Wednesday, March 23, 2005
The Post Cheap-Oil World?
The global oil production peak and the arc of depletion that follows.
Remarks in Hudson, NY
January 8, 2005
James Howard Kunstler
My last three books were concerned with the physical arrangement of life in our nation, in particular suburban sprawl, the most destructive development pattern the world has ever seen, and perhaps the greatest misallocation of resources the world has ever known.
The world - and of course the US - now faces an epochal predicament: the global oil production peak and the arc of depletion that follows. We are unprepared for this crisis of industrial civilization. We are sleepwalking into the future.
The global peak oil production event will change everything about how we live. It will challenge all of our assumptions. It will compel us to do things differently - whether we like it or not.
Nobody knows for sure when the absolute peak year of global oil production will occur. You can only tell for sure in the "rear-view mirror," seeing the data after the fact. The US oil production peak in 1970 was not really recognized until the numbers came in over the next couple of years. By 1973 it was pretty clear that US oil production was in decline - the numbers were there for anyone to see, because the US oil industry was fairly transparent. They had to report their production to regulatory agencies. And low and behold American production was going down - despite the fact that we were selling more cars and more suburban houses. Of course we had been making up for falling production by increasing our oil imports.
1973 was the year of the Yom Kippur War. With encouragement from the old Soviet Union, Syria and Egypt ganged up on Israel and after a rough start, Israel kicked their asses. The Islamic world was very ticked off - especially at the assistance that the US had given Israel in airlifted military equipment. So a lot of pressure was brought to bear on the leaders of the Arab oil states to punish the US and we got the famous OPEC embargo of 1973.
But it was more than that. The OPEC embargo was effective precisely because it was now recognized by everybody that the US had passed its all time oil production peak. We no longer had surplus capacity. We weren't the swing producer anymore, OPEC was. We were pumping flat-out just to stay in place, and depending on imports to make up for the rest.
That was a tectonic shift in world economics.
That's exactly when OPEC seized pricing control of the oil markets. We had a very rough decade. 20 percent interest rates. "Stagflation." High unemployment. Stock market in the toilet.
We had a second oil crisis in 1979 when the Shah of Iran was overthrown. The 1970s closed on a note of desperation. Everything we did in America was tied to oil and foreigners were jerking our economy around, and it led the worst recession since the 1930s.
But we got over it and a lot of Americans drew the false conclusion that the these oil crises were a shuck and jive on the part of business and Arab oil sheiks.
How did we get over it? The oil crises of the 70s prompted a frantic era of drilling, and the last great oil discoveries came on line in the 1980s - chiefly the North Sea fields of England and Norway, and the Alaska fields of the North Slope and Prudhoe Bay. They literally saved the west's ass for 20 years. In fact, so much oil flowed out of them that the markets were glutted, and by the era of Bill Clinton, oil prices were headed down to as low as $10 a barrel.
It was all an illusion. The North Sea and Alaska are now well into depletion - they were drilled with the newest technology and - guess what - we depleted them more efficiently! England is now becoming a new oil importer again after a 20 year fiesta. The implications are very grim.
Now, some of the most knowledgeable geologists in the world believe we have reached the global oil production peak. Unlike the US oil industry, the foreign producers do not give out their production data so transparently. We may never actually see any reliable figures. The global production peak may only show up in the strange behavior of the markets.
The global peak is liable to manifest as a "bumpy plateau." Prices will wobble. Markets will wobble - as the oil markets have been doing the past year. International friction will increase, especially around the places where the oil is - and two-thirds of the world's remaining oil is in the states around the Persian Gulf where, every week, a half dozen US soldiers and many more Iraqis are getting blown up, beheaded, or shot.
The "bumpy plateau" is where all kind of market signals and political signals are telling you that "something is happening, Mr. Jones, but you don't know what it is." We'll only know in the rear-view mirror.
As of the past 12 months, Saudi Arabia seems to have lost the ability to function as 'swing producer.' The swing producer is the one with a lot of excess supply, who can just open the valves and let more oil out on the world markets, which inevitably drives the price down. Saudi Arabia has kept saying they would produce a million more barrels a day, but there's no evidence that they really have.
Well, the good news is that Saudi Arabia and OPEC can no longer set the price of oil. The bad news is that nobody can. When there is no production surplus in the world, that's a pretty good sign that the world is at peak.
Princeton Geologist Kenneth Deffeyes says that peak production will occur in 2005. We're there. Others, like Colin Campbell, former chief geologist for Shell Oil, put it more conservatively as between now and 2007. But by any measure of rational planning or policy-making, these differences are insignificant.
The meaning of the oil peak and its enormous implications are generally misunderstood even by those who have heard about it - and this includes the mainstream corporate media and the Americans who make plans or policy.
The world does not have to run out of oil or natural gas for severe instabilities, network breakdowns, and systems failures to occur. All that is necessary is for world production capacity to reach its absolute limit - a point at which no increased production is possible and the long arc of depletion commences, with oil production then falling by a few percentages steadily every year thereafter. That's the global oil peak: the end of absolute increased production and beginning of absolute declining production.
And, of course, as global oil production begins to steadily decline, year after year, the world population is only going to keep growing - at least for a while - and demand for oil will remain very robust. The demand line of the graph will pass the production line, and in doing so will set in motion all kinds of problems in the systems we rely on for daily life.
One huge implication of the oil peak is that industrial societies will never again enjoy the 2 to 7 percent annual economic growth that has been considered healthy for over 100 years. This amounts to the industrialized nations of the world finding themselves in a permanent depression.
Long before the oil actually depletes we will endure world-shaking political disturbances and economic disruptions. We will see globalism-in-reverse. Globalism was never an 'ism,' by the way. It was not a belief system. It was a manifestation of the 20-year-final-blowout of cheap oil. Like all economic distortions, it produced economic perversions. It allowed gigantic, predatory organisms like WalMart to spawn and reproduce at the expense of more cellular fine-grained economic communities.
The end of globalism will be hastened by international competition over the world's richest oil-producing regions.
We are already seeing the first military adventures over oil as the US attempts to pacify the Middle East in order to assure future supplies. This is by no means a project we can feel confident about. The Iraq war has only been the overture to more desperate contests ahead. Bear in mind that the most rapidly industrializing nation in the world, China, is geographically closer to Caspian Region and the Middle East than we are. The Chinese can walk into these regions, and someday they just might.
In any case, and apart from the likelihood of military mischief, as the world passes the petroleum peak the global oil markets will destabilize and the industrial nations will have enormous problems with both price and supply. The effect on currencies and international finance will, of course, be equally severe.
Some of you may be aware that the US faces an imminent crisis with natural gas, at least as threatening as the problems we face over oil. By natural gas I mean methane, the stuff we run our furnaces and kitchen stoves on.
Over the past two decades - in response to the OPEC embargoes of the 70s and the Chernobyl and Three Mile Island emergencies of the 80s -- we have so excessively shifted our electric power generation to dependence on natural gas that no amount of drilling can keep up with current demand. The situation is very ominous now.
The United States, indeed North America, including Canada and Mexico, is technically way past peak production in natural gas and there is a special problem with gas that you don't have with oil: you tend to get your gas from the continent you are on. It comes out of the ground and is distributed around the continent in a pipeline network.
If you have to get your natural gas from another continent, it has to be compressed at low temperature, transported in special ships with pressurized tanks, and delivered to special terminals where it is re-gasified. All this is tremendously more expensive than what we do now. Moreover, there are very few natural gas port terminals in the US and nobody wants them built anywhere near them because they are dangerous. They can blow up.
We have been making up for our shortfall in gas in recent years by buying a lot of gas from Canada. The NAFTA treaty compels them to sell us their gas, and they are technically in depletion too. They're not happy about this.
About half the houses in America are heated with natural gas. Nobody know what we are going to do when the depletion arc gets steeper.
Oh, another problem with gas. The wells run dry just like this (snap!). Unlike oil wells, which go from gusher to steady stream to declining stream, gas wells either put out gas or they stop. And there's no warning when they are close to running out. Because, the gas is coming out of the ground under its own pressure. As the gas wells of North America continue to deplete, we will have little warning
Right here I am compelled to inform you that the prospects for alternative fuels are poor. We suffer from a kind of Jiminy Cricket syndrome in this country. We believe that if you wish for something, it will come true. Right now a lot of people - including people who ought to know better - are wishing for some miracle technology to save our collective ass.
There is not going to be a hydrogen economy. The hydrogen economy is a fantasy. It is not going to happen. We may be able to run a very few things on hydrogen - but we are not going to replace the entire US automobile fleet with hydrogen fuel cell cars.
" Getting hydrogen
Nor will we replace the current car fleet with electric cars or natural gas cars. We're just going to use cars a lot less. Fewer trips. Cars will be a diminished presence in our lives.
Not to mention the political problem that kicks in when car ownership and driving becomes incrementally a more elite activity. The mass motoring society worked because it was so profoundly democratic. Practically anybody in America could participate, from the lowliest shlub mopping the floor at Pizza Hut to Bill Gates. What happens when it is no longer so democratic? And what is the tipping point at which it becomes a matter of political resentment: 12 percent? 23 percent? 38 percent?
Wind power and solar electric will not produce significant amounts of power within the context of the way we live now.
Ethanol and bio-deisel are a joke. They require more energy to produce than they give back. You know how you get ethanol: you produce massive amounts of corn using huge oil and gas 'inputs' of fertilizer and pesticide and then you use a lot more energy to turn the corn into ethanol. It's a joke.
No combination of alternative fuel systems currently known will allow us to run what we are running, the way we're running it, or even a substantial fraction of it.
The future is therefore telling us very loudly that we will have to change the way we live in this country. The implications are clear: we will have to downscale and re-scale virtually everything we do.
The downscaling of America is a tremendous and inescapable project. It is the master ecological project of our time. We will have to do it whether we like it or not. We are not prepared.
Downscaling America doesn't mean we become a lesser people. It means that the scale at which we conduct the work of American daily life will have to be adjusted to fit the requirements of a post-globalist, post-cheap-oil age.
We are going to have to live a lot more locally and a lot more intensively on that local level. Industrial agriculture, as represented by the Archer Daniels Midland / soda pop and cheez doodle model of doing things, will not survive the end of the cheap oil economy.
The implication of this is enormous. Successful human ecologies in the near future will have to be supported by intensively farmed agricultural hinterlands. Places that can't do this will fail. Say goodbye to Phoenix and Las Vegas.
I'm not optimistic about most of our big cities. They are going to have to contract severely. They achieved their current scale during the most exuberant years of the cheap oil fiesta, and they will have enormous problems remaining viable afterward.
Any mega-structure, whether it is a skyscraper or a landscraper - buildings that depend on huge amounts of natural gas and electricity - may not be usable a decade or two in the future.
What goes for the scale of places will be equally true for the scale of social organization. All large-scale enterprises, including many types of corporations and governments will function very poorly in the post-cheap oil world. Do not make assumptions based on things like national chain retail continuing to exist as it has.
Wal Mart is finished. [More below]
Many of my friends and colleagues live in fear of the federal government turning into Big Brother tyranny. I'm skeptical Once the permanent global energy crisis really gets underway, the federal government will be lucky if it can answer the phones. Same thing for Microsoft or even the Hannaford supermarket chain.
All indications are that American life will have to be reconstituted along the lines of traditional towns, villages, and cities much reduced in their current scale. These will be the most successful places once we are gripped by the profound challenge of a permanent reduced energy supply.
The land development industry as we have known it is going to vanish in the years ahead. The production home-builders, as they like to call themselves. The strip mall developers. The fried food shack developers. Say goodbye to all that.
We are entering a period of economic hardship and declining incomes. The increment of new development will be very small, probably the individual building lot.
The suburbs as are going to tank spectacularly. We are going to see an unprecedented loss of equity value and, of course, basic usefulness. We are going to see an amazing distress sale of properties, with few buyers. We're going to see a fight over the table scraps of the 20th century. We'll be lucky if the immense failure of suburbia doesn't result in an extreme political orgy of grievance and scapegoating.
The action in the years ahead will be in renovating existing towns and villages, and connecting them with regions of productive agriculture. Where the big cities are concerned, there is simply no historical precedent for the downscaling they will require. The possibilities for social and political distress ought to be obvious, though. The process is liable to be painful and disorderly.
The post cheap oil future will be much more about staying where you are than about being mobile. And, unless we rebuild a US passenger railroad network,a lot of people will not be going anywhere. Today, we have a passenger railroad system that the Bulgarians would be ashamed of.
Don't make too many plans to design parking structures. The post cheap oil world is not going to be about parking, either.
But it will be about the design and assembly and reconstituting of places that are worth caring about and worth being in. When you have to stay where you are and live locally, you will pay a lot more attention to the quality of your surroundings, especially if you are not moving through the landscape at 50 miles-per-hour.
Some regions of the country will do better than others. The sunbelt will suffer in exact proportion to the degree that it prospered artificially during the cheap oil blowout of the late 20th century. I predict that the Southwest will become substantially depopulated, since they will be short of water as well as gasoline and natural gas. I'm not optimistic about the Southeast either, for different reasons. I think it will be subject to substantial levels of violence as the grievances of the formerly middle class boil over and combine with the delusions of Pentecostal Christian extremism.
All regions of the nation will be affected by the vicissitudes of this Long Emergency, but I think New England and the Upper Midwest have somewhat better prospects. I regard them as less likely to fall into lawlessness, anarchy, or despotism, and more likely to salvage the bits and pieces of our best social traditions and keep them in operation at some level.
There is a fair chance that the nation will disaggregate into autonomous regions before the 21st century is over, as a practical matter if not officially. Life will be very local.
These challenges are immense. We will have to rebuild local networks of economic and social relations that we allowed to be systematically dismantled over the past fifty years. In the process, our communities may be able to reconstitute themselves.
The economy of the mid 21st century may center on agriculture. Not information. Not the digital manipulation of pictures, not services like selling cheeseburgers and entertaining tourists. Farming. Food production. The transition to this will be traumatic, given the destructive land-use practices of our time, and the staggering loss of knowledge. We will be lucky if we can feed ourselves.
The age of the 3000-mile-caesar salad will soon be over. Food production based on massive petroleum inputs, on intensive irrigation, on gigantic factory farms in just a few parts of the nation, and dependent on cheap trucking will not continue. We will have to produce at least some of our food closer to home. We will have to do it with fewer fossil-fuel-based fertilizers and pesticides on smaller-scaled farms. Farming will have to be much more labor-intensive than it is now. We will see the return of an entire vanished social class - the homegrown American farm laboring class.
We are going to have to reorganize everyday commerce in this nation from the ground up. The whole system of continental-scale big box discount and chain store shopping is headed for extinction, and sooner than you might think. It will go down fast and hard. Americans will be astonished when it happens.
Operations like WalMart have enjoyed economies of scale that were attained because of very special and anomalous historical circumstances: a half century of relative peace between great powers. And cheap oil - absolutely reliable supplies of it, since the OPEC disruptions of the 1970s.
WalMart and its imitators will not survive the oil market disruptions to come. Not even for a little while. WalMart will not survive when its merchandise supply chains to Asia are interrupted by military contests over oil or internal conflict in the nations that have been supplying us with ultra-cheap manufactured goods. WalMart's "warehouse on wheels" will not be able to operate in a non-cheap oil economy
It will only take mild-to-moderate disruptions in the supply and price of gas to put WalMart and all operations like it out of business. And it will happen. As that occurs, America will have to make other arrangements for the distribution and sale of ordinary products.
It will have to be reorganized at the regional and the local scale. It will have to be based on moving merchandise shorter distances at multiple increments and probably by multiple modes of transport. It is almost certain to result in higher costs for the things we buy, and fewer choices of things. We are not going to rebuild the cheap oil manufacturing facilities of the 20th century.
We will have to recreate the lost infrastructures of local and regional commerce, and it will have to be multi-layered. These were the people that WalMart systematically put out of business over the last thirty years. The wholesalers, the jobbers, the small-retailers. They were economic participants in their communities; they made decisions that had to take the needs of their communities into account. they were employers who employed their neighbors. They were a substantial part of the middle-class of every community in America and all of them together played civic roles in our communities as the caretakers of institutions - the people who sat on the library boards, and the hospital boards, and bought the balls and bats and uniforms for the little league teams.
We got rid of them in order to save nine bucks on a hair dryer. We threw away uncountable millions of dollars worth of civic amenity in order to shop at the Big Box discount stores. That was some bargain.
This will all change. The future is telling us to prepare to do business locally again. It will not be a hyper-turbo-consumer economy. That will be over with. But we will still make things, and buy and sell things.
A lot of the knowledge needed to do local retail has been lost, because in the past the ownership of local retail businesses was often done by families. The knowledge and skills for doing it was transmitted from one generation to the next. It will not be so easy to get that back. But we have to do it.
Education is another system that will probably have to change. Our centralized schools are too big and too dependent on fleets of buses. Children will have to live closer to the schools they attend. School will have to be reorganized on a neighborhood basis, at a much smaller scale, in smaller buildings -- and they will not look like medium security prisons.
The psychology of previous investment is a huge obstacle to the reform of education. We poured fifty years of our national wealth into gigantic sprawling centralized schools - but that investment itself does not guarantee that these schools will be able to function in a future that works very differently.
In the years ahead college will no longer be just another "consumer product." Fewer people will go to them. They will probably revert to their former status as elite institutions, whether we like it or not. Many of them will close altogether.
Change is coming whether we like it or not; whether we are prepared for it or not. If we don't begin right away to make better choices then we will face political, social, and economic disorders that will shake this nation to its foundation.
I hope you will go back to your offices and classrooms and workplaces with these ideas in mind and think about what your roles will be in this challenging future. Good luck. Prepare for a different America, perhaps a better America. And prepare to be good neighbors.