society depends upon for daily life. The second message is even more ominous: the critical role played by oil in the movement of those goods from where they’re produced to where they’re consumed. The Italian strike shows just how fragile these infrastructures are and the absolutely central role oil plays in enabling the delivery of goods to the population. The fact that the story of this strike was so dramatically underplayed by the media shows how much modern industrialized society has become accustomed to taking the reliable functioning of these infrastructures for granted. People seem to think that baby food, tomatoes, cigarettes, laundry powder, beer, and gasoline just magically appear at the corner store on demand. But what if they don’t? That’s the multitrillion-dollar question.
In this little antipasto about the Italian truckers, the key element is oil. Oil is the commodity of all commodities. Without it, nothing works in modern society as it’s currently structured. So to understand how threatening the truckers’ strike really was, we need to take a harder look at how oil supplies might be disrupted not just as a temporary glitch due to angry truckers, dicey weather, or geopolitical maneuvers, but on a long-term basis.
THE SLIPPERY SLOPE
IN 1956, THE AMERICAN PETROLEUM INSTITUTE HELD ITS ANNUAL meeting in San Antonio, Texas. On the program was a talk titled “Nuclear Energy and the Fossils Fuels,” to be presented by M. King Hubbert, a geophysicist at the Shell Oil Research Center in Houston. While the attendees at the conference had little inkling of what lay behind this rather bland title, Hubbert’s employers certainly did. The head office of Shell was on the phone to Hubbert virtually up to the last minute before he strode to the podium, begging, threatening, and cajoling him to withdraw the presentation. But if nothing else, Hubbert was a stubborn old cuss who stood behind his work, and he just ignored these pleas and unleashed what today has come to be called the “peak oil question,” or more informally, “Hubbert’s Peak.”
What Hubbert argued was that US oil production would peak in the early 1970s, a claim that no one in the oil industry wanted to hear then—or now. His studies showed ultimate reserves of two hundred billion barrels of oil, a claim that got everyone’s attention. In fact, actual US production from 1956 to 2000 was a bit greater due to production from Alaska and far-offshore fields in the Gulf Coast. But the difference is small, and the general drift of production is still closely following Hubbert’s curve. Today, the whole question of peak oil has been ratcheted up a notch, with many observers claiming that global oil production peaked in about the year 2000. If these predictions are even close to being as accurate as Hubbert’s were for US production, the world is in for a major upheaval in every aspect of what we take to be modern life. So it’s no trivial matter to understand why Hubbert got it right for the United States, and what connection that type of prediction has for the global society today.
The oil production curve for big oil fields is by now quite well known and understood. It is pretty symmetric, moving upward at around 2 percent a year when the field is new, then declining at about the same rate once it passes its peak production level. So if global oil production peaked a few years ago, what we can expect is an annual decline in production of around 2 percent.
On the other side of the equation is consumption. As world population increases and developing countries in east and south Asia increase their appetite for oil, global demand is expected to move up at a similar 2 percent per year in coming years. Taking both these figures into account, we have an annual shortfall of about 4 percent that must be bridged.
The rational way to solve this problem would be for the market to allocate the available oil to those who need it, with the rich countries subsidizing the poorer ones until alternatives to oil can be found. But the historical record is a bad place to look for rational solutions to global problems (or any other problems, for that matter). Rather, the way to bet seems to be for the occurrence of an X-event of one type or another to step in and release the tension between supply and demand. I’ll consider some of these complexity-balancing possibilities a bit later in the chapter.
From a purely geophysical point of view, Hubbert used known principles for how oil is formed, the type of geological regions where it’s likely to be found, and other such geophysical properties, together with estimates (some would say “guesses”) of consumption rates, known reserves, and the like, in order to forecast that US reserves would pass the halfway mark in the 1970s. For all practical purposes, he turned out to be right. Thus, forecasts that global oil reserves peaked in 2000 have deep implications for how life will look in the second half of this century.
Without any really viable alternative energy supplies waiting to take over for a decline in the availability of oil, we can expect a very different world. A major falloff in long-distance travel, the outbreak of international warfare to secure remaining resources, the disappearance of suburbia, the withering away of globalization, and (not least) the vanishing of the consumer economy are but a few of the likely consequences of turning off the cheap-energy spigot. Of course, these projections rest upon assumptions of their own regarding the likelihood of the discovery of major new oil fields, the development of currently unknown energy technologies, and beliefs about how people will react to sky-high energy prices. I’ll return to these matters in a moment. But for now, let’s look at the current best estimate for where we stand today in terms of global oil reserves, consumption, and the likelihood of “running on empty” anytime soon.
TANKING UP?!
AT A DINNER PARTY A FEW WEEKS AGO, I MENTIONED THE PEAK OIL question to a woman sitting next to me. Let me say right away that this lady was an intelligent, accomplished person with many professional achievements to her credit. So I was a bit surprised when after hearing my “manifesto” about the impending global catastrophe caused by the pump running dry, she remarked, “I thought there was forty years of the stuff left. Are we really running out?” Well, even if there is forty or even fifty or even sixty years of oil left, it’s not the running out that’s the issue. What really matters is whether we have enough to keep our modern economy going. And that point of failure will come long before the pump runs dry.
Oil geologist and peak oil guru Colin Campbell uses the following analogy, which captures the situation very well. The body of a typical 200-pound man is about 70 percent water. So there are about 140 pounds of water in his body. If he loses even 10 to 15 percent of that water by dehydration, he’s in trouble and will suffer severe organ collapse and a lot of other unpleasant things—probably including death. So it’s not necessary for the man to lose all the water in his system to die. Even a small fraction is enough. The same is true of modern society as it’s currently configured. A loss of just a small fraction of the world’s daily oil supply is quite sufficient to bring today’s industrialized society to its knees. With this thought in mind, let’s see where the needle on the oil pressure gauge stands today.
The first thing to understand is that nobody really knows how much oil still remains in the ground. The producer countries all lie like thieves about their reserves for a lot of reasons, both good and bad. Commercial interests and governments collude with the producers in this deception for the usual reasons: money and power. Even with these caveats, there is still a high degree of consensus as to where we stand today.
According to a report in the Oil and Gas Journal, at the end of 2005 world oil reserves amounted to 1.2 trillion barrels, of which nearly 60 percent was located in five countries: Saudi Arabia, Iran, Iraq, Kuwait, and the United Arab Emirates. On the other side of the ledger, consumption totaled 84 million barrels per day, with 47 percent of that in another five countries: United States, China, Japan, Russia, and Germany. At present, consumption is increasing at about 2 percent per year. So a billion barrels lasts about twelve days. Doing the arithmetic, this is 30 billion barrels per year. So even if consumption leveled off at today’s rate, the 1.2 trillion barrels in reserve would be gone in forty years—just like my dinner companion thought! This is a kind of outer limit. But by the argument sketched earlier of death by dehydration, modern society will go into terminal “petrofication” long before that fortieth year arrives unless the supply-demand ratio is drastically changed.
On the supply side, we have two possibilities: discovery of more oil and/or utilization of alternatives to oil for energy supply. Of course, the first alternative is not really a solution as it simply puts off the day of accounting. At best, it can only buy time to develop the second possibility.
On the demand side, the only game in town is reducing consumption; in other words, a dramatic change of lifestyle from what Western society has become accustomed to enjoying over the last hundred years. I’ll return to what such a change might entail in just a moment.
The supply-demand rundown offers a transparently clear picture as to how complexity enters into the peak oil question. We have a continually increasing complexity in society driving the demand, while the complexity of the production side has remained pretty much fixed for decades. The result is that the gap widens and widens. As I’ve just outlined, the sensible way to narrow it is for both sides to take action to close the gap. But again, a bet on voluntary action to narrow the gap, especially when it involves complexity downsizing on the part of the high-complexity system, is about as likely to pay off as buying a ticket in the Powerball lottery. Downsizing is just not hardwired into basic human nature.
The peak oil question involves a kind of Chinese water torture type of global X-event, one that gradually wears society down to a pale shadow of its former self. But there is the quick death, too. This is what may happen if oil supplies are cut off more or less overnight by somewhat more direct means than just having the tank run dry, most likely some type of geopolitical event or terrorist attack affecting the Middle East. We saw earlier that more than 60 percent of all reserves lie under the sands of a handful of highly unstable countries ringing the Persian Gulf. So it doesn’t take much imagination to see how global a small spark somewhere in this part of the world could set off a dire global chain reaction. Let’s look briefly at a few scenarios.
SHORT AND NOT SO SWEET
A QUICK GOOGLE SEARCH TURNS UP ALMOST AS MANY SCENARIOS FOR a short-term oil crisis as there are commentators on energy, peak oil, and alternative energy options. Here I’ve identified four that seem quite plausible and that display the range of possibilities such an oil crisis could take. I hasten to add that these are not predictions or forecasts of what will happen. What will happen is almost surely going to be something different. But like all good scenarios, the ones presented here share a strong family resemblance to what’s likely to unfold in the coming years (or days).
Scenario I: Civil War in Saudi Arabia: The two holiest sites of the Sunni Muslim religion, the mosques in Mecca and Medina, are hit by surprise bombings early in the morning. While no one claims responsibility for the bombings, the majority Sunni and Wahhabi population in Saudi immediately assumes the attackers are from the Shi’a Muslim community and launches counterbombings that destroy major Shi’a mosques. Thus begins a bloody civil war that’s been brewing for decades.
The Saudi royal family is flown out of the country, as news of the unrest spreads to the capital in Riyadh. Meanwhile, share prices on Wall Street tumble over 5 percent before the exchange is temporarily closed. On the NYMEX commodity exchange, crude oil prices shoot up over $20 per barrel in the space of a few minutes as rumors abound of the blockage of all oil shipments from Saudi.
The rioting in Riyadh spreads across all Saudi Arabia, engulfing the neighboring states of Kuwait, Oman, and the United Arab Emirates. Later, a radical Shi’a group claims responsibility for bombings as Iraq enters into the fray. The Iraqi police and military join the bloodletting. Within days the entire Middle East is aflame, and oil production slows to a trickle.
Scenario II: Nuclear Iran: After Shi’ite elements in Basra declare their independence from Baghdad, Iran seeks protection for its religious brethren by forming an Iran/Shi’ite-Iraq coalition bent on controlling the Persian Gulf oil. The coalition invades Kuwait and Saudi Arabia, seizing the port of Dhahran in the first ten days of a major campaign. Further south, Iran mines the Strait of Hormuz, shutting down shipment of 40 percent of the world’s seaborne oil, as well as employing terrorists in boats to block the Suez Canal and mine the Bab el-Mandeb at the southern end of the Red Sea.
Having successfully completed its nuclear arms program, Iran threatens their use if the United States intervenes to defend its Gulf allies. As the United States sets up a ballistic missile defense and air strikes to disable Iran’s conventional delivery systems, a nuclear weapon goes off, destroying the major oil shipping terminal of Ras Tanura in Saudi Arabia.
Fearing that Iran might introduce a nuclear device into the United States by covert means, the United States makes a preemptive “limited” nuclear strike intending to destroy Iran’s remaining weapons of mass destruction.
With the Strait of Hormuz blocked, the main Saudi oil shipment port of Ras Tanura destroyed, and nuclear weapons going off like Fourth of July firecrackers, this scenario provides plenty of ammunition for a huge disruption in crude oil supply with a correspondingly gigantic upsurge in prices.
An interesting side aspect of this scenario is that it has already been well studied by Pentagon war gamers during the Clinton administration back in the early 1990s. At that time, analysts concluded that even with an Iran having twenty to thirty nuclear weapons and employing an out-of-the-blue attack on its Gulf neighbors, only “irrationality” on the part of the Iranian leadership could provide conditions under which Iran would actually use those nuclear weapons. According to the gaming handbook, “the Iranian leadership in these [nuclear] scenarios would be strongly motivated by religious and nationalist sentiments that might override rational calculations.” That was 1992. Today…who knows?
Scenario III: Hurricane Houston and al-Qaeda: During the height of the Gulf Coast hurricane season, a massive storm strikes the oil refineries in Texas and Louisiana, crippling the production of gasoline, heating oil, lubricants, and other petroleum products indefinitely. At the same time, al-Qaeda terrorists destroy a large part of the Saudi oil production infrastructure à la Scenario I. In days, global oil prices triple.
Taking advantage of the situation, Venezuela and Iran stir up already brewing crises in their respective parts of the world, putting even further upward pressure on oil prices. A day or two later, simmering conflicts in several parts of the world break out into full-scale warfare in desperate attempts to secure oil at any cost.
Consumers in the United States go into panic-and-hoarding mode as all transportation grinds to a halt, stock markets crash, and riots break out in New York and other major cities as the US economy is ripped to shreds. As just-in-time societal supply lines break down, a massive global depression sets in. Politicians, church leaders, and other “talking heads” haven’t the faintest clue as to what is really happening and prove powerless to offer any solution to the hoarding and looting that’s occurring around the clock—which only serves to exacerbate the shortages.
This scenario follows the script for one presented on a CNN special in the spring of 2006. And it’s no pipe dream conjured up by the overactive imagination of the media, either. Hurricanes do happen. And they happen in just the area where most petroleum products are refined for the US market. It’s also a fact that terrorist groups are as opportunistic as anyone else, and the synergy gained by piggybacking on an “attack” by nature may be too good an opportunity to pass up.
It’s also a fact that the world economy consists of a dense web of tightly interconnected infrastructures. This web is a very fragile one, and oil is the lifeblood sustaining its operation. When the oil stops flowing, panic can spread throughout the world faster than SARS, bird flu, or any other type of biological epidemic. It’s more like an information epidemic, infecting billions worldwide within a couple of days.
Scenario IV: A Supply-Side Coalition: It’s May 2014. Oil prices are over $100 per barrel, as both Iran and Venezuela have cut exports by more than seven hundred thousand barrels to punish the developed countries of the West for imposing sanctions. Meanwhile, the US military is preparing to move its entire Pacific fleet to the Persian Gulf region to combat threats to the oil fields of the Middle East.
Suddenly reports arrive from Baku of sabotage in Azerbaijan shutting down the oil fields there, removing a million barrels a day from the worldwide supply line. Oil prices immediately shoot to over $115 per barrel, stock markets go into free fall, and confusion reigns supreme in Washington as politicians grapple with the situation.
The US secretary of energy tells his president that supplies can be released from the Strategic Energy Reserve to reduce pressure on gasoline supplies. The president ponders this possibility along with the alternative of enforced conservation by reduction of speed limits and other measures to reduce driving. The military argues that the oil in reserve must be kept for possible action in the Middle East, while congressional leaders claim that the population will not accept enforced conservation. Unable to project military power to central Asia, the US military is forced to adopt a wait-and-see approach to the situation.
Fast-forward now three months to August 2014. The situation is immeasurably worse. A secret uranium enrichment plant is discovered in Iran, confirming Iran’s ambitions to build nuclear weapons. The United States and Israel push for even stricter UN sanctions. In response, Iran and its vassal state, Venezuela, threaten to cut back oil production, sending prices skyrocketing to over $150 per barrel.
The US president enters a critical meeting in the White House Situation Room, seeing no viable alternative to imposing conservation measures. He knows there is no way to soften the political and economic blow of what looks to be $200 a barrel oil staring him in the face. Advisers warn that further sanctions on Iran will have little effect, since high oil prices and dwindling supplies act only to further encourage cutbacks in production by producer nations. On the military side of the street, there appears to be no alternative but to bring the entire Pacific fleet to the Middle East, thereby ceding control of the Pacific to China. As the meeting ends, the president remarks, “We are facing a mortal threat to our way of life here.”
This scenario follows one created by the Securing America’s Future Energy and the Bipartisan Policy Center in late 2007. It involved several former top presidential advisers with deep knowledge of the workings of national security matters and wise in the ways of Washington political machinations. The outcome of the one-day exercise pointed to the inability of the US military to project its power over several regions of the globe simultaneously, along with the ability of even minor countries to destabilize the world political and especially economic equilibria.
ADDING IT ALL UP
LET’S SUMMARIZE THE SITUATION. WE HAVE A SHORT FUSE AND A long fuse, both burning toward the same end point: the Last Oil Crisis and the consequent extinction of Petroleum Man. The long fuse is the peak oil scenario in which cheap and easy-to-get oil becomes more and more scarce and therefore increasingly expensive. This scenario involves nothing more than geology (a limited natural resource) and human greed (an unsustainable demand). A shorter version taking us back to a medieval way of life adds the spice of a natural catastrophe like a hurricane or volcano and/or a human intervention such as a terrorist strike to move things along. In either case, it’s a matter of a decade or two or three before Petroleum Man leaves center stage—kicking and screaming no doubt—but exiting all the same.
Facing these scenarios, the first thing any reasonable person should (and does) ask is, What can be done? What can I/society do to prevent this “extinction” event? The short answer is…nothing. The inexorable machinery for this event was set in motion at the moment when a gasoline-powered automobile engine won out over its steam-powered competition early in the last century. The coup de grâce was then delivered after World War II in the ill-fated experiment of living the “American Dream”: suburbia. Yes, you too can have it all—live in the country, work in the city. The massive expenditure of resources—energy and money—devoted to the development of highways, shopping malls, trucks (SUVs) masquerading as cars, and the like needed to sustain this “dream” will surely be seen as the greatest misallocation of resources in human history and was the final element needed to seal the grim fate we face today.
At the personal level, someone asked me whether I thought now would be a good time to buy a solar-powered home. I replied that George W. Bush, Dick Cheney, and Al Gore all have state-of-the-art solar-powered “off-the-grid” homes. Bush’s has been described as an “environmentalist’s dream home,” while Cheney’s is equipped with state-of-the-art energy-conservation devices installed by…Al Gore! Do you think they know something you don’t?
To return to the question of what to do, there are a lot of small things that each individual can do that mirror uncannily many of the things environmentalists have been advocating for years, ranging from simple self-education on the nature of the problem to reduction of your personal meat consumption (meat is a very energy-intensive form of food). You might also start learning how to perform emergency medical procedures and thinking about how you’re going to survive power outages, food and water shortages, economic breakdowns, and in general, collapse of societal infrastructures.
I’ll now look just a bit closer at the two fuses—longer-term peak oil and shorter-term accident/natural hazard/terrorist attack in an attempt to get a feeling for the timing of things. First of all, the long fuse.
According to studies carried out by reasonably unbiased researchers (i.e., those not in the employ, directly or indirectly, of the oil industry, OPEC, national or international energy agencies, political action groups, and other such vested interests), there’s a pretty clear consensus that non-OPEC production will peak by the middle of the decade, roughly 2015 or so. As for when global oil will peak, that depends entirely on the situation with OPEC.
If OPEC reserves are greater than the consensus forecast from the objective forecasters, then the global peak might be staved off till around 2020–2025; if the reserves in the Middle East are in the neighborhood of the assumptions made in the models, then the peak will be a few years sooner. In any case, it really doesn’t matter much since we’re talking just a few years. At today’s pace of governmental efforts to take any meaningful action other than blah-blah, those few years are meaningless. On balance, then, the explosion from the long fuse is ten to twenty years downstream.
As for the short fuse, it’s a question of how short is short? It could be as short as tomorrow, or even today. But not all possible time frames are equally likely, and it’s a good bet that the short fuse is measured in just a few years, say two or three. But it could burn down to the end anytime.
It’s not without a touch of irony that the range of catastrophes brewing up from the oil crisis bear a striking resemblance to those put forth by the Club of Rome in their Limits to Growth study in 1972. At the time, I recall being present at many sessions at the International Institute for Applied Systems Analysis in Austria, where eminent economists, system modelers, demographers, and other scholars uniformly dismissed these forecasts as ill-conceived. To the defense of the Club of Rome, what was rejected was not so much the forecasts themselves, but the methodological basis upon which the club’s researchers had arrived at their conclusions.
The key conclusion of the Club of Rome study was that exponential growth of population and continual energy consumption would precipitate a global economic collapse accompanied by mass starvation. The crisis would take the form of resource constraints in things like energy, food, water, and/or pollution of the environment to such a degree as to make the planet uninhabitable. It’s worth quoting the following passage from that study:
If the present growth trends in world population, industrialization, pollution, food production and resource depletion continue unchanged, the limits to growth on this planet will be reached sometime within the next one hundred years. The most probable result will be a rather sudden and uncontrollable decline in both population and industrial capacity.
Both fuses are burning brightly, reflecting the accuracy of this forecast. Pity humanity didn’t heed the call in 1972 when something might have been done to derail this out-of-control train when it was still a long way from crashing into the station.