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Island Rover Bulletin

Number Six

THE PARTY'S OVER

Oil, War, and the Fate of Industrial Societies

By Richard Heinberg,

Industrial nations' fossil-fueled joyride is about to end . . . is anyone prepared?

SYNOPSIS:

When Mike Bowlin, Chairman of ARCO, said in 1999 that "We've embarked on the beginning of the last days of the age of oil," he was voicing a truth that many others in the petroleum industry knew but dared not utter. Over the past few years, evidence has mounted that global oil production is nearing its historic peak.

Oil has been the cheapest and most convenient energy resource ever discovered by humans. During the past two centuries, people in industrial nations accustomed themselves to a regime in which more fossil-fuel energy was available each year, and the global population grew quickly to take advantage of this energy windfall. Industrial nations also came to rely on an economic system built on the assumption that growth is normal and necessary, and that it can go on forever.

When oil production peaks, those assumptions will come crashing down.

As we move from a historic interval of energy growth to one of energy decline, we are entering uncharted territory. It takes some effort to adjust one's mental frame of reference to this new reality.

Try the following thought experiment. Go to the center of a city and find a comfortable place to sit. Look around and ask yourself: Where and how is energy being used? What forms of energy are being consumed, and what work is that energy doing? Notice the details of buildings, cars, buses, streetlights, and so on; notice also the activities of the people around you. What kinds of occupations do these people have, and how do they use energy in their work? Try to follow some of the strands of the web of relationships between energy, jobs, water, food, heating, construction, goods distribution, transportation, and maintenance that together keep the city thriving.

After you have spent at least 20 minutes appreciating energy's role in the life of this city, imagine what the scene you are viewing would look like if there were 10 percent less energy available. What substitutions would be necessary? What choices would people make? What work would not get done? Now imagine the scene with 25 percent less energy available; with 50 percent less; with 75 percent less.

Assuming that the peak in global oil production occurs in the period from 2006 to 2015 and that there is an average two percent decline in energy available to industrial societies each year afterward, in your imagination you will have taken a trip into the future, to perhaps the year 2050.

But how can we be sure that oil will become less abundant? Petroleum geologists like Colin Campbell (formerly with Texaco and Amoco) point to simple facts like these: Oil discovery in the US peaked in the 1930s; oil production peaked roughly forty years later. Since 1970, the US has had to import more oil nearly every year in order to make up for its shortfall from domestic production. The oil business started in America in the late nineteenth century, and the US is the most-explored region on the planet: more oil wells have been drilled in the lower-48 US than in all other countries combined. Thus, America's experience with oil will eventually be repeated elsewhere.

Global Discovery of OilGlobal discovery of oil peaked in the 1960s. Since production curves must eventually mirror discovery curves, global oil production will doubtless peak at some point in the foreseeable future. When, exactly? According to many informed estimates, the peak should occur around 2010, give or take a few years.

When the global peak in oil production is reached, there will still be plenty of petroleum in the ground - as much as has been extracted up to the present, or roughly one trillion barrels. But every year from then on it will be difficult or impossible to pump as much as the year before.

Clearly, we will need to find substitutes for oil. But an analysis of the current energy alternatives is not reassuring. Solar and wind are renewable, but we now get less than one percent of our national energy budget from them; rapid growth will be necessary if they are to replace even a significant fraction of the energy shortfall from post-peak oil. Nuclear power is dogged by the unsolved problem of radioactive waste disposal. Hydrogen is not an energy source at all, but an energy carrier: it takes more energy to produce a given quantity of hydrogen than the hydrogen itself will yield. Moreover, nearly all commercially produced hydrogen now comes from natural gas - whose production will peak only a few years after oil begins its historic decline. Unconventional petroleum resources - so-called "heavy oil," "oil sands," and "shale oil" - are plentiful but extremely costly to extract, a fact that no technical innovation is likely to change.

The hard math of energy resource analysis yields an uncomfortable but unavoidable prospect: even if efforts are intensified now to switch to alternative energy sources, after the oil peak industrial nations will have less energy available to do useful work - including the manufacturing and transporting of goods, the growing of food, and the heating of homes.

To be sure, we should be investing in alternatives and converting our industrial infrastructure to use them. If there is any solution to industrial societies' approaching energy crises, renewables plus conservation will provide it. Yet in order to achieve a smooth transition from non-renewables to renewables, decades will be needed - and we do not have decades before the peaks in the extraction rates of oil and natural gas occur. Moreover, even in the best case, the transition will require the massive shifting of investment from other sectors of the economy (such as the military) toward energy research and conservation. And the available alternatives will likely be unable to support the kinds of transportation, food, and dwelling infrastructure we now have; thus the transition will entail an almost complete redesign of industrial societies.

Global Energy Resources

The likely economic consequences of the energy downturn are enormous. All human activities require energy - which physicists define as "the capacity to do work." With less energy available, less work can be done - unless the efficiency of the process of converting energy to work is raised at the same rate as energy availability declines. It will therefore be essential, over the next few decades, for all economic processes to be made more energy-efficient. However, efforts to improve efficiency are subject to diminishing returns, and so eventually a point will be reached where reduced energy availability will translate to reduced economic activity. Given the fact that our national economy is based on the assumption that economic activity must grow perpetually, the result is likely to be a recession with no bottom and no end.

The consequences for global food production will be no less dire. Throughout the twentieth century, food production expanded dramatically in country after country, with virtually all of this growth attributable to energy inputs. Without fuel-fed tractors and petroleum-based fertilizers, pesticides, and herbicides, it is doubtful that crop yields can be maintained at current levels.

The oil peak will also impact international relations. Resource conflicts are nothing new: pre-state societies often fought over agricultural land, fishing or hunting grounds, horses, cattle, waterways, and other resources. Most of the wars of the twentieth century were also fought over resources - in many cases, oil. But those wars took place during a period of expanding resource extraction; the coming decades of heightened competition for fading energy resources will likely see even more frequent and deadly conflicts. The US - as the world's largest energy consumer, the center of global industrial empire, and the holder of the most powerful store of weaponry in world history - will play a pivotal role in shaping the geopolitics of the new century. To many observers, it appears that oil interests are already at the heart of the present administration's geopolitical strategy.

There is much that individuals and communities can do to prepare for the energy crunch. Anything that promotes individual self-reliance (gardening, energy conservation, and voluntary simplicity) will help. But the strategy of individualist survivalism will offer only temporary and uncertain refuge during the energy down-slope. True individual and family security will come only with community solidarity and interdependence. Living in a community that is weathering the downslope well will enhance personal chances of surviving and prospering far more than will individual efforts at stockpiling tools or growing food.

Meanwhile, nations must adopt radical energy conservation measures, invest in renewable energy research, support sustainable local food systems instead of giant biotech agribusiness, adopt no-growth economic and population policies, and strive for international resource cooperation agreements.

These suggestions describe a fundamental change of direction for industrial societies - from the larger, faster, and more centralized, to the smaller, slower, and more locally-based; from competition to cooperation; and from boundless growth to self-limitation.

If such recommendations were taken seriously, they could lead to a world a century from now with fewer people using less energy per capita, all of it from renewable sources, while enjoying a quality of life perhaps enviable by the typical industrial urbanite of today. Human inventiveness could be put to the task, not of making ways to use more resources, but of expanding artistic satisfaction, finding just and convivial social arrangements, and deepening the spiritual experience of being human. Living in smaller communities, people would enjoy having more control over their lives. Traveling less, they would have more of a sense of rootedness, and more of a feeling of being at home in the natural world. Renewable energy sources would provide some conveniences, but not nearly on the scale of fossil-fueled industrialism.

This will not, however, be an automatic outcome of the energy decline. Such a happy result can only come about through considerable effort.

There are many hopeful indications that a shift toward sustainability is beginning. But there are also discouraging signs that large political and economic institutions will resist change in that direction. Therefore much depends upon the public coming to understand the situation, taking personal steps, and demanding action from local and national governments.

Richard Heinberg, a journalist and educator, is a member of the core faculty of New College of California, where he teaches a program on Culture, Ecology, and Sustainable Community. This article is adapted from his book, The Party's Over: Oil, War, and the Fate of Industrial Societies (New Society Publishers, March 2003).

Reviews:

Richard Heinberg has distilled complex facts, histories, and events into a readable overview of the energy systems that keep today's mass society running. The result is jarring. The Party's Over is the book we need to reorient ourselves for a realistic future.

- Chellis Glendinning, Ph.D., author of Off the Map: An Expedition Deep into Empire and the Global Economy

A few generations hence, our descendants will look back on the industrial world of today with a combination of awe, wonderment, and horror. Their past is our future - a transitional era of dwindling energy supplies, resource wars, and industrial collapse. If societies a century from now have managed to learn how to live peacefully, modestly, and sustainably, it may be at least partly because the advice in this timely book was heeded.

- Thom Hartmann, author of The Last Hours of Ancient Sunlight and Unequal Protection: The rise of corporate dominance and theft of human rights

As Richard Heinberg makes shockingly clear in this extraordinarily well-researched and -written book, our way of life will soon change dramatically, as oil production and reserves both begin to decline. He also makes clear that our actions now will strongly affect what is left of the world when this shift away from oil takes place. But before we can act we must understand, and before we can understand we must be informed. In this compelling book, Richard Heinberg gives us the tools - the information and understanding - to act. This is a wise and important book.

- Derrick Jensen, author of A Language Older than Words and The Culture of Make Believe

The Party's Over begins with a commanding review of world history, where past and current developments including war, empire, and population growth are interpreted as functions of cheap or increasingly scarce and expensive energy. The discussion of substitutes for fast-depleting fossil fuels, and the formidable impediments to making the transition that would allow industrial civilization to continue, are important to every investor and citizen.

- Virginia Deane Abernethy, Ph.D., author of Population Politics

Richard Heinberg has written an outstanding book, The Party's Over. I hope that the U.S. President and Congress read his book.The world and the U.S. populations are projected to double in 50 and 70 years, respectively, and global oil supplies are projected to be mostly depleted in 50 years! I agree with Heinberg that society is headed for serious trouble in the near future.

- David Pimentel, Ph.D., Professor, Department of Entomology, Systematics and Ecology, Cornell University

Minnesotans For Sustainability©

Sustainable: A society that balances the environment, other life forms, and human interactions over an indefinite time period.

"The Party's Over"

Interview: Richard Heinberg, Author

By Jim Puplava March 22, 2003

Introduction

JP: Welcome back, everyone. It’s time to introduce this week’s guest on the program. Joining me is Richard Heinberg. He’s the author of a new book called The Party’s Over. He has been writing about energy resources issues and the dynamics of cultural change for many years now. He’s a member of the faculty of the new college of California. He is also an award-winning author of three previous books. His Museletter was nominated by the Utne Reader in 1993 as the best alternative newsletter. According to Richard, the world is about to run out of cheap oil and change dramatically. We’re here to talk about it with his new book, The Party’s Over.

Richard, the core message in your book is industrial civilization has been based on the consumption of energy resources. These resources, however, are inherently limited in terms of quantity and are about to become scarcer. I wonder if you might explain that.

RH: Sure, Jim. My background, as you mentioned, is in human ecology. For many years I’ve been interested in trying to understand what makes humans societies change over time. The one constant factor that not only I but many other human ecologists have been able to identify, is the factor of energy. From hunting and gathering to agriculture, to industrialism, the main factor that has changed, really, is the amount of energy harvested from the environment per capita.

Now that really began to change a couple of hundred years ago with the beginning of the Industrial Revolution. What the Industrial Revolution was really all about fundamentally was substituting the work of fuels in the economy for work previously done by animal and muscle power.

In the U.S., for example, in 1850 something like 65% of all the work that got done in the economy was done by animal and muscle-power. Something like 15% of the work done in the economy was through human muscle-power. By 1970 the amount of work done in the U.S. economy by animal and muscle-power had reduced to virtually zero and everything was being done by fuels. Meanwhile, the total amount of work done in society per capita had increased dramatically. We’re at the point now where if all of the work done for us as average Americans each day by fuel-fed machines had to be done by humans, using the equivalent human muscle power, each of us would have something like 150 energy slaves taking care of our every need, getting us to where we want to go, cleaning our clothes, and doing all the other things that machines do for us.

The Industrial Revolution sure was about invention of machines, but those machines were running overwhelmingly on fossil energy resources leftover from earlier times in geological history. Of course, we should have known from the very beginning that those fossil energy resources were limited in extent and sooner or later we’d begin to run out. We should have planned for that event. But, in fact, what’s actually happened is that our whole society has been running on the assumption that they’ll continue forever. I think we’re just about to wake up to the awful truth that in fact fossil energy resources are limited and that’s going to have a terrible impact on our economies.

Economists, Environmentalists, Geologists, & Politicians

JP: Now there’s different groups that you list in your book that view this problem from a different perspective. For example, we have the economist, we have the environmentalist, we have the geologist, and we have the politicians. Why don’t you explain the positions that each group takes towards energy.

RH: Sure. The economists typically view energy resources as being inherently limitless. By that I mean they believe that the market will magically come up with a substitute when any given resource becomes scarce. And in a certain way, they are right in that yes, when any resource becomes scarce the price goes up and therefore there’s more of an incentive to look for an alternative. However, in this particular case, there really may not be an alternative readily available for fossil fuels because oil, in particular, is extremely energy dense and the energy return on the energy invested in obtaining oil is extremely high. That’s really not true in any of the possible alternative energy sources. Also, price signals that come to the economy from resources beginning to grow scare, those price signals could come way too late because the price signal is only going to come when oil actually begins to become scarce. In fact, we need decades in order to prepare our industrial infrastructure to operate on alternate energy sources so the price signal is going to come several decades too late to be of any real use. So there’s the economists’ point of view.

The environmentalists seem to be fixated on the matter of global warming, which is, I believe, a very serious problem. But the environmentalists tend, I think, actually to believe the economists who tell them there is plenty of oil and that’s not the problem – running out of oil is not a problem. And so the environmentalists rather than calling attention to inherent limitations in fossil fuels really keep the discussion in the area of we should limit our use of fossil fuels because of environmental effects like the greenhouse effect in global warming. So it’s primarily a moral message that the environmentalists are giving us.

Then there’s the message of the petroleum geologists. Most of the ones that I’ve been in touch with are independent and retired petroleum geologists who don’t have any personal economic stake in this one way or the other. They have no personal ax to grind. These are people like Colin Campbell who have worked for Exxon and Texaco and other major oil companies through a long career in over 20 different countries; and Walter Youngquist and Jean Laherrere, a French petroleum geologist ―a whole roster of them that I list in my book. These are all people who have devoted their lives to this industry and now that they’re retired they just want to really get out the information that they have accumulated during these long careers, which is that in fact, the resource is limited and we are about to run out. It’s not that we are literally going to run out of oil in five or ten years, what they’re saying is that we’re reaching the halfway mark. And that halfway mark is extremely significant. Yes, there’s about a trillion barrels of oil still left in the ground. That’s a huge amount, but the problem is that we’ve already skimmed off the stuff that’s cheap and easy to extract. So the message of the petroleum geologists is one that is informed by knowledge of what’s really going on in the ground and in industry. Those are the people that I really listened to most when I was preparing the material for the book.

Finally, as you mentioned, there are the politicians. Theirs is the voice that really counts, because they’re the ones who set policy. The politicians overwhelmingly listen to, I think, the economists and assume the resources are limitless. They have an excellent motivation for doing so which is getting re-elected.

For any politician to mention that there are resource limitations and that therefore we need to as a society conserve and possibly even do something that might restrict economic growth or result in reduced standard of living, that would be political suicide, so no one’s going to do that. Rather than going down that path, I think virtually all politicians, whether from the right or the left of the political spectrum would rather give out the happy news that there’s plenty to go around. Maybe we need to adjust this way or that. The left has a different prescription for how we should deal with resource issues than the right does, but the basic assumption that there’s plenty to go around isn’t questioned by anyone.

JP: Now you have come from an environmental background but from reading your book you tend to side with the geologists. Explain why.

RH: I think the geologists are just giving some really important practical information. As I said, I think most of the environmental community is just fixated on this one problem of global warming and as a human ecologist, I’m more interested in human society and how human societies work over time, which is again, based entirely on energy and energy resources. Even if global warming turns out to be not much of a problem, we will in any case, inevitably, from what I can see, be facing the problem of oil depletion and the effects of oil depletion on our societies, both in terms of the industrial infrastructure and in terms of the geopolitics and war and peace could end up being far more consequential than global warming.

Laws of thermodynamics

JP: Before we get into some of the specific issues in your book, if you were to explain the laws of thermodynamics and their importance for understanding energy.

RH: Yes, great question. The laws of thermodynamics were worked out in the 19th century and basically there are two: The first is that you can’t create energy from nothing. There’s a certain amount of energy in the universe – nobody knows exactly what energy is but we know that that’s what makes things work. If you as a physicist what energy is, he or she would say, it’s the capacity to do work. Nothing happens without energy. And the amount of energy in any given system ―if it’s a closed upper isolated system, is fixed.

The other law of thermodynamics is that even though the amount of energy is fixed, it will tend over time inevitably to degrade so that it becomes less concentrated and available and usable. This is the law of entropy.

Anybody who’s tried to keep an old car on the road or tried to keep a house clean knows about the law of entropy. Things tend to gradually fall apart unless you expend energy in putting them back together or keeping them together. So what this tells us is there’s basically no free lunch in life.

In ancient times, in the ancient agricultural civilizations of Rome or Egypt or whatever, if the wealthy elites wanted to improve their standard of living, it was at the expense of the lower classes who had to work harder and extract more resources and so on.

We’ve had a very unusual situation in the last couple of hundred years with industrial societies. Industrial societies have been able to access more energy per capita without anybody really having to pay the price for that because there was this huge bounty of fossil fuels leftover from early geological times. And so the ruling classes, if you will, the wealthy elites were able to vastly improve their standard of living. Meanwhile the lower classes, middle classes, and producing classes, were also able to maintain or raise their standards of living at the same time.

This is a unique situation in the history of human societies and it has resulted in the calming of class conflicts that have torn many previous societies apart. But it looks like we’re getting a free lunch. It looks like we can always expect more of the same in the future. You and I and everyone who’s listening to this program have grown up in a society that was constantly growing, where we could always expect a higher standard of living from one year to the next because there was more energy available per capita each year. We’re coming to the end of that time, not because anybody wants it to be that way, but just because of the basic laws of physics.

The seemingly free lunch that we got from nature’s bounty’s past is just about eaten up. We’re not going to be able to make up for that shortfall through any kind of magic wand like nuclear fusion or anything like that. We’re just going to have to face the fact that from now on we’re going to have to live much more on the basis of yearly solar income like people did for thousands of years up until the Industrial Revolution, rather than relying on this finite supply of exhaustible fossil fuels.

Energy & Carrying Capacity

JP: Let’s move on in terms of the role of energy in terms of how it is important in determining, let’s say, the earth or economic carrying capacity, because one aspect of the Industrial Revolution is more people moved off the farm, they moved into the city. It took less of the population to farm, more people were able to go and work in other jobs. Not only that, life spans have expanded throughout the last 100 years. There’s a whole host of issues that have come up. Explain the role of energy in this carrying capacity.

RH: Right. Up until the Industrial Revolution the population of humans on planet earth had never exceeded 1 billion. In fact, for most of our several million years on earth we humans have numbered even less than 100 million. Between 1800 and 1820 our numbers surpassed 1 billion for the first time. Now we’re up to 6.3 billion humans, and that’s just over the course of 200 years. It took us hundreds of thousands of years to get up to 1 billion and 200 years to move from 1 billion to 6.3 billion.

That’s an extraordinary rate of increase. If we saw this in any other life form, we would call that a population bloom. That’s an ecologist’s term. You can see a population bloom, for example, if you put some yeast in a vat of wine or grape juice. The yeast will wildly proliferate. Of course, the waste product of the yeast, one of them, is alcohol. That’s how you make wine. But eventually the waste products of the yeast begin to smother the yeast themselves and the microorganisms themselves die off.

Typically in ecological situations where you have population bloom, it’s followed by population using up whatever temporary resource abundance has caused the population bloom and the population begins to die off. With human beings, what caused our population bloom, without a doubt, was the access to fossil fuels and this huge energy input into our societies. We were able to, for example, fuel tractors to run instead of farm animals. Now farm animals had to be fed and so any given amount of cropland, something like a quarter to one third to one half of it had to be set aside to feed horses and mules and oxen and so on, to pull the plows.

Well, we don’t need that anymore because the fuel to farm all that land comes now from underground, from fossil fuel reservoirs. So that increased the amount of arable land by one quarter to a third to a half right there.

Then food distribution increased dramatically; whereas before food had to be grown locally, now food can be transported long distances. The average plate of food the American sits down to these days has traveled something like 1,300 miles. So it’s perfectly practical to put 10-15 million people in Los Angeles where the available land and water couldn’t possibly grow food for that many people, or Phoenix, Arizona, cities like this where if the people in those cities had to rely upon local resources, they wouldn’t be able to sustain themselves. But we’re able to transport those resources to them, and thereby increase the human carrying capacity of those regions dramatically.

Also, the Haber Bosh process was invented in the early 20th Century. The Haber Bosh process uses fossil fuels, initially coal but now natural gas, to make nitrogen fertilizers. With the Haber Bosh process human societies have been able to make nitrogen fertilizers that are equivalent to the amount of nitrogen produced by all of green nature and lightening strokes and all the other natural sources of usable nitrogen. In other words, we’ve doubled the amount of usable nitrogen in the biosphere through the Haber Bosh process. So that has extraordinarily expanded agricultural productivity. Altogether, we have created the means for subsistence for well over 5 billion people who otherwise would not be able to exist today, and all dependent upon fossil fuels.

Resource Depletion & Prosperity

JP: Explain the costs of the drawdown in the danger that we now find ourselves in.

RH: Drawdown is the strategy of using an inherently exhaustible energy resource and it’s a strategy that we human beings have only hit upon in the last couple of hundred years. Prior to that time we were using inherently renewable resources like wood, like animal and human muscle. Once we discovered first coal and then oil and natural gas, we found resources that were vast, incredibly useful and seemingly extraordinarily abundant, that enabled our populations to expand dramatically as I was just describing a moment ago. But those resources are being drawn down. In other words, we actually started running out of oil with the very first barrel pumped. We started running out of coal with the very first coal that was mined. These are resources that cannot be replaced in any time scale that is meaningful to human beings. So we’re basing our population and our social and economic activity these days on the drawdown of non-renewable resources and that’s extraordinarily perilous and meaningful.

JP: I wonder if you would might explain or give a brief history of how energy played a key role in bringing about American’s prosperity and success. I’m watching a documentary series on World War II and it was hard to believe that during World War II the U.S. had so much oil that we were actually supplying all of our Allies with oil and that were indeed the world’s largest exporter. Now we’re the world’s largest importer of oil.

RH: That’s right. And that’s the story of America’s rise to power and it’s likely to be also the story of American’s fall from power, I hate to say. The United States was in a very advantageous position throughout the 19th and 20th Centuries with regard to energy resources. During the early part of the 19th century, America largely grew rich on an agricultural base using muscle power from imported African slaves and also the U.S. had immense tracts of forests that could be used for wood. Up until the 1880’s locomotives were running on wood, riverboats were running on wood, and most of our energy budget was coming from either wood or overwhelmingly from, as I said earlier, from human and animal muscle power.

In the 1880’s, coal began to take over and lo and behold, the U.S. had huge coal deposits as well, rivaling and exceeding those of any European country. In 1859, oil was discovered in Pennsylvania. The U.S. very quickly became the world’s leading producer of oil – Standard Oil Company was founded very soon after that and became the world’s leading oil company. The U.S. was not only the world’s leading oil producer, but also the world’s leading oil exporter for decades after that.

Oil had been a number of advantages over coal. Oil was easier to transport, it was more energy dense, and cheaper, and more convenient to use. So as industry gradually began to take advantage of oil, we saw the U.S. really becoming the world’s foremost industrial nation.

The automobile industry took hold and grew in this country far more rapidly than in any other country in the world. The airline industry began here and again spread to the rest of the world, but always with its center, its hub, in the United States.

In World War I, it was just discovered what an important substance oil was. For the first time battleships were running on oil, tanks were invented, aircraft played a role in warfare for the first time. The U.S. was supplying oil to the Allies and Germany essentially lost the war because it ran out of gas. The Germans were seeking oilfields in Rumania and were cut off from those and from that point on it was just a question of time before they ran out of oil with which to pursue that war. From that time onward, countries around the world, U.S., Germany, Britain, Japan, have all regarded oil as the primary geo strategic resource.

So that being the case, the U.S. was sitting pretty, because we had the world’s largest supplies at that time and more oil wells were drilled in the United States during that time than in the whole rest of the world put together. Now oil discovery in the United States peaked in the 1930s and oil production peaked in 1970. This was a truly momentous event because very few people were prepared for it. There were only a few petroleum geologists, principally M. King Hubbard, who foresaw the U.S. oil peak, and perhaps we can talk more about him later. Virtually everyone else was caught by surprise by this. From 1970 onward, the U.S. has had to import more and more and more of its oil until now we’re importing 60% of our oil.

From being the world’s foremost creditor nation, from exporting much more than we imported, from lending money to other nations, the U.S. is now in the position of being the world’s foremost debtor nation. We import much more than we export. Our balance of trade is overwhelming negative. This is not entirely due to, but it’s very closely related to the fact that we have peaked in our own oil production and we will never see those days again.

Energy Policy Drives Economic & Other Policy

JP: I wonder if you might explain how this decline in our oil capacity or production capacity and the increase in imports is now driving…. Let’s say how energy policy is driving U.S. economic, political, and perhaps military policy.

RH: In 1973 there was a politically motivated oil embargo against the U.S. organized by the Middle Eastern countries of OPEC. This was the first time that oil had been used essentially as a weapon.

This I think was a tremendous wakeup call to the geopolitical strategists in Washington. From that time onward, the Middle East has been a place of extreme interest to U.S. policy planners. It had been before that, of course, too, ever since 1945 when Franklin Delano Roosevelt met with King Ibin Saud and hammered out an agreement whereby the U.S. would maintain the House of Saud in power in Saudi Arabia in return for Saudi Arabia’s maintenance of U.S. dollar as their currency of account in return for selling their oil on world market only for U.S. dollars. Ever since then in 1945, there’s been recognition of the geopolitical importance of the Middle East.

Since 1973 that recognition has become very much sharpened. The first Gulf War in 1991 was very much about asserting U.S. power and dominance in the Middle East. The current war is really, I think, from an historical standpoint, we’ll see the 1991 Gulf War and the current invasion of Iraq as one historical continuum as two phases of a single war. The objective this time, unquestionably is again, to do with the geopolitical control of the resources in that region. It is not to make U.S. oil companies rich as some people on the left have said. I think that’s ridiculous because most of the executives in major oil companies actually are not pretty excited about the invasion at all. They rather not see it happen because they would prefer to see stable oil prices and political stability in the Middle East.

But I think the people with the longer view see that instability in that region is inevitable in any case, and in order for the United States to maintain its way of life and its disproportionate share of global resources, the economic card that the U.S. has relied on up to this time is growing weaker by the day. The U.S. economy is inherently very weak for a number of reasons and other powers in the world, particularly Europe and China, have also very powerful and growing resource needs. So I think many of the geopolitical strategists in Washington see it as in the long-term interest of the U.S. to project its dominance in the region now militarily because the economic dominance is no longer the case. I think personally that it’s exactly the wrong approach and it’s likely to have horrific consequences in the long run. But it appears to me that oil geopolitics is what’s driving the decisions in the White House right now.

JP: I wonder if you might explain why we did not learn, for example, from the crises that we faced in the 70s. During the 70s it was a political crisis but it was a warning. But we downsized, Detroit started making more gas efficient cars, we started using insulation in the homes, and so we started being more energy conscious. Now, a lot of people drive SUV’s – it’s the most popular selling vehicle, we have cars that consume and burn more gasoline – fewer miles to the gallon. Why didn’t we learn from that crisis, because we had an energy crisis in 2000-2001, and here we are in 2003 with gas prices here in California at some pumps at almost $2.50 for premium?

RH: That’s a great question. I wish I had a rational answer for you. I think this whole period of history is going to be seen in retrospect, the last 30 years, as a period of lost opportunities. In 1973 we became aware of the finite supply of oil in the world and we became aware also that supplies in the U.S. in particular, were limited and we are dependent, therefore, on the rest of the world for our energy resources.

And as you say, there were tremendous efforts put forward then toward energy efficiency. Jimmy Carter actually made some remarkable statements in those days about how dependent we are and how important it is, therefore, to conserve. Here Jimmy Carter from 1976 says, “We must face the prospect of changing our basic ways of living. This change with either be made on our own initiative in a planned way or forced on us with chaos and suffering by the exorable laws of nature.” That’s an extraordinary thing for an American president to have written.

I think he hit the nail absolutely right on the head and he was voted out of office because another politician had a more palatable message, which was that it’s morning in America – we don’t have to worry about resource shortages – there’s always going to be enough. We’re Americans, after all, and we deserve this amazingly fast pace, wealthy way of life. Just because we’re smart and good and God is with us.

That was a popular message, an easy message to sell, but it’s absolutely a deadly message for us now, and for our children and grandchildren because we’re going to be living with the results of that change that was made in 1980. Whether you’re a Democrat or a Republican, the fact that we have turned away from energy efficiency and are gobbling up these limited resources and undermining the ability of our children and grandchildren, even to survive. I don’t think we’re going to win any popularity contests with our descendents on that basis.

Industry Changes

JP: I wonder if you might relate this to the financial markets today where we see in the oil industry itself where the majors investing less money. They’re sitting on large amounts of cash from Exxon Mobil to BP, Amoco, to Royal Dutch Petroleum, and we’ve seen this merger wave sweeping the industry, where Exxon bought Mobil, BP bought Amoco, and then Atlantic Richfield. You have Total Fina buy… you just see one company after another gobbling up other companies.

What does that tell us? It tells me that the industry’s contracting.

RH: That’s exactly right. Rex Tillerson, who’s the senior vice president of Exxon Mobil which is the world’s largest oil company, just a few weeks ago told a gathering at the Institute of Petroleum that the oil industry will have to invest something like 100 billion dollars a year in exploration in order to meet demands for oil product for the coming decade. Now that’s a rate of investment that’s something like 10 times the current rate. And he didn’t even speculate where that kind of investment capital might come from. Tillerson of course didn’t use the word “peak”, peak oil, peak production, but what he’s talking about is exactly that. You can only boil down to peak and global oil production. I think there’s some interest in the oil companies to establishing some rights to some of the R & D money that’s inevitably going to be spent in production of renewables but mostly what they’re doing right now is, as you say, just consolidating the resources that they already have ―the bigger companies buying out the small ones and buying up the reserves because they can see the end of the road in sight.

Informing the Public

JP: There have been a number of Cassandras, but there was one individual in particular, a petroleum geologist, King Hubbard, who predicted the decline in U.S. production in 1970. He hit the nail on the head.

RH: Right.

JP: There have been others that have followed in his wake. Why is it that, for example, we still have today the politicians and many others ignoring the Cassandras and yet here we are today, in March 2003, finding ourselves in another energy crisis? We’ve got motorists screaming at paying over $2 at the pump, we’ve got rising utility bills, rising heating bills; everywhere you look we’ve got this problem.

RH: Right. Well, the people who are giving us the straight information are generally not the ones who are associated with large institutions that have a financial stake in the outcome. These are the independent petroleum geologists like Colin Campbell, Jean Laherrere, Walt Youngquist, and Rich Duncan and so on.

The people who actually in the industry or in the government, the United States Geological Survey, Department of Energy, and so on, all pretty much have to keep their mouths shut. The USGS, for example, has given out official projections of global oil supply for the next 25 years that are really absurdly optimistic. And of course, that’s an official government agency so naturally, when congress people or the President makes policy, who do they look to? Well, they look to the Department of Energy and the USGS. But it’s a circular situation, you know. It’s like the emperor hires the spies to go out and find the information and the ones that come back with bad news get killed and so all the emperor ever gets is good news. That’s exactly the situation we’re in. The USGS failed to foresee the 1970 peak in U.S. oil production and it’s utterly failing to see the global peak in production that’s within the next 5-12 years.

JP: Now we’ve got a lot of other voices concerning energy and you address some of these in your book that take less of an apocalyptic view towards energy. You’ve got Peter Huber, Bjorn Lomberg, that are skeptical of this oil depletion or running out of energy. You did take on each one of their issues. Why, in your opinion, do you feel these people are wrong?

RH: These folks have a number of different arguments. I can just address some of them here – it would take too long, probably, to go through all of them. But let’s look at what some of them are

First of all, they tend to take the reserve increase announcements of different oil companies and exporting countries at face value. That’s kind of dangerous, actually, because many of these reserve reports are politically motivated. For example, back in 1987 OPEC changed the rule to say that each OPEC country’s market share would depend upon its reported reserves. So the OPEC countries were motivated at that point to increase their reserves. Well, in actual fact, not that much new discovery was taking place but nobody was looking over their shoulders either, so all of the OPEC countries within two years showed dramatic increases in reserves, something like 50 to over 100 percent increases in their oil reserves. That was without much discovery taking place. How could that happen? Well, it was all on paper. But the oil optimists just take that at face value and say, “Well, yes, that oil is in the ground.”

Another thing they say is that there are huge amounts of unconventional oil, what’s called shale oil and heavy oil, and they’re absolutely right. There are huge amounts of the stuff in Alberta, so called oil shale. There’s enough to power industrial societies for at least a couple hundred years in the future ―theoretically. But that theoretically is pretty significant in this case, because it turns out that shale oil is extremely difficult and costly to extract. Even with all of the technological improvements that can be imagined, it’s going to cost something like a barrel’s worth of oil to produce a barrel’s worth of oil. And also, production of shale oil uses huge amount of fresh water so it’s an environmental catastrophe. And it also uses a lot of natural gas and natural gas is becoming more scarce in Alberta and Canada in general.

So are we going to see 200 years’ worth of cheap oil from shale oil in Alberta? Very, very unlikely. The same thing with the other unconventional energy sources that the energy optimists like to trot out.

The reason we’re using conventional oil right now overwhelmingly, is because that’s the stuff that’s cheap and easy to get at. We’re at about half way through nature’s endowment. We’ve used about a trillion barrels and there’s about a trillion barrels left to use. It sort of makes sense. If you’re exploring for and pumping oil, you’re going to want to get at the stuff that’s easiest to get and that’s of highest quality first. That’s the stuff you’re going to look for first. And it’s only when that stuff is gone that you’re going to go after the stuff that’s kind of nasty and difficult and expensive to get out. That’s the situation we’re in, the light sweet crude, the stuff that’s under pressure under ground, so all you have to do is stick in a pipe and it just comes to the surface by itself. That stuff is getting harder and harder to find and more and more what’s leftover is stuff that is good for making asphalt roads, basically. It’s not quite to that point yet but within the continental United States, for example, it costs about a barrel of oil to explore for and drill a new oil well. It costs a barrel of oil’s worth of energy for the energy that will come from such an enterprise. In other words, it’s not worth doing. And we’re going to be approaching that same situation in many other oil provinces around the world.

Alternative Energies

JP: What about some of the alternatives to solving the energy crisis? You mention natural gas, and even that has gone into decline, but let’s take windpower, nuclear power, solar energy, hydrogen, geothermal power. Do we have enough alternative sources, and is there any one that’s in abundance that can replace, let’s say, the energy we get from fossil fuels?

RH: In a word, no. Let me go into a little bit more detail about that, though. I’m a big advocate of solar and wind. I have photovoltaic panels on my roof right now that are generating energy even as we speak. I drive my car which is a diesel Mercedes on stuff called biodiesel which is made out of vegetable oil so I don’t actually use petroleum to get myself around, at least not directly.

But I’m a realist about these things. The fact of the matter is that solar and solar photovoltaics and wind account for a tiny fraction of one percent of our national energy budget right now. So that means in order to ramp up production of energy from those sources to meet the shortfall from fossil fuel as those peak in production, will take immense amounts of research, development, manufacturing of infrastructure and so on and that’s not happening.

President Bush said he was going to devote 1.2 billion dollars to hydrogen research in his State of the Union Address, but most of that will go to hydrogen made from nuclear electricity and from hydrocarbons. Most hydrogen made right now, actually virtually all commercial hydrogen is made from natural gas. So the development of renewable alternatives simply isn’t taking place at nearly the rate that will be necessary in order to make up for the shortfalls.

Nuclear has the unsolved problem of storage and elimination of nuclear waste. Also, nuclear plants are extremely vulnerable to terrorist attack and the whole nuclear industry has just been an environmental catastrophe on a number of fronts. Mining of uranium in Native lands in this country is just a history of atrocity after atrocity. So I personally think that nuclear would be absolutely the wrong way to go.

There’s also the question of net energy analysis which not many people know much about but is extraordinarily important for answering the question of what alternatives we should be going toward.

It costs energy to get energy. In other words, in order to explore for or drill for oil, you have to expend energy. But in the case of oil, the amount of energy you get back from the oil that you find and pump, is vastly greater, typically, than the energy it costs you to find it. With many of the alternatives, the energy profit is not nearly as high. With photovoltaics, for example, it costs energy to manufacture photovoltaic panels and the amount of energy payback from the photovoltaic panels once they’re manufactured, even over the years and years that they’re going to be sitting on somebody’s roof, is not nearly as great as the energy payback that we’re accustomed to from fossil fuels. And in the case of nuclear, that energy payback is not very great considering the immense energy outlay in first of all, building nuclear plants, mining and purifying uranium, then decommissioning plants and storing radioactive waste for decades, centuries, and possibly millennia. It turns out that windpower has pretty good energy return on energy invested so windpower is probably one of our best alternatives. But again, we’re so far behind in implementing windpower that it would literally take hundreds of billions of dollars in investment to ramp up windpower to meet the energy shortfall that we’re going to be seeing from oil and natural gas and nobody is contemplating that level of investment.

Looking Ahead

JP: Does it take actually, Professor, a crisis? I mean, we had an energy crisis in 2000, here we are in 2003 with another energy crisis facing us, maybe not in the power sense but certainly motorists and those paying their heating bills on the East Coast are seeing that. Does it take a crisis where you actually have market mechanisms that move into place with rising prices that it suddenly dawns on them that perhaps there’s an incentive here to go out and do something.

RH: Unfortunately, I think so. We’re seeing a natural gas crisis unfold before our very eyes right now. U.S. natural gas production is down; we’re importing something like 16% of our natural gas from Canada. And now the Canadians are finding it more and more difficult to maintain natural gas extraction at a rate sufficient to supply their own needs plus those of the U.S. Natural gas prices are near record levels right now and natural gas in storage is at near record low levels.

Now the situation with natural gas is that it is difficult to transport natural gas safe from the Middle East to the U.S. There’s lots of natural gas in the Middle East. There’s a fair amount in the North Sea, and so on. But it’s very difficult and expensive to get it here. So we’re largely limited to supplies that are available in North America.

As the natural gas in storage reaches very low levels, what happens is the pressure within storage caverns and the distribution lines begins to decrease. If the natural gas pressure levels decrease significantly, then the whole system goes down. So in order to keep that from happening, the administrators of the natural gas system systematically cut off some of their large industrial users and the industries they cut off first are the fertilizer manufacturers. Already, right now most of the fertilizer manufacturing companies in North America are sitting idle or operating at a fraction of their production capacity and this will have impact on agriculture for the coming growing season and therefore on food prices.

We’re really at the early stages of this natural gas crisis right now because everything depends on whether storage during the summer season can be brought up to normal levels as we go into the drawdown season of the winter where a lot of natural gas is used for home heating. If those storage levels can’t be brought up to somewhere near normal levels then next winter we may actually see real natural gas shortages that would result in power outages, brownouts, blackouts, and so on. Does it have to get this way before people wake up and realize what is going on? Unfortunately, that’s what I see happening.

JP: So basically, we’re going to have to have another energy crisis? Perhaps this summer we’ll see gasoline prices approach levels that maybe what others in the rest of the world such as in Europe or maybe in Asia are paying for gasoline, before we wake up. Don’t you feel, Professor, that eventually politicians run out of excuses? You can’t just blame it on the greedy oil companies anytime there’s an energy crisis. I mean, you start running out of scapegoats.

RH: Yes, absolutely. And I’m just waiting for some politician to step forward and first of all, educate him or herself as to what’s actually going on here, and then tell the public. So far, I don’t see any indication of any politician from either party being willing to do so. You know, it’s actually pretty hard to run out of scapegoats, whether it’s the oil companies or the terrorists or the Middle Eastern countries, or you name it. I think we’re going to run through a long list of scapegoats before the chickens come home to roost on this one and somebody stands up and says, “Hey, look folks, the party’s over.”

JP: I just wonder, I guess, does the public finally wake up? I can recall it was the late ‘60s, ‘70s, as a student, getting gas at 12:00 at night because of the gas rationing during the oil embargo. But there was a period of time where people just got tired of it, they got sick of it, we had brownouts back east. Finally, the market mechanism began to move. Detroit got the message that people wanted more gas-efficient cars, home builders began to put more insulation, we began to conserve. People got tired and the markets responded. Could we perhaps have the general public get tired of excuses from politicians and perhaps encourage somebody like a politician to take the kind of response?

RH: Right. That’s what I’m hoping for. That’s what I’m trying to provoke by putting out this book. I think it’s hugely important that the general public becomes aware of these issues because if the leaders aren’t going to lead, then I think the people need to lead and maybe then the leaders will follow.

I’m hoping that it will become an open secret that in fact, fossil energy resources are becoming scarce because it’s got to result, first of all, in changes in individual choices. People deciding on an energy-conserving way of life and demanding recognition from officials that this is what’s happening and that we need to engage in coordinated social response. Even if all of the individuals in the country were to start to undertake more conservative energy choices, that would be great but the fact is that our whole industrial infrastructure is incredibly inefficient right now, and based on the assumption of limitless fossil fuels. Individuals have limited ability to make the policy decisions that go into designing the future industrial infrastructure of our society. So there are some decisions that can only be made by people at the top of the power pyramid and so we have to get to them. But I think the way we’ll get to them is first by changing millions of individual minds.

JP: A couple of final questions: If you were to have one concept that you would like to deliver to readers of your book, what would you want them to extract from it?

RH: I would hope that they would understand that the increasing scarcity of fossil fuels will have an impact on our way of life whether we like it or not, and that blaming other countries or the oil companies is futile.

We are at an historical juncture right now that none of us have ever seen before. We’ve all lived and grown up in a period of industrial growth based on expanding fossil fuel availability. Now as fossil fuels begin to become less available that way of life is gradually going to come to an end and we are going to have to scale back our way of life commensurately.

We have basically two options ahead of us for the coming century: On one hand, we could decide as a people that our American way of life is non-negotiable as some of our political leaders have been telling us and it’s our God-given birthright to drive SUV’s and so on and therefore if our oil happens to be under somebody else’s sand, that’s too bad – we have the biggest guns and the biggest bombs and therefore it’s up to us to take what is ours from whoever has it. I think if we follow that path to its logical conclusion the end result will be universal destruction.

On the other hand is the possibility that we could recognize the situation we’re in, choose to join with other countries in a voluntary process of resource conservation and sharing and in a deliberately coordinated way, power down our industrial way of life, find more efficient and more local ways of meeting basic human needs. That’s going to be painful too. There’s no easy way out of this situation in which nobody is going to feel any pain. But over the long run, that at least has the possibility of peace and survivability, whereas the “winner take all” solution might buy us another 5-10 maybe at the outside 20 years of our precious American way of life, but in the long run, I just fear for future generations, if there even are going to be future generations if we take that path.

JP: Are you optimistic or pessimistic as you have done the research for this and coming from more the environmental side, is it somewhat strange to find yourself siding with the geologists?

RH: With petroleum geologists? Yes. It’s been very interesting, you know, because I meet and I talk with these people and they are people, as I said earlier, who spent there entire careers working for the oil companies. You know, these are some of the nicest people I have ever met. They are extraordinarily generous with their time and I think it’s because they realize what’s at stake. They have a better idea than virtually anybody else where we are and what’s really at stake right now.

Am I optimistic? I think optimism is the only functional attitude to have in life and pessimism will never really get you anywhere. If I had to bet on which way things will go, I would have to bet that the next century is going to be a very difficult time to live through. As many challenges that we’ve had during the 20th Century with two world wars and the Cold War and so on, I think the 21st Century is going to hold far, far more challenges. But I believe we have to maintain an optimistic and a hopeful attitude in order to get ourselves through this. And I think with a proper frame of mind and the willingness to change, we could arrive a century from now in a situation where human beings are happier, and the environment is better off than in the situation we’re in right now.

I think human need are pretty universally the same. We want to live in safety and in relative comfort but wealth is not so much important to us as the qualities of our relationships and our ability to feel secure in our relationship with the world and natural environment. Those kinds of needs I think can be met on the basis of a much lower material throughput in society and they will have to be. I think if we keep cool heads, remain optimistic and make good choices, our grandchildren could be living in a very beautiful world, and I hope we make it there.

JP: All right, Professor. I want to thank you as always, for joining us on the Financial Sense New Hours. A very thought-provoking book. I have to admit, when I first heard about it I thought about somebody writing about oil as an environmentalist – do I really need to read that? But once I got into your book, going through and taking a look at the bases for many of your arguments I found myself agreeing with you on so much of what you’ve written.

RH: Well, thank you.

JP: I want to thank you for joining us. The name of the book is called, “The Party’s Over”. It’s by Richard Heinberg, “The Party’s Over: Oil, War and the Fate of Industrial Societies”.