Peak Oil: Life After the Oil Crash

Peak Oil is also called "Hubbert's Peak," named for the Shell geologist Dr. Marion King Hubbert. In 1956, Hubbert accurately predicted that US domestic oil production would peak in 1970. He also predicted global production would peak in 1995, which it would have had the politically created oil shocks of the 1970s not delayed the peak for about 10-15 years.

"Big deal. If gas prices get high, I’ll just drive less. Why should I give a damn?"

Because petrochemicals are key components to much more than just the gas in your car. As geologist Dale Allen Pfeiffer points out in his article entitled, "Eating Fossil Fuels," approximately 10 calories of fossil fuels are required to produce every 1 calorie of food eaten in the US.

The size of this ratio stems from the fact that every step of modern food production is fossil fuel and petrochemical powered:

1. Pesticides are made from oil;

2. Commercial fertilizers are made from ammonia, which is

made from natural gas, which will peak about 10 years

after oil peaks;

3. With the exception of a few experimental prototypes, all

farming implements such as tractors and trailers are

constructed and powered using oil;

4. Food storage systems such as refrigerators are

manufactured in oil-powered plants, distributed across

oil-powered transportation networks and usually run on

electricity, which most often comes from natural gas or

coal;

5. In the US, the average piece of food is transported

almost 1,500 miles before it gets to your plate. In

Canada, the average piece of food is transported 5,000

miles from where it is produced to where it is consumed.

In short, people gobble oil like two-legged SUVs.

It's not just transportation and agriculture that are entirely dependent on abundant, cheap oil. Modern medicine, water distribution, and national defense are each entirely powered by oil and petroleum derived chemicals.

In addition to transportation, food, water, and modern medicine, mass quantities of oil are required for all plastics, all computers and all high-tech devices.

Some specific examples may help illustrate the degree to which our technological base is dependent on fossil fuels:

1. The construction of an average car consumes the energy

equivalent of approximately 20 barrels of oil , which

equates to 840 gallons, of oil. Ultimately, the

construction of a car will consume an amount of fossil

fuels equivalent to twice the car’s final weight.

2. The production of one gram of microchips consumes 630

grams of fossil fuels. According to the American Chemical

Society, the construction of single 32 megabyte DRAM

chip requires 3.5 pounds of fossil fuels in addition to 70.5

pounds of water.

3. The construction of the average desktop computer

consumes ten times its weight in fossil fuels.

4. The Environmental Literacy Council tells us that due to

the "purity and sophistication of materials (needed for) a

microchip, . . . the energy used in producing nine or ten

computers is enough to produce an automobile."

When considering the role of oil in the production of modern technology, remember that most alternative systems of energy — including solar panels/solar-nanotechnology, windmills, hydrogen fuel cells, biodiesel production facilities, nuclear power plants, etc. — rely on sophisticated technology.

In fact, all electrical devices make use of silver, copper, and/or platinum, each of which is discovered, extracted, transported, and fashioned using oil-powered machinery. For instance, in his book, The Lean Years: Politics of Scarcity, author Richard J. Barnet writes:

To produce a ton of copper requires 112 million BTU's or the

equivalent of 17.8 barrels of oil. The energy cost component

of aluminum is twenty times higher.

Nuclear energy requires uranium, which is also discovered, extracted, and transported using oil-powered machinery.

Most of the feedstock (soybeans, corn) for biofuels such as biodiesel and ethanol are grown using the high-tech, oil-powered industrial methods of agriculture described above.

In short, the so called "alternatives" to oil are actually "derivatives" of oil. Without an abundant and reliable supply of oil, we have no way of scaling these alternatives to the degree necessary to power the modern world.

(Note: alternatives to oil are discussed in depth on Page Two)

"Is the Modern Banking System

Entirely Dependent on Cheap Oil?"

Yes.

The global financial system is entirely dependent on a constantly increasing supply of oil and natural gas. The relationship between the supply of oil and natural gas and the workings of the global financial system is arguably the key issue to understanding and dealing with Peak Oil, far more important than alternative sources of energy, energy conservation, or the development of new technologies, all of which are discussed in detail on page two of this site.

Dr. Colin Campbell presents an understandable model of this complex (and often difficult to explain) relationship:

It is becoming evident that the financial and investment

community begins to accept the reality of Peak Oil, which

ends the first half of the age of oil. They accept that banks

created capital during this epoch by lending more than they

had on deposit, being confident that tomorrow’s expansion,

fuelled by cheap oil-based energy, was adequate collateral

for today’s debt. The decline of oil, the principal driver of

economic growth, undermines the validity of that collateral

which in turn erodes the valuation of most entities quoted

on Stock Exchanges. The investment community however

faces a dilemma. It desires to protect its own fortunes and

those of its privileged clients while at the same time is

reluctant to take action that might itself trigger the

meltdown. It is a closely knit community so that it is hard

for one to move without the others becoming aware of his

actions.

The scene is set for the Second Great Depression, but the

conservatism and outdated mindset of institutional

investors, together with the momentum of the massive

flows of institutional money they are required to place, may

help to diminish the sense of panic that a vision of reality

might impose. On the other hand, the very momentum of

the flow may cause a greater deluge when the foundations

of the dam finally crumble. It is a situation without

precedent.

Commentator Robert Wise explains the connection between energy and money as follows:

It's not physics, but it's true: money equals energy. Real,

liquid wealth represents usable energy. It can be exchanged

for fuel, for work, or for something built by the work of

humans or fuel-powered machines. Real cost reflects the

energy cost of doing something; real value reflects the

energy expended to build something.

Nearly all the work done in the world economy -- all the

manufacturing, construction, and transportation -- is done

with energy derived from fuel. The actual work done by

human muscle power is miniscule by comparison. And, the

lion's share of that fuel comes from oil and natural gas, the

primary sources of the world's wealth.

In October 2005, the normally conservative London Times acknowledged that the world's wealth may soon evaporate as we enter a technological and economic "Dark Age." In an article entitled "Waiting for the Lights to Go Out" Times reporter Bryan Appleyard wrote the following:

Oil is running out; the climate is changing at a potentially

catastrophic rate; wars over scarce resources are brewing;

finally, most shocking of all, we don't seem to be having

enough ideas about how to fix any of these things.

Almost daily, new evidence is emerging that progress can no

longer be taken for granted, that a new Dark Age is lying in

wait for ourselves and our children.

. . . growth may be coming to an end. Since our entire

financial order — interest rates, pension funds, insurance,

stock markets — is predicated on growth, the social and

economic consequences may be cataclysmic.

If you want to understand just how cataclysmic these consequences might be, consider the current crisis in the UK as a "preview of coming attractions." On October 23, 2005 the London Telegraph reported:

The Government has admitted that companies across Britain

might be forced to close this winter because of fuel

shortages. "The balance between supply and demand for

energy is uncomfortably tight. I think if we have a colder

-than-usual winter given the supply shortages, certain

industries could suffer real difficulties." The admission was

made after this newspaper revealed that Britain could be

paralysed by energy shortages if the winter is colder than

average.

The Met Office says there is a 67 per cent likelihood of

prolonged cold this year after almost a decade of mild

winters. That, coupled with high fuel prices, raises the fear

that industry will not be able to cope.

The severe consequences of these relatively small shortfalls between supply and demand (less than 5%) have prompted the UK government to look into draconian energy conservation measures that would be enforced via house-to-house searches by a force of "energy-police."

Parts of the US are facing similarly dire possibilities. In December 2005, US News and World Report published a six-page article documenting some potentially nightmarish scenarios about to descend on the US. According to the normally conservative publication, people in the northeastern US could be facing massive layoffs, rotating blackouts, permanent industrial shutdowns, and catastrophic breakdowns in public services this winter as a result of shortages of heating oil and natural gas.

This is happening despite the fact we are probably at least a few years away from seeing the peak in either oil or natural gas production. You have to ask yourself, "what's going to happen when the 'real problems' start showing up?"

"Are the Banks Aware of This Situation?"

The central ones certainly are. (Those new bankruptcy laws were passed for a reason.) On June 28, 2005, Gary Duncan, the economics editor for the UK based Sunday Times, reported that the Bank of International Settlements (BIS), aka "the central banker's central bank", had issued the following warnings regarding the economic fallout of further rises in the price of oil:

Oil prices may well remain high for a prolonged period of

time . . . Further rises — if they materialize — may have

more severe consequences than currently anticipated . . .

Everyone needs to commit to some unpleasant

compromises now, in order to avoid even more unpleasant

alternatives in the future . . .

Duncan goes on to summarize the bank's report as follows:

The US current account deficit meant that a further slide in

the dollar was "almost inevitable", while the BIS sounded a

warning that the deficit could yet lead to "a disorderly

decline of the dollar, associated turmoil in other financial

markets, and even recession."

A bank as crucially important to the world economy and as influential to the markets as the BIS doesn't just casually toss out terms like "unpleasant compromises", "severe consequences", "even more unpleasant alternatives", "turmoil," and "disorderly decline" in relation to the oil markets and the dollar (which is the reserve currency for all oil transactions in the world) unless something very nasty is brewing in the background.

(Note: to read the full text of the bank's report, click here.)

On a similar note, Warren Buffet, the world's second richest man, recently warned of "mega-catastrophic risks" and "investment time bombs" currently threatening the global economy. Add those to a mix of sky-high energy prices, destabilizing resource wars, less than inspiring leadership, a possible currency collapse, more"petrodollar warfare", and well, the picture begins to look pretty grim, pretty quick.

"What Does All of This Mean for Me?"

What all of this means, in short, is that the aftermath of Peak Oil will extend far beyond how much you will pay for gas. If you are focusing solely on the price at the pump, more fuel-efficient forms of transportation, or alternative sources of energy, you aren’t seeing the bigger picture.

"Is the Bush Administration

Aware of This Situation?"

Of course they are.

As mentioned previously, Dick Cheney made the following statement in late 1999:

By some estimates, there will be an average of two-percent

annual growth in global oil demand over the years ahead,

along with, conservatively, a three-percent natural decline

in production from existing reserves. That means by 2010

we will need on the order of an additional 50 million barrels a

day.

To put Cheney’s statement in perspective, remember that the oil producing nations of the world are currently pumping at full capacity but are struggling to produce much more than 84 million barrels per day. Cheney’s statement was a tacit admission of the severity and imminence of Peak Oil as the possibility of the world raising its production by such a huge amount is borderline ridiculous.

A report commissioned by Cheney and released in April 2001 was no less disturbing:

The most significant difference between now and a decade

ago is the extraordinarily rapid erosion of spare capacities at

critical segments of energy chains. Today, shortfalls appear

to be endemic. Among the most extraordinary of these

losses of spare capacity is in the oil arena.

Not surprisingly, George W. Bush has echoed Dick Cheney’s sentiments. In May 2001, Bush stated, "What people need to hear loud and clear is that we’re running out of energy in America."

One of George W. Bush's energy advisors, energy investment banker Matthew Simmons, has spoken at length about the impending crisis.

(Note: Although he has advised Bush/Cheney, Simmons considers himself strongly non-partisan on energy issues. His writings are highly regarded amongst the energy and banking community for their grounding in nonpartisan, heavily documented, and virtually infallible research & analysis.)

Simmons' investment bank, Simmons and Company International, is considered the most reputable and reliable energy investment bank in the world.

Given Simmons' background, what he has to say about the situation is truly terrifying. For instance, in an August 2003 interview with From the Wilderness publisher Michael Ruppert, Simmons was asked if it was time for Peak Oil to become part of the public policy debate. He responded:

It is past time. As I have said, the experts and politicians

have no Plan B to fall back on. If energy peaks, particularly

while 5 of the world’s 6.5 billion people have little or no use

of modern energy, it will be a tremendous jolt to our

economic well-being and to our health — greater than

anyone could ever imagine.

When asked if there is a solution to the impending natural gas crisis, Simmons responded:

I don’t think there is one. The solution is to pray. Under the

best of circumstances, if all prayers are answered there will

be no crisis for maybe two years. After that it’s a certainty.

In May 2004, Simmons explained that in order for demand to be appropriately controlled, the price of oil would have to reach $182 per barrel. Simmons explained that with oil prices at $182 per barrel, gas prices would likely rise to $7.00 per gallon.

Simmons predictions are downright tame compared to what other analysts in the world of investment banking are preparing themselves for. For instance, in April 2005, French investment bank Ixis-CIB warned, "crude oil prices could touch $380 a barrel by 2015."

If you want to ponder just how devastating oil prices in the $200-$400/barrel range will be for the US economy, consider the fact that one of Osama Bin-Laden's primary goals has been to force oil prices into the $200 range.

Oil prices that far north of $100/barrel would almost certainly trigger massive, last-ditch global resource wars as the industrialized nations of the world scramble to grab what little of the black stuff is remaining. This may explain why the director of the Selective Service recently recommended the military draft be expanded to include both genders, ages 18-to-35.

A March 2005 report prepared for the US Department of Energy confirmed dire warnings of the investment banking community. Entitled "The Mitigation of the Peaking of World Oil Production," the report observed:

Without timely mitigation, world supply/demand balance will

be achieved through massive demand destruction

(shortages), accompanied by huge oil price increases, both

of which would create a long period of significant economic

hardship worldwide.

Waiting until world conventional oil production peaks before

initiating crash program mitigation leaves the world with a

significant liquid fuel deficit for two decades or longer.

The report went on to say:

The problems associated with world oil production peaking

will not be temporary, and past 'energy crisis' experience will

provide relatively little guidance. The challenge of oil peaking

deserves immediate, serious attention, if risks are to be fully

understood and mitigation begun on a timely basis.

. . . the world has never faced a problem like this. Without

massive mitigation more than a decade before the fact, the

problem will be pervasive and will not be temporary.

Previous energy transitions were gradual and evolutionary.

Oil peaking will be abrupt and revolutionary.

As one commentator recently observed, the reason our leaders are acting like desperados is because we have a desperate situation on our hands.

If you've been wondering why the Bush administration has been spending money, cutting social programs, and starting wars like there's no tomorrow, now you have your answer: as far as they are concerned, there is no tomorrow.

From a purely Machiavellian standpoint, they are probably correct in their thinking.

"How Do I Know This Isn't Just Fear- Mongering by Loony-Environmentalists?"

If you think what you are reading on this page is the product of a loony-left nut, consider what Representative Roscoe Bartlett (Republican, Maryland) has had to say in speeches to Congress or what billionaire investor Richard Rainwater has had to say in the pages of Fortune Magazine.

On March 14, 2005 Bartlett gave an extremely thorough presentation to Congress about the frightening ramifications of Peak Oil. During his presentation Representative Bartlett, who may be the most conservative member of Congress, quoted from this site extensively, citing the author (Matt Savinar) by name on numerous occasions, while employing several analogies and examples originally published on this site. You can read the full congressional record of Representative Bartlett's presentation by clicking here. You can view a video of Bartlett recommending the article you are now reading to Resources for the Future, an extremely influential DC think tank, by clicking here.

On April 19, 2005 Representative Bartlett was interviewed on national television. Again, he referenced the article you are now reading:

One of the writers on this, by the way, starts his article by

saying, 'Dear Reader, Civilization as we know it will end

soon.' Now your first impulse is to put down the article. This

guy's a nut. But if you don't put it down and read through

the article, you're hard-pressed to argue with his

conclusions.

On May 12, 2005 Representative Bartlett gave another presentation about Peak Oil on the floor of the House of Representatives, stating that this website "galvanized" him. On July 19, 2005 he had the following to say:

Mr. Speaker, if you go to your computer this evening and do

a Google search for peak oil, you will find there a large

assortment of articles and comments. Like every issue, you

will find a few people who are on the extreme, but there will

be a lot of mainstream observations there.

One of the articles that you will find there was written by

Matt Savinar. Matt Savinar is not a technical person. He is a

lawyer, a good one, and he does what lawyers do. He goes

to the sources and builds his case.

Matt Savinar could be correct when he said, "Dear Reader,

civilization as we know it is coming to an end soon.'' I would

encourage you, Mr. Speaker, to pull up his article and read

it. It is really very sobering.

In subsequent speeches, Representative Bartlett read large excerpts of this site verbatim into the official US Congressional record.

According to the December 26, 2005 issue of Fortune Magazine, Richard Rainwater, a multi-billionaire investor and friend of George W. Bush, reads this site regularly. In an article entitled "Energy Prophet of Doom" Fortune reporter Oliver Ryan writes:

"Rainwater," the voice on the phone announces. "Now, type

L-A-T-O-C into Yahoo, and scroll down to the seventh item."

Rainwater doesn't use e-mail. Rather, he uses rapid-fire

phone calls to spread the gospel he discovers every morning

on the web. One day it might be the decline of arable land in

Malaysia. The next it could be the Olduvai theory of per

capita energy consumption. "L-A-T-O-C" stands for

LifeAfterTheOilCrash.net, a blog edited by Matt Savinar, 27,

of Santa Rosa, Calif.

The article goes on to quote Rainwater as saying:

The world as we know it is unwinding with respect to Social

Security, pensions, Medicare. We're going to have

dramatically increased taxes in the U.S. I believe we're going

into a world where there's going to be more hostility. More

people are going to be asking, 'Why did God do this to us?'

Whatever God they worship. Alfred Sloan said it a long time

ago at General Motors, that we're giving these things during

good times. What happens in bad times? We're going to have

to take them back, and then everybody will riot. And he's

right.

Apparently, Richard Rainwater and Alfred Sloan aren't the only people expecting large scale civil unrest in the foreseeable future. In January 2006, the Department of Homeland Security gave Halliiburton subsidiary Kellog, Brown, & Root a $400 million dollar contract to build vast new domestic detention camps. While the camps are ostensibly being built to house and process an "emergency influx of immigrants", one can't help but suspect they will be used to house domestic citizens who respond to the economic fallout of declining oil production by taking to the streets.

"How is the Oil Industry Reacting to This?"

If you want to know the harsh truth about the future of oil, simply look at the actions of the oil industry. As a recent article in M.I.T.'s Technology Review points out:

If the actions - rather than the words - of the oil business's

major players provide the best gauge of how they see the

future, then ponder the following. Crude oil prices have

doubled since 2001, but oil companies have increased their

budgets for exploring new oil fields by only a small fraction.

Likewise, U.S. refineries are working close to capacity, yet

no new refinery has been constructed since 1976. And oil

tankers are fully booked, but outdated ships are being

decommissioned faster than new ones are being built.

Some people believe that no new refineries have been built due to the efforts of environmentalists. This belief is silly when one considers how much money and political influence the oil industry has compared to the environmental movement. You really think Ronald Reagan and George H. Bush were going to let a bunch of pesky environmentalists get in the way of oil refineries being built if the oil companies had wanted to build them?

The real reason no new refineries have been built for almost 30 years is simple: any oil company that wants to stay profitable isn't going to invest in new refineries when they know there is going to be less and less oil to refine.

In addition to lowering their investments in oil exploration and refinery expansion, oil companies have been merging as though the industry is living on borrowed time:

December 1998: BP and Amoco merge;

April 1999: BP-Amoco and Arco agree to merge;

December 1999: Exxon and Mobil merge;

October 2000: Chevron and Texaco agree to merge;

November 2001: Phillips and Conoco agree to merge;

September 2002: Shell acquires Penzoil-Quaker State;

February 2003: Frontier Oil and Holly agree to merge;

March 2004: Marathon acquires 40% of Ashland;

April 2004: Westport Resources acquires Kerr-McGee;

July 2004: Analysts suggest BP and Shell merge;

April 2005: Chevron-Texaco and Unocal merge;

June 2005: Royal Dutch and Shell merge;

July 2005: China begins trying to acquire Unocal

While many people believe talk of a global oil shortage is simply a conspiracy by "Big Oil" to drive up the prices and create "artificial scarcity," the rash of mergers listed above tells a different story. Mergers and acquisitions are the corporate world's version of cannibalism. When any industry begins to contract/collapse, the larger and more powerful companies will cannibalize/seize the assets of the smaller, weaker companies.

(Note: for recent examples of this phenomenon outside the oil industry, see the airline and automobile industries.)

If you suspect the oil companies are conspiring amongst themselves to create artificial scarcity and thereby artificially raise prices, ask yourself the following questions:

1. Are the actions of the oil companies the actions of

friendly rivals who are conspiring amongst each other to

drive up prices and keep the petroleum game going?

2. Are the actions of the oil companies the actions of

rival corporate desperados who, fully aware that their

source of income is rapidly dwindling, are now preying

upon each other in a game of "last man standing"?

You don't have to contemplate too much, as recent disclosures from oil industry insiders indicate we are indeed "damn close to peaking" while independent industry analysts are now concluding that large oil companies believe Peak Oil is at our doorstep.

As the Bulletin of Atomic Scientists recently observed, even ExxonMobil is now "sounding the silent Peak Oil alarm." In their 2005 report entitled, "The Outlook for Energy", ExxonMobil suggests that increased demand be met first through greater fuel efficiency. The fact that ExxonMobil - one of the largest oil companies in the world - is now recommending increased fuel efficiency should tell you how imminent a crisis is at this point.

Equally alarming is the fact that Chevron has now started a surprisingly candid campaign to publicly address these issues. While the campaign fails to mention "Peak Oil" or explain how a drastically reduced oil supply will affect the average person, it does acknowledge that, while it took 125 years to burn through the first trillion barrels of oil, it will only take 30 years to burn through the next trillion.

"How Do I Know Peak Oil Isn't Big Oil Propaganda That is Being Used To Create Artificial Scarcity & Justify Gouging Us at the Pump?"

If Peak Oil is "Big Oil propaganda" (as some claim), why did Sonoma State University's Project Censored declare it one of the most censored stories of 2003-2004? Surely, if "Peak Oil is Big Oil propaganda", Big Oil would have found a way to get it off the pages of under-funded publications like Project Censored and onto the pages of the mainstream papers and into the 24/7 cable news cycle years ago.

Likewise, if "Peak Oil is a myth propagated by the greedy oil companies to justify high prices", why didn't any of the greedy oil company CEOs offer "the peaking of world oil production" as a partial justification for high gas prices when they testified before Congress about high gas prices?

Yet "Peak Oil" was never mentioned during the hearings by either the executives or the Senators questioning them. Given the obvious importance of the issue, any reasonable person can't help but to ask, "Why the heck not?"

The answer is simple: the true consequences of Peak Oil cannot be acknowledged in such a highly public forum without crashing the financial markets or begging the obvious yet politically-dangerous and "patriotically-incorrect" question:

Is the war in Iraq really a war for the world's last remaining

significant sized deposits of oil?"

Although the answer to this question should be obvious, broaching the issue in such a highly public forum would bring more skeletons out of Dick Cheney's energy task force closet than any sane member of the Senate, Republican or Democrat, would ever want to face. (Would you?)

Finally, if Peak Oil was just "Big Oil" propaganda, why is Exxon Mobil (one of the biggest oil companies in the world) spending millions of dollars on its anti-Peak Oil advertising campaign?

What About Chevron's "Will You Join Us Campaign"?

The Chevron campaign, while far more candid than previous industry propaganda (or the propaganda currently put out by Exxon Mobil) still does not come close to conveying the truth about our situation or how it will affect the average person. The campaign is likely an attempt at controlling the parameters of the Peak Oil debate and making sure the public does not panic. The campaign appears geared towards keeping investors' confidence high and public anxiety low by acknowledging the (now obvious) problem but reassuring all interested parties that things are under control. Naturally, Chevron would much rather you learn about Peak Oil from their team of public relations experts (aka "spin miesters") than from this site or others like it.

That's probably why Chevron hired the Madison Avenue public relations firm Young and Rubicom, the same firm that handled the Bush/Cheney 2004 election advertisements, to produce the campaign.

Ironically, it's better for the oil companies that you think you are being gouged than to know the truth. If people knew the truth, they would likely begin drastically curtailing their consumption of oil, which would drive the price down. Consumers are unlikely to take such actions so long as they perceive the current price spikes as just "more of the same old-same old" and are confident about the future. The goal of Chevron's campaign is to maintain this confidence as long as possible.

"Can't We Just Explore More for Oil?"

Global oil discovery peaked in 1962 and has declined to virtually nothing in the past few years. We now consume 6 barrels of oil for every barrel we find.

Oil Discovery: (3 Year Average, Past and Projected)

Source: Association for the Study of Peak Oil

According to an October 2004 New York Times article entitled "Top Oil Groups Fail to Recoup Exploration Costs:"

. . . the top-10 oil groups spent about $8bn combined on

exploration last year, but this only led to commercial

discoveries with a net present value of slightly less than

$4bn. The previous two years show similar, though less

dramatic, shortfalls.

In other words, significant new oil discoveries are so scarce that looking for them is a monetary loser. Consequently, many major oil companies now find themselves unable to replace their rapidly depleting reserves.

Take a look at the above chart. During the 1960s, for instance, we consumed about 6 billion barrels per year while finding about 30-60 billion per year. Given those numbers, it is easy to understand why fears of "running out" were so often dismissed as unfounded.

Unfortunately, those consumption/discovery ratios have nearly reversed themselves in recent years. We now consume close to 30 billion barrels per year but find less than 4 billion per year.

In light of these trends, it should come as little surprise that the energy analysts at John C Herold Inc. - the firm that that foretold Enron's demise - recently confirmed industry rumors that we are on the verge of an unprecedented crisis.

"How Can I Be Sure This Isn't Just More 1970s Doom-and-Gloom?"

The oil shocks of the 1970s were created by political events. In 1973, OPEC cut its production in retaliation for US support of Israel. In 1979, Iran cut its production in hopes of crippling "the great Satan." In both cases, the US was able to turn to other oil producing nations such as Venezuela to alleviate the crisis. Once global production peaks, there won't be anybody to turn to. The crisis will just get worse and worse with each passing year.

The evidence of an imminent peak in global oil production is now overwhelming:

Ninety-nine percent of the world's oil comes from 44 oil

producing nations. At least 24 of these nations are

past their peak and now in terminal decline.

The entire world - with the exception of the Middle

East peaked in 1997. The US peaked in 1970, Russia in

1987, the UK in 1999. Even Saudi Arabia - the famed

"producer for all seasons" may be on the verge of

seeing it production collapse.

Global production of conventional oil has essentially

plateaued since the year 2000.

As far as "doom-and-gloom" consider what widely respected Deutsche Bank had to say about Peak Oil in a recent report entitled, Energy Prospects After the Petroleum Age:

The end-of-the-fossil-hydrocarbons scenario is not therefore

a doom-and-gloom picture painted by pessimistic end-of-the

world prophets, but a view of scarcity in the coming years

and decades that must be taken seriously.

The Australian Financial Review echoed the sentiments of Deutsche Bank in a January 2005 article entitled, "Staring Down the Barrel of a Crisis":

The world's oil production may be about to reach its peak,

forever. Such apocalyptic prophecies often surface in the

middle of the northern hemisphere winter. What is unusual is

that this time the doomsday scenario has gained serious

credibility among respected analysts and commentators.

Given the credentials of those sounding the alarm the loudest, it is extremely unwise for you to causally dismiss this as just more "1970s doom-and gloom."

"What About the Oil Sands in Canada and the Oil Shale in the American West?"

The good news is that we have a massive amount of untapped "non conventional" oil located in the oil sands up in Canada.

The bad news is that, unlike conventional sources of oil, oil derived from these oil sands is extremely financially and energetically intensive to extract. Whereas conventional oil has enjoyed a rate of "energy return on energy invested" (EROEI) of about 30 to 1, the oil sands rate of return hovers around 1.5 to 1.

This means that we would have to expend 20 times as much energy to generate the same amount of oil from the oil sands as we do from conventional sources of oil.

Where to find such a huge amount of capital is largely a moot point because, even with massive improvements in extraction technology, the oil sands in Canada are projected to only produce a paltry 2.2 million barrels per day by 2015. This doesn't even account for any unexpected production decreases or cost overruns, both of which have been endemic to many of the oil sands projects.

More optimistic reports anticipate 4 million barrels per day of oil coming from the oil sands by 2020. Even if the optimists are correct, 4 million barrels per day much oil when you consider our colossal and ever-growing demand in conjunction with the small amount of time we have left before the global peak:

We currently need 83.5 million barrels per day.

We are projected to need 120 million barrels per day

by 2020.

We will be losing over 1 million barrels per day of

production per year, every year, once we hit the

backside of the global oil production curve.

The general consensus among now disinterested

scientists is that oil production will peak by 2010 at

the latest.

The huge reserves of oil shale in the American west suffer from similar problems. While Shell Oil has an experimental oil shale program, even Steve Mut - the CEO of their Unconventional Resources Unit - has sounded less than optimistic when questioned about the ability of oil shale to soften the coming crash. According to journalist Stuart Staniford's coverage of a recent conference on Peak Oil:

In response to questions, Steve guesstimated that oil shale

production would still be pretty negligible by 2015, but

might, if things go really well, get to 5mbpd by 2030.

Disinterested observers are even less optimistic about oil shale. Geologist Dr. Walter Youngquist points out:

The average citizen . . . is led to believe that the United

States really has no oil supply problem when oil shales hold

"recoverable oil" equal to "more than 64 percent of the

world's total proven crude oil reserves." Presumably the

United States could tap into this great oil reserve at any

time. This is not true at all. All attempts to get this "oil" out

of shale have failed economically. Furthermore, the "oil"

(and, it is not oil as is crude oil, but this is not stated) may

be recoverable but the net energy recovered may not equal

the energy used to recover it. If oil is "recovered" but at a

net energy loss, the operation is a failure.

This means any attempt to replace conventional oil with oil shale will actually make our situation worse as the project will consume more energy than it will produce, regardless of how high the price goes.

Further problems with oil shale have been documented by economist Professor James Hamilton who writes:

A recent Rand study concluded it will be at least 12 years

before oil shale reaches the production growth phase. And

that is a technological assessment, not a reference to the

environmental review process. If it takes 15 years to get an

oil refinery built and approved, despite well known

technology and well understood environmental issues,

viewing oil shale as something that could make major

contributions to world energy supplies in the immediate

future seems highly unrealistic.

Click Here to Go to Page Two of LATOC

Topics Covered on Page Two Include: Abiotic Oil Theory, Drilling in ANWR, Laws of Supply and Demand/Market Forces, Alternative Energy, Solar, Wind, Geothermal, Wave, Hydrogen, Nuclear, Coal, Ethanol, Biodiesel, Thermal Depolymerization, Solar-Nanotechnology, Space-Based Solar Arrays, Hybrid Vehicles, Conservation and Energy Efficiency, Jevon's Paradox, Wars in Iraq, Iran, Syria, and Venezuela, the Military Draft, Possible Solutions and Ways to Prepare