Wednesday, April 18, 2007

One Possible Scenario

I've been asked to write about what a society successfully mitigating against the multiple horsemen of the apocalypse might look like but I'm not quite ready to do that. However, I am going to give one possible view on where the US may be headed between now and 2010. In this discussion I am assuming that we will have a decline rate approximating Baktiari's decline rate down to 55 mbd by 2020. This works out to a fairly modest 3.3% annual decline rate over the next 13 years. Note that my prognosis for the rest of the world is far grimmer due to various other issues. I am also assuming that the positive feedback loops in climate change are aggressive and manifest in ways that few scientists are yet willing to admit. Some, like Lovelock, already are talking about this but most seem to fear going too far out on the limb that is cracking beneath us.

Given the above scenario, it would seem likely that gas shortages will begin to appear this summer. We will not pass to Baktiari's psychological shock phase in the industrialized nations or particularly the US yet though, because we collectively will rely on our historical memory of prior oil shocks. In other words, we will believe this is temporary and will blow over eventually. These shortages will turn into economic problems as price shoots up or into more serious shortages if rationing is imposed. However, I do not expect rationing yet in the US as of this summer. Recession should begin by the late year even in the government's own manipulated economic data. (Recession appears to already be present in data closer to reality.) Recession will bring job losses and further foreclosures. There will be capital flight from most stocks towards blue chips and bonds. This will give the illusion of a rising stock market but as has been discussed elsewhere, the DOW rising is purely an illusion unless measured in constantly inflating dollars. In short, all the normal responses to a typical recessionary environment will come into play.

However, if the production scenario continues as postulated above, then 2007 will show the first real decline from 2006 peak liquids (and 2005 peak C&C). This will set the stage for further economic contraction as the current generation gets a good dose of what happened in the 1970s. Inflation should rise dramatically outside of the absurd "core" rate and hit consumers very hard. But throughout 2007 things will remain largely peaceful because people will believe this is a short downturn before resuming our endless growth march.

Crop losses may be higher than expected due to the freakish weather, resulting in further inflation outside the "core" rate. Don't expect people to go hungry in the US but the first serious signs of hunger overseas will appear. Global grain stocks will be drawn down yet again for the 7th year of the last 8 (so far it has been 6 out of the last 7, reducing total surplus stocks from over 600 million tons to under 300 million tons). Given demand for grain-for-fuel, expect grain stock draws to be dramatic, perhaps above the roughly 60 million tons last year, maybe as high as 90 million tons, leaving us with barely 200 million tons of grain globally. And despite the drawdowns, the death rate due to starvation and disease enabled by poor nutrition will begin to rise overseas.

As 2008 rolls around the nation will be mired in recession and the stock market will take a hard fall in the first half of 2008 as people see the blue chips unable to produce value or restore economic growth either. The flight from the dollar will continue, with a collapse of the petrodollar being possible after such an event occurs. Unemployment will continue to mount with calls for massive federal programs to cover the unemployed. However, being unable to fund these directly, the government will resort to direct inflation to try to keep things afloat.

In 2008 we can expect to see widespread rolling blackouts/brownouts as attempts are made to keep people reasonably comfortable with the fuel available. Prices will either be in the $5-$6 range or price controls and rationing will have entered the picture by this time. Crime generally will be up, but especially petty thefts, robberies, and other acts involving taking material goods. Expect to see loss of connectivity begin in the electronic world as copper cable becomes a desirable and stolen commodity. Likewise with aluminum and steel, as people steal any public fixtures they can in order to earn a bit of cash, etc. Alcoholism and drug abuse will shoot up dramatically as well. The country will experience a hard turn to the left politically but this won't change anything. Expect to elect a Democrat as president with a Democrat controlled Congress as well. Promising to restore our future, they will sweep into office on the heels of Republican failures but will be unable to effect real change themselves. By the time 2008 draws to a close expect to see oil production fall to between 82.7 and 79.4 mbpd. The world will be experiencing a serious shortfall of 3-6 mbpd from prior peak production, nevermind any increasing demand.

As 2009 dawns the psychological shock begins to set in as oil production continues to fall, unemployment is officially acknowledged in double digits (and in reality is even higher) and inflation outside the core is in double digits. Factories are closing because people are just not buying goods. Violence begins as people are forced into temporary housing. Apartment owners are incensed as their properties are essentially confiscated by the government to house unemployed (and unpaying) tenants. Foreclosures continue to mount as more jobs are lost. Rural land is not buyable at any reasonable price. There is violence as protests against government inaction mount and police/protesters directly collide. The National Guard is called out in some cases but is unavailable in others as significant US National Guard assets are deployed overseas. FEMA declares certain areas disaster areas and imposes what amounts to essentially "martial" law. Private contractor forces are hired to maintain order, which leads to significant abuses within the system.

By early 2010, the US government admits that a depression is at hand and recommends "public works" projects to try to help jump start the economy, since it seemed to work last time. There remains widespread denial of peak oil even though there is clear evidence and production has fallen nearly 10% since it's former peak. "Above ground factors" is the excuse most commonly given, though most people no longer care and are simply living in fear for their jobs and homes. The economy tries to stabilize at this lower level of activity and the free fall slows down but does not stop. The mass media is now under presidential control so as not to disseminate stories that might scare the populace further. Public works projects begin but only a fraction of them get off the ground due to shortages of materials across the board. Another series of crop problems arises after 2 years of decent harvests, this time being a combination of weather and further honey bee CCD. Crop losses are high enough to trigger embargoes of shipping food overseas at all, while prices skyrocket. Food gets added to the ration list. Restrictions on travel are imposed. Mercenary police forces are granted wider powers. Health care is almost non-existent except for simple injuries or for the very wealthy.

At this point we are only 3 years into the post-peak decline. Between here and 2020, we lose another 20 mbpd of oil production globally. Global hunger becomes an acute issue but in the breadbaskets of the world - the Ukraine, the US, and Australia - people can still be fed, even if the diet is not particularly to their liking. Asia with its teeming masses of over 3 billion people starts to experience severe dieoff. Chinese and Indian populations begin to contract massively. Middle Eastern populations begin to rebel openly, seizing control and installing "religiously correct" governments, though this doesn't stop the continued decline. World population declines from 6.6 billion to 5.5 billion by 2020 between wars and resource contraints. By 2020, the US ceases to exist as an effective nation as various regions secede and form regional governments. The federal government, broke and unable to finance any actions anyway, is seen as a paper tiger. US forces are brought back home but the US military is so hollowed out that all that remains is the National Guard and Reserves, who are sympathetic to their regional governments. Lacking the money or the military force to preclude secession, the federal government essentially collapses. President Hillary Clinton steps down as the last president of the United States.

In this entire scenario I don't see oil as cracking $100 per barrel either or $200 per barrel in constant dollars by 2020. Demand destruction is offset by supply contraction leaving us with oil that slowly creeps forward in price as the have-nots simply do without. This begins to include large numbers of US citizens.

Now note that this is all hypothetical and presumes specific decline rates and a global peak of 2006. A later peak, different decline rates, and of course real events will play out differently. For instance, if vancomycin/methicillin resistant staph bacteria get loose, things will be far, far worse. And that's not a far fetched thought either. This scenario also presumes no further military action by anyone, which is also unlikely, so in that sense it's rather optimistic.

But for those that wondered, this is one possible view of the near future, if we have indeed peaked and the other horsemen of the apocalypse (drought, climate change, aquifer depletion, erosion, antibiotic resistant bacterial evolution, etc.) are at the door as well. Note that the end of this scenario does not necessarily mean things turn around as well. Further collapse can be expected due to ecological and energy issues.

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