The energy system of any given society is also the basis of the economic system. It’s the same with all life. Inside each living cell is an energy system, powered by adenosine triphosphate. Without that basic fuel, no life. Without oil, no economy…unless we can engineer substitutes at a transition rate that matches net depletion rates.
Most unbiased sources of study regarding world oil supply and demand conclude that we are either at the peak of supply versus consumption, or within a few years of that asymptotic point. A good exploration of the historic, political, scientific and social aspects of this issue is found in “The End of Oil” by Paul Roberts, written a few years ago. Roberts recommended close scientific analyses of world oil reserves, discovery rates, depletion rates and global population growth. He offered several ideas on how to make our oil last long enough to transition to another energy basis, or more accurately, a collection of new energy vectors rather than a single substitute.
To make that transition—which would take two to three decades if done at a rate that would prevent cataclysmic adjustments through oil access wars, civil wars and class wars—would require relatively stable, high prices for oil so that alternative energy source development was an economically viable investment, and so that conservation would be profitable. We have seen this dynamic clearly demonstrated as a barrel of oil reached $145 and a gallon of gas was sneaking up on $5.00. Conservation went way up, consumption way down. All attention was on alternative vehicle design, alternative energy sources and lifestyle changes. But from that peak in July of 2008, the price per barrel of light sweet crude has been dropping in a nearly linear curve at the rate of $20 per barrel per month, reaching a low of about $35 a barrel by the end of 2008. Since then, oil prices have gone back up to $100 a barrel, shrunk back, etc. For now, the economic imperative for an energy transition is changeable, with the volatility of oil prices causing fits and starts for investing patterns in alternative energy fields. A lack of visionary political thinking or corporate investment will impede the effective transition to sustainable energy sources to support human economics and resource preservation.
These are primary concerns that have been validated by such studies as “Peaking of World Oil Production: Impacts, Mitigation, & Risk Management,” a report prepared by Science Applications International Corporation (SAIC) for the U.S. Department of Energy, released in February 2005, and authored principally by Robert L. Hirsch. The SAIC report concludes that substantial mitigation of the economic, social, and political impacts of “peak oil” can come only from efforts both to increase energy supplies from alternative sources and to reduce demand for oil. The report states that a key threat to the world’s ability to jointly transition in a planned and relatively calm fashion is volatility of oil prices. To quote the report: “If peaking is imminent, failure to initiate timely mitigation could be extremely damaging. Prudent risk management requires the planning and implementation of mitigation well before peaking. Early mitigation will almost certainly be less expensive than delayed mitigation.” The term “mitigation” means all those actions that will result in reduced dependency on oil as an energy source. These mitigation efforts are undermined if oil markets experience price volatility, which will threaten the stability of all economies by reducing sustained investment in transitional energy sources, conservation habits and the psychological sense of safety that must precede cooperation between countries.
The change from fossil fuel-based energy systems will inevitably occur, as a simple matter of depletion from continued use. Whether that change is chaotic or planned, calamitous or relatively peaceful depends therefore on a more stable rate of production, consumption and commodity pricing. Between 1920 and 1971, the U.S. oil price trend was almost flat, averaging about $3 per barrel. In 1971, the U.S. began importing more oil than it produced, and the control of global oil markets shifted to the Middle East. Prices have risen steeply ever since, with periodic spikes, such as those recently seen. The regional wars and international conflicts we are experiencing are directly correlated to the volatile energy transition we are living through.
There have been suggestions on how to avoid these predictable and serious world conflicts associated with the energy transition. The Association for the Study of Peak Oil has drafted what they call the Oil Depletion Protocol. Essentially what this protocol says is that importers and exporters should enter into a voluntary regulation of consumption and production, respectively, so that supply and demand ratios are set at unity. In other words, the ratio between consumption rates and reserve discovery rates would equal one.
Voluntary participation in such a protocol seems unlikely, given that the profit motive is antithetical to shared sacrifice among competitors. So it would take political consensus to implement such a plan. That would require world leaders to adopt a macro-economic sense of responsibility, encompassing every country’s constituency in their decision, rather than focusing solely on what is good or bad for each leader’s own nation. It’s possible that world leaders are now aware of how inextricably bound we are together, that no one country can experience sustained peace and prosperity, without most of the rest of the world sharing in it. Is it possible for such awareness in global leadership to exist on both sides of the oil supply-demand equation?