[R-G] [BillTottenWeblog] The Slope of Dysfunction

[Bill Totten]

by Dmitry Orlov

ClubOrlov (June 25 2009)


Perhaps you have heard of the Peak Oil theory? Most people have by now,
even the people whose job used to involve denying the possibility that
global crude oil production would peak any time soon. Now that everybody
seems a bit more comfortable with the idea, perhaps it is time to
reexamine it. Is the scenario Peak Oil theoreticians paint indeed
realistic, or is it firmly grounded in wishful thinking? Here is a
typical, slightly outdated Peak Oil chart:
http://4.bp.blogspot.com/_-b-kpMH_7eM/SkPM7WCJyMI/AAAAAAAABH4/fAuXdxa0IP8/s400/PeakOil.gif

I chose it because it looks pretty and conveys the typical Peak Oil
message, which is that global crude oil (and natural gas condensate)
production will rise to a lofty peak sometime soon, and then drift down
gently, over several decades, until, by the year 2050 or some other
distant date, less than half as much oil will be produced globally. Since
this would still be a very impressive number, and since we have decades to
adjust to living with half as much oil, this would not necessarily pose a
major problem. Some combination of new energy from wind, solar, biomass
and nuclear sources, coupled with efficiency improvements such as light
rail and electric cars, better-insulated buildings and so on, would allow
us to plug up the gap.

Peak Oil theorists base their calculations on data from the many
oil-producing provinces that have already peaked, such as the United
States, which peaked in 1970. The majority of oil-producing provinces and
countries are past peak now, providing the theorists with a wealth of
precise data. But they seem to have overlooked one little detail, which, I
believe, is rather important. What do countries do when they reach their
peak and can no longer supply themselves with sufficient quantities of oil
from their depleting domestic sources? They turn to imports, of course.
They can do so if their local peak comes before the global peak; they
cannot do so if it comes after. This makes local peaks poor analogies for
the global peak.

And what happens if a country cannot import oil to make up for the
production deficit? It just so happens that we have a convenient example
of just such a scenario unfolding: post-Soviet oil production after the
collapse of the USSR. There, production declined 43% between 1987 and
1996. The decline was arrested and reversed by the introduction of foreign
investment and technology (Source: Marek Kolodziej and Doug Reynolds, ASPO
Workshop, Lisbon, Portugal, May 19 2005).

Note how just around the time of the collapse oil production goes into
free-fall, which is only arrested in mid-1990s. Had the Former Soviet
Union remained economically isolated, the free-fall would have continued.
Kolodziej and Reynolds drew some interesting conclusions based on these
data. Firstly, the crash in oil production preceded collapse in USSR's
Gross Domestic Product. The lag time between the two, and the severity of
the collapse are clear enough to ascribe causality: to say that the oil
crash caused the economic collapse. On the other hand, coal and natural
gas production, which also crashed, did so after the GDP collapsed, again,
with a significant enough lag time to say with confidence that it was
economic collapse that caused coal and gas production to crash.

What actually happens to an economy and a society under such
circumstances? With oil in short supply, industrial production plummets,
the economy stalls, there is a financial crisis because of debts going
bad, followed by a commercial crisis because of falling demand and lack of
credit, followed by political collapse caused by dwindling government
revenues, followed by social collapse as unemployment rises and crime
becomes rampant. After a while of this, the idea of you and your friends
going out to the oil field and pumping some more oil starts to seem rather
odd, and so oil production heads to zero.

The global oil peak is different from all the little localized peaks in
that the planet as a whole cannot import its way out of an oil shortage,
resulting in a global economic collapse. The economic collapse will, in
turn, cause global oil production to crash even faster, extinguishing the
industrial economy.

It seems possible that certain countries which are currently oil exporters
might be able to keep the oil flowing, provided they have nationalized
their oil production and are sufficiently authoritarian and militarized to
quell any unrest. But modern oil production is a technically complicated
business (the easy-to-get-at oil is all gone) while the field service
equipment and parts delivery system is fully globalized and exceedingly
complex. Shocks to any part of the global economy are very likely to
disrupt the whole before too long. Nevertheless, it seems likely that some
countries will be able to keep their military supplied with fuel, until
enough of their equipment wears out.

What, then, of our canonical Peak Oil scenario, which is that global crude
oil (and natural gas condensate) production will rise to a lofty peak
sometime soon, and then gently waft down, over several decades, until, by
the year 2050 or some other distant date, less than half as much oil will
be produced globally? Ever eager to present a hopeful vision, I will say
here and now that I believe this scenario to be entirely plausible ... but
it requires alien intervention. As Russian oil production was saved by
foreigners, so Earthling oil production must be be saved by aliens from
outer space. Here's an updated Peak Oil slide:
http://3.bp.blogspot.com/_-b-kpMH_7eM/SkPP2QB4d9I/AAAAAAAABIA/DYgyPgGWj8E/s400/russia_production.jpg

Although we have absolutely zero data on which to base this assumption, we
must assume that oil production throughout the rest of the universe has
not peaked yet. Further, we must assume that interstellar vessels will
deliver this oil to Earth in a timely manner, making up for any planetary
production shortfall before Earth's economy collapses. Further, since
Earth has few resources to trade for this oil, let us assume that the
aliens will be happy to give us their oil in exchange for a truly
excellent recipe for brioche a tete which (for reasons we should find
intuitively obvious) no-one in the rest of the universe has been able to
perfect.

Update: Click here for a special version for the Nihonjin care of Masayuki:
http://www.kanazawa-bidai.ac.jp/%7Emomo/orlov/The_slope_of_dysfunction_by_Orlov.htm

If you want to contact me directly, my address is my first name - dot - my
last name, at gmail.com. No spam, please.

http://cluborlov.blogspot.com/2009/06/slope-of-dysfunction.html


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