Thursday, April 19, 2007

Bumping Up Against the Walls of the Petri Dish

George Ure recently used the phrase "bumping up against the walls of the petri dish" to describe many of the resource issues that are becoming steadily more visible. These issues have been ongoing for a few decades but in very slow motion. Now, in the last few years, we seem to have picked up steam.

Tom Whipple over at the Falls Church News astutely asks The Peak Oil Crisis: Have the Troubles Begun? Tom dives into the current situation frequently and eloquently and all I can do is urge you to read his comments. The currently developing gasoline situation is not critical yet but we're running out of time to build summer inventories. Guess what happens if the inventories are insufficient? Also, as Tom noted, "Two weeks ago, as a number of observers pointed out, refinery utilization increased while gasoline production dropped. This may be a one-time glitch, or it could mean that sufficient quantities of light, sweet crude, that are optimal for making gasoline, are becoming difficult to find. If this is indeed the case, then the US has a problem of major proportions."

Meanwhile, more resource issues rear their ugly heads. In the state of Punjab, India they have been experiencing water table declines of 5o cm per year, which has increased to 74 cm per year in 2005. We are talking about 2-3 feet of lost water table per year. That's water that is not coming back for thousands of years, if ever. And there are over a billion people in India dependent on these waters.

In Australia the drought has reached crisis levels. They are now considering cutting irrigation to farm fields - the land that produces their food. Australia's cotton crop has crashed by 2/3rds, its grape crop has dropped by 30%, and it may not have a rice crop at all this year. Rice production had already plummeted in prior drought years from 1.6 million tons per year to 106,000 tons per year, a 90% loss. Australia is counting on the rest of the world to feed them while they hope to have enough water for basic human consumption.

Here at home the devastation due to the weird cold snap continues. In Arkansas, Governor Beebe declared 34 counties disaster areas because of crop loss due to last week's freezing temps. Almost every agricultural state has declared serious crop losses. Many states are rushing to replant but some crops cannot be replanted, such as fruits and nuts. And even with replanting, total production looks to be seriously down for vegetables and grains. Expect food prices to rise dramatically.

And drought in the US continues. Rather than talk about it, let's look at the map from the US Drought Monitor for April 17th (click to enlarge):

The US drought continues to worsen. Florida is getting into severe trouble as issues arise with Lake Okeechobee. It's probably worth pointing out that the geologic record strongly suggests that most of the central US is normally a desert. It is a cold dry desert during ice ages, up to the edge of the glaciation mass which typically stretches from San Francisco to Washington, DC. And it is a hot dry desert when global temperatures and CO2 levels are higher, as they were for much of the last 65 million years. We've constructed our entire national culture on weather patterns that exist for a few thousand years out of every million. Let's hope this is not presaging a return to "normalcy" in the weather, ok? In fact, the IPCC thinks this is the direction we are headed now, with Hotter climate ramifications 'faster, larger' than expected.

Oh, by the way, on the financial front the inflation rate news is bad, despite reports from the mass media. All the mass media report is the "core" rate, which ignores food, fuel, and other essentials. In effect, it is an absurd abstraction used to calm idiots in the markets. But the government does track other inflation numbers that are more realistic.

The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.9 percent in March, before seasonal adjustment, the Bureau of Labor Statistics of the U.S. Department of Labor reported today. The March level of 205.352 (1982-84=100) was 2.8 percent higher than in March 2006.

The Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) increased 1.0 percent in March, prior to seasonal adjustment. The March level of 200.612 (1982-84=100) was 2.7 percent higher than in March 2006.

The Chained Consumer Price Index for All Urban Consumers (C-CPI-U) increased 0.8 percent in March on a not seasonally adjusted basis. The March level of 118.953 (December 1999=100) was 2.5 percent higher than in March 2006. Please note that the indexes for the post-2005 period are subject to revision.

When you look at those numbers and annualize them you see something horrific - double digit inflation. The all urban consumer index is inflating at 10.8% annually. The index for urban wage earners and clerical workers is inflating at 12% annually. The index for all urban consumers is inflating at 9.6% annually.

These are truly horrific numbers yet they get ignored by the press. This is the heart of stagflation - declining production, declining or stagnant wages, and inflating prices. And things have not even gotten really bad yet.

George Ure's phraseology - "bumping up against the walls of the petri dish" - is apt for yeast. As Bob Shaw is fond of asking, "Are humans smarter than yeast?" So far the answer is a resounding "NO!" If you are not ready now for what is coming, this may be your last real chance to do anything at all. Do what you can, even if it is just buying excess food and storing it in your apartment. This summer and the other side of this summer might turn ugly if the world cannot significantly increase the oil supply. You may not use that food store this year, but if you regularly rotate it as the Mormons are urged to do, then you will be ahead of the game when troubles start. And if you can do more, then there's no time like the present, is there?

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.

Monday, April 16, 2007

The Population Bomb

I was reading The Oil Drum the other day and could not believe the delusional ignorance that was sitting in front of my face. People were all decrying the global oil production rates and any growth in them yet no one even raised one word about population, the underlying driver of all these issues.

You can check the numbers yourself. People believe the spew put out by the government about future population yet from 1980 to 2000 the growth rate was a 1.74%. From 1960 to 2007 it was a steady 1.66%. To reach 9 billion population by 2050, the governments of the world somehow assume that the growth rate of the population will magically shrink from 1.6% steady growth to almost down to replacement near 0.49% on a global scale no less! The US Census bureau postulates global growth rates as low as 0.5%, all of which flies in the face of the steady 1.6% growth we have actually seen.

Global population:
1960 - 3,040,617,514 -
1980 - 4,447,068,714 - 1.92% growth rate from 1960.
2000 - 6,073,265,234 - 1.74% growth from 1960!
2007 - 6,605,046,992 - 1.66% growth rate from 1960.

In 47 years we've seen the growth rate slow by 0.26%. If I slow the growth rate another 0.26% over the next 43 years (to 2050), we end up with a growth rate of 1.4% from 1960 to 2050 and that translates into 10.6 billion people on the planet. In order to achieve even the modest goals that the US census bureau suggests, we must cut the growth rate by more than a whole percentage point in less than 40 years, something that has never occurred in modern history.

Where do you think you are going to put 4,000,000,000 new people (in addition to the 6,500,000,000 already running around)? How are you going to feed them? Where are you going to get fresh water? Adequate housing? Where are you going to flush the sewage? Bury the trash?

This is positively delusional yet here most people sit thinking solely about peak oil, which you freely admit cannot grow much higher, yet you blithely ignore the population bomb ticking on planet earth.

The total casualties caused by WWII were roughly 72 million people, yet population grew over the intervening period from 1930 to 1950 from an estimated 2 billion to 2.5 billion. Even the horrors of the worst world war could not stop a 25% increase in population over the 20 year period encompassing the war.

Yet somehow, without war, without massive education (which is not happening), without police state tactics, global population growth is going to sink to near zero by 2050. And what happens if it doesn't drop to 1.4%? What if it stays near 1.6%? Well, we end up with over 12.6 billion people, that's what!

However, the delusion lives on. People ignore population growth as if it will go away of its own accord. But it won't. It won't go away til we achieve horrors that make WWII look like child's play. And it will go away. You can count on that, even if you refuse to prepare for that. Global population will begin to fall sometime within the next 40 years. I want you to try to imagine falling population. If WWII could not stop population growth, I want you to really try to imagine falling population, what that means globally, and what it might mean to you. Now, do you understand the predicament we are in yet?

Wednesday, April 11, 2007

What was Hubbert Trying to Do?

One thing we must remember in assessing Hubbert's original predictions is that they were not made in a vacuum. Alongside those predictions, Hubbert had data that indicated the maximum estimated URR (he used at least two values - 150 GB low and 200 GB high), the average annual rate of growth of consumption, and the total oil consumed by the date from which he was writing. Now what Hubbert did was extremely simple. He applied that rate of growth continuously to our oil consumption until the sum of prior oil consumed plus growing consumption equaled approximately half of the estimated URR. Using that date, he then predicted peak production in the US based upon that date. He repeated this exercise for a low URR estimate and a high URR estimate, giving him a bracket and then he made his prediction.

This is fairly simple stuff when you have an initial URR estimate and an average rate of growth that you do not expect to change drastically.

But what about Hubbert Linearization, as it is sometimes called? Well, this appears to be the result of a misunderstanding by Professor Deffeyes as to what Hubbert was trying to accomplish as well as what he actually did accomplish. Hubbert did not try to predict URR. Deffeyes does. This is one of Deffeyes' errors. An HL plot is not useful until it falls within the range of predicted high/low estimated URR. Thus, the URR estimate from an HL plot is not useful unless you have an estimated URR to bound the plot. In other words, it is my belief that all that an HL plot can do is confirm a prior estimate but it can't act predictively by itself.

Further, as Robert Rapier demonstrated, an HL plot can give lots of false positives, even if it is in the bounded range for URR. One thing that an HL plot does appear to do is confirm peak after the fact. HL gives hints about possible peaks, but by itself I don't consider it definitive. For instance, there are lots of people who believe we are at peak right now or very close (within a few years). Almost none of those people rely solely on an HL plot to arrive at that conclusion. Instead there is a large body of evidence, of which the global HL plot is just one piece. None of the pieces in isolation is "proof" and the entire body of evidence is circumstantial. But it is very strong. We are seeing Jeffrey Brown's "export land" model play out before our very eyes. Global discovery data is in a hard 40 year down trend. Reserve growth is starting to become reserve shrinkage as major reserves are reevaluated and restated, usually downwards. Despite record prices, production remains flat for nearly three years now, and indeed, peak C&C production was 23 months ago in May 2005. There is much much more as well and it all points to us being at peak or very very close, within a few million barrels per day tops.

So why is all of this important? Many of us believe it is important because so few people realize how integrated oil is into modern life and what a declining oil supply means. Those of us who do believe in peak oil also believe that our best chance to mitigate the bad effects is right now, not later. In short, many of us now speaking out do not want "mad max". No, we want to avoid it. But if society keeps its head buried in the sand, we may get mad max and even more.

Monday, April 09, 2007

The Saudi Arabia Story Continues

Stuart has been busy over at TOD lately, continuing to build up his picture of the state of KSA. Most recently there has been Water in the Gas Tank, then Further Saudi Arabia Discussions, and finally The Status of North Ghawar. What we have developing here is a picture of KSA dangerously depleted and facing significant declines, if not immediately then in the next few years. The old saying is that, as KSA goes, so goes the world and I believe that to be true.

It is important to remember that the 20 largest oil fields, out of roughly 50,000 total worldwide, produce over 20% of the total petroleum. Remember also that the 1% largest oil fields (507 total) produce over 60% of the total petroleum. All of the top 20 are in decline if Ghawar is now. Almost all of the top 507 are in decline. This means that 49,500 other fields produce 40% of the oil. To replace the top fields means we must find another 74,250 small oil fields to replace the top 507 oil fields. And that assumes no decline in any of the existing 49.500 fields, which is preposterous. If we posit that this replacement must take place over the next 20 years and that we must replace basically all of the remaining fields to even have no growth, then we need 123,750 new small oil fields. This means that we must find and bring on-stream 16 new oil fields per day, which is also absurd. Pretty clearly, we are going to have to turn elsewhere for our energy needs or they are not going to be met.

Meanwhile, oil prices are still acting weird. I'd even say they look manipulated, or at least WTI looks that way. When you notice that Saudi Arabia, Libya, and Gulf producers raising their crude price formulas then clearly KSA raising it the most just for the US, then KSA has realized that the spread is too wide too and are charging the US for it separately to bring us back into line. This also suggests that WTI is losing meaning as a benchmark crude oil price globally. But why would this happen short of deliberate manipulation by our own government to try to deceive the American consumer that nothing is seriously wrong?

All of this brings me to a slowly blooming fear - that we're finally on the front edge of troubled times and that problems are going to begin cropping up. I've said before that while I hope global civilization will survive, I certainly do not expect it and this may be the leading edge of the collapse in sight. We've got severe economic pressures, spurred by resource issues and which are now manifesting themselves in our housing bubble collapse (which is itself a desperate measure by Greenspan to prop up the market after it flopped on its belly post-9/11). It feels like we've got less than 24 months before trouble seriously bites us in the rear end. It could be as early as this summer if we see rationing and shortages. Pretty clearly I need to accelerate a few plans, though it's going to be hard to do.

If we're lucky, the decline rate of the oil fields will be modest enough that we can ride this out, at least theoretically. But if the decline rate is too high, then all bets are off.

P.S. Ace added Further Evidence of Saudi Arabia's Oil Production Decline as fuel for Stuart's KSA fire. I guess the question now is whether the decline rate post-peak will ultimately end up looking like Stuart expects, slow and steady, or whether Yibal is the model for most of the major oil fields produced with Enhanced Oil Recovery (EOR) techniques.