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NZ Ecomagazine

A new magazine that is about the be released - this week or next I think, watch out for it.
Anyway, they have invited me to write an article. I thought I'd publish the first couple of paragraphs, I like them. It's supposed to be about Peak Oil but I got carried away with myself. Comments welcome - if anyone reads this godforsaken blog.

edited 18th Feb
The End of The Age of Reason
The fundamental promise at the dawn of the 20th century was the democratisation of modernity. The ideology of modernity prescribes rational thought as the ultimate liberator informing us to the truth about the world and ourselves. The road to progress therefore would be one built upon true knowledge, knowledge informed by science and logic, free from superstition, dogma and ignorance. And lets face it science delivered, not only did it put men on the moon but it laid the foundation for our modern all-mod-cons way of life. The last century upon the foundations of science and logic was one characterised by great technological advancement. We have become accustomed to the belief consequently, that there are technological solutions to all our problems, we like to call this human ingenuity.

However the 21st century dawns under the spectre of an ever-increasing pluralism. Science and rationalism is in decline in favour of baneful individualism. The sciences popularly perceived as irrelevant by students and laymen are retreating into their respective labs and philosophy departments, in favour of a kind of pop-cultural post-modern relativism. In the wake of this retreat we are left with all manner of popular worldviews that by and large freely evolve within the democratized slurry of our suburban malls, determined by our SUV driven, recreational shopping lifestyles, mostly devoid of any rationality, selected for consumption by a corporatist media intent and dependant upon perpetuating a myth.

The myth itself is one of the most fundamental views to transpire within modern consumerist society. Supported by the mantras of neo-classic and supply-side economic theory and in conjunction with our newfound technological hubris emerges the unquestionable assumptions of perpetual growth and “endless substitution”. Essentially the myth embodies the faith that the “market” will always provide. New products and resources are always superseded by something cheaper, more efficient and much better than the previous. To economists natural resources are no exception to the rule. The market of course dictates, as productivity increases, prices drop, production increases, more exchange occurs and living standards rise for all involved. And on and on and on it goes, forever.

Neo-classic economic theory is the supposed perpetual motion machine of the globalised mass consumer fantasy, predicated by endless economic growth compounding at 3% or so a year, creating wealth via fractional reserve banking and fiat currency. Tomorrow’s expansion is the put-up collateral for today’s debt. According to modern economics there are no limits to this growth. Forget the sciences, unquestionable faith in technological progress will allow us to use fewer and fewer resources for greater and greater returns. The reductio ad absurdum of this bizarre form of reasoning is that technology will eventually enable us to use zero resources for infinite returns.

Both science and reason inform us otherwise. We only need consult the laws of thermodynamics in order to inform ourselves that any kind of perpetual motion machine is impossible. Energy is the capacity to do work. No energy equals no work. Thus our entire global economy much to the chagrin of voodoo economists is 100% dependant upon energy. In order to grow economically we must also grow our energy consumption too.

It may be offensive to futurists, technologists and economists but the laws of thermodynamics inculcate that neither capital, labour nor technology can create energy. We cannot convert our supposed intelligence, our ability to find novel technological solutions into energy. Instead available energy must be expended in order to transform matter (e.g., oil, natural gas etc.) or to divert an existing energy flow (e.g., water, wind etc.) into more available energy. Furthermore energy resources must produce more energy than they consume. It would never be economic to expend more than one barrel of oil to extract one barrel of oil.

on PEANZ - Petroleum Exploration Association of NZ

The converstation with Mike Patrick of PEANZ continued. I shan't bore anyone with the detail, but interestingly Mike said some of these things.

I re-state my case – yes, one day the world’s petroleum reserves will physically run out, despite that fact that it is a “renewable” resource

Mike thinks oil is a renewable resource!?

NZ probably will never be self-sufficient in petroleum resources, but we shouldn’t stop trying eh?

Oh, Mike thinks is ok to throw trillions of dollars into drilling dry holes on the endless quest of "trying" to be self-sufficient, presumably this follows from the first quote.

I'll leave you to draw your own conclusions from this. Mike did remind me he IS a scientist, so we should all just bow down at the alter of authority and believe him.

Steve.

An interesting exchange with the Petroleum Exploration Association of New Zealand.

The press release Booming Oil & Gas Ind. Seeks Level Playing Field on the 2nd February 2005 in Scoop prompted me to ask further questions of Petroleum Exploration Association of New Zealand.

PEANZ claimed that New Zealand could become self-sufficient in regard to it's production of oil. I asked the question what kind of investment would required to ensure this. What follows is Mike Patricks reponse for Donald Morgan, Chairman. And my subsequent response to Mike.

Steve
In order for NZ to become self-sufficient in oil supplies, you’re looking at approximately 5M tonnes per year – and we currently produce 1M locally. Can NZ have the reserves to meet this level of indigenous production? Yes, the industry and its scientific backup believe so. The costs to obtain this level of production is impossible to predict because it depends entirely upon whether the new reserves are onshore or offshore, if the latter how far offshore, how close to infrastructure, etc etc. Certainly large though.

Should not this money be preparing for the future oil supply shortfall? Hmm, will there be one in our lifetimes? Or our children’s? The world is not running out of oil, it’s running out of cheap oil – as price rises, technology gains and economics means that a lot of oil in the ground currently uneconomic to extract (and not booked in formal reserves figures) becomes economic to extract.

This is how, strange as it seems, that some fields can increase reserves after many years of pumping – the economic factor! Yes, the industry believes that one day world demand will exceed physical supply, but it also believes that economics will play the larger role in the shift to other forms of fuel before that time, with marine and aviation being the last ‘kids off the block” – to quote Sheik Yermani, former OPEC head, “the stone age didn’t end because we ran out of stones, and the oil era will not end because we run out of oil” – ie other technologies and fuels will become more economic and hence oil demand will drop to about 30% or so of its current levels (that’s the level required for the plastics in your computer and a lot of the pharmaceuticals you and others take, for fibres and other oil-derived chemicals)

To which I replied...
Mike,

Firstly thank you for the response but what I really wanted to know however was what kind of investment was required for NZ to become self-sufficient.

Interestingly if the "costs to obtain this level of production are impossible to predict" as you say this indicates to me that it is possible (if not probable) that the costs could in fact exceed the returns in terms of the current NPV of oil. Of course this would be a ridiculous scenario. Not quite as ridiculous as it sounds. I am sure you are aware that the total world discovery of oil in 2004 was about 7Gb, 2Gb located in deep water finds. Less than half of this discovery was fields with reserves greater than 100mb. Interestingly however the cost of the exploration alone (let alone development) exceeded the net present value of the discoveries in absolute terms.

Obviously this bodes well for those speculating on oil futures markets. Just today the IEA warned that "greater-than-expected demand and disappointing world production growth could strain world supplies". (Reuters). The IEA have revised their demand growth figures upwards and their discovery figures downward - how long can these adjustments continue before demand supplants supply?

Actually you are wrong, the world is running out of oil, it began running out the day the first barrel was extracted. What is at issue is the timing. What is more important however is that we are approaching (if not already at) the end of the first half of global oil production. The second half will of course be characterised by a gradual decline as we try harder and harder to squeeze out the remnants. Most Saudi oil already is cut with about 30% artifact seawater. This is no secret.

I've never really been able to fathom the claim "the stone age didn't end because we ran out of stone..." Remind yourself that the transition from tools such as axes and arrowheads made of stone to more effective weapons made from iron and bronze occurred over several centuries - the transition was about moving to something more effective than stone. Yet we are looking to transition a planet of 8 billion people, the agricultural systems that feed us - a global economy based on cheap oil technologies to one that is dependant on some other yet to be developed technology. All this must occur within a few short decades. Your argument that the "oil age won't end because we run out of oil" presumes by the analogy that some other more efficient alternative will be found such that endless economic growth can continue.

I'm not sure how you come up with the argument that oil demand will drop to about 30% of it's current level??? What will take it's place? Rather than dropping in demand oil demand per capita in NZ has grown steadily since the 70s. At what price per barrel do you expect oil demand to begin dropping, where and what is the infrastructure to replace the 70% - will this just magically appear overnight, or the day structural supply deficits become self-evident? If you want to replace oil with somethink like say biodesiel what energy are you going to use to cultivate, harvest and process the biomass. If you want to replace it with hydrogen where will that come from? We can barely keep Auckland running on electricity without everyone plugging their hybrids in for a recharge every night. You have to follow the energy equation from the beginning to the end. Technology or capital doesn't create energy Mike.

Anyway NZ will become 100% self-sufficient in regards to oil supply so we won't need the alternatives right?

I wish you luck in your venture Mike - excuse my brashness but I think your dreaming. Remind yourself of Thomas Khuns observation - "but there are always some men who cling to one or other of the older views, and they are simply read out of the profession, which thereafter ignores their work."

Cheers
Steve.

The Dawn of the Second Half of the Age of Oil

by Colin Campbell
from the ASPO Feb Newsletter, Feb 9, 2005

This Newsletter has now been running for four years and has covered almost 500 items of interest. It is accordingly perhaps timely to look back and try to summarise what might be learnt from the exercise. The Newsletter started in a modest way with no particular mission, concentrating at first on the more technical aspects of the matter. Later, it came to cover various related geopolitical issues, some of a sensitive nature. Gradually a picture began to fall into place, which may be summarised as follows:

The Industrial Revolution opened in the mid 18th Century with the exploitation of coal, initially in Britain, providing a new fuel for industry, transport and trade, which grew rapidly. The Oil Age dawned 100 years later, initially to provide lamp-oil for illumination, but later to fuel transport, following the development of the Internal Combustion Engine. Electricity generation expanded widely, fuelled first by coal, but later mainly from oil, gas and nuclear energy. This epoch has been widely seen as one of amazing technological progress, which has conditioned many people to think that there must always be a technological solution.

The Industrial Revolution was accompanied by an equally important, but less visible, Financial Revolution. In short, commercial banks lent money in excess of what they had on deposit, effectively creating money out of thin air, but the system worked because tomorrow’s expansion provided collateral for to-day’s debt. It was effectively a system of confidence, an intrinsic element of all debt. So, it might be better termed the Financial-Industrial Revolution.
The Stock Markets evolved from being simply an exchange of dividend-yielding instruments to become largely speculative institutions, being in turn stimulated by the tax regime that gave preferential treatment to speculative gains. In addition, World trading currencies, previously the pound sterling and now the US dollar, delivered massive hidden returns to the issuing countries, becoming in effect the prime benefit of Empire.

The World’s population expanded six-fold exactly in parallel with oil, which provided much of the fuel with which to plough the field, and bring food and manufactured goods to market, thus indirectly supporting the Financial System. The international of transport of food reduced the risk of local famines when harvests failed for climatic and other reasons.
The Second Half of the Oil Age now dawns and will be characterised by the decline of oil, followed by gas, and all that depends upon these prime energy sources. The actual decline of oil will be gradual at less than three percent a year: such that the production of all liquid hydrocarbons in 2020 will have fallen to approximately what it was in 1990. In those terms, it does not appear to be a particularly serious situation. But in reality, it is a devastating development because it implies that the oil-based economy is in permanent terminal decline, removing the confidence in perpetual growth on which the Financial System depends. Without the assumption of ever-onward growth, borrowing and lending dry up: there being little viable left to invest in. It follows that there will be a need to remove vast amounts of so-called Capital, which in fact was not Capital in the sense of being the saved proceeds of labour, but merely an expression of speculative confidence in ever onward economic growth. This in turn leads to the conclusion that the World faces another Great Depression, triggered more by the perception of long term decline of the general economy rather than the actual decline of oil supply itself which is gradual not cataclysmic. The World is definitely not about to run out of oil, but it does face the onset of decline having consumed about half of what is readily available on the Planet.

This is not welcome news, and those with mindsets conditioned on past experience find it very difficult to accept, some becoming vituperative in their reaction. In terms of pragmatic politics, it is virtually impossible for Governments to plan and prepare with logical strategies to face the new world that opens. Accordingly, the transition will likely be a time of international tension and resource wars of which the first salvoes have already been fired. But some of the more philosophically inclined wonder if in fact the post-oil world might not turn out to be a more harmonious one for the survivors. There are indeed hopes, Deus volens, that they may number somewhat more than the Planet was able to support prior to what by then will be seen to have been the brief Age of Oil, during which the World consumed its inheritance of fossil sunshine.

Peak Oil and The Sociology of Knowledge
Original Article posted on Scoop 2 February, 2005
A Peak Oil Primer
This article also now appears on Energy Bulletin

Anyone who wants to drag in the irrational where the lucidity and acuity of reason still must rule by right merely shows that he is afraid to face the mystery at its legitimate place. Karl Mannheim (1952).

The significance in differences in argument between what Colin Campbell terms the “flat-earth fraternity” and Peak Oil theorists is profound.

Flat-earthers typically dismiss arguments that global oil production will peak (very soon) and subsequently decline in favour of arguments claiming that vast reserves of oil exist (somewhere) and can be exploited well into the future thus securing economic growth for decades to come. Other variations from the flat-earthers include such arguments from the smooth transition to a “hydrogen economy” to the bizarre claims in the absence of any knowledge of the laws of thermodynamics, that modern supply-side economic theory combined with technology will somehow magically produce oil or some cheaper more efficient alternative to the dictates of market demand.

Peak oil’s empirically based claims can countenance no such sociological or economically arational challenges. It seems today for all purposes that there is little or no spare oil production capacity world wide, we currently produce about 83 Million barrels per day. Yet in today’s “deficits don’t matter” world everything but everything is blamed for oil supply concern except geological limitations.

Continued economic growth predicated by cheap and abundant oil viewed through the perspective of such an inherently flawed argument seems to ignore all prejudiced, obscurantist and irrational baggage. Upbeat claims regarding abundant oil by Oil companies, OPEC, Governments, the International Energy Agency, and Automobile Associations amongst others obtain a legitimacy, which obviates the need to look at the social milieu for an explanation as to what is actually going on.

History however clearly instructs us that rationality (or in this case the lack thereof), choice and belief inevitably depend upon the existence of certain social structures and norms. Beliefs across groups of people can emerge under specific intellectual conditions informed by empirical problems and guided by respected research traditions. Such a methodology unfortunately rarely speaks to the social classes chock-full of pregnant confusion, largely ignorant to dynamics of energy supply, consumption and its relationship with societal well being. In other words, the masses will suck up mainstream media propaganda that we need to rid the world of terrorists and that oil will return to US$25 per barrel very soon. Continue your recreational shopping at your pleasure.

In many ways it is perhaps an historical curiosity that science was touted as having enormous practical and utilitarian value in informing and inevitably improving the physical conditions of life. This approach however in the face of mass consumption, aspirations and expectations of certain standards of living seems to carry no weight anymore. Instead many of us look to economists, politicians and other soothsayers to assure us that the science in regard to Peak Oil is wrong, if you want to know what’s happening to oil supply you’re better off reading your local Financial Times than consulting an oil geologist. The fact that oil reserves equivalent to five or so Saudi Arabias will be discovered and developed within a decade or so and that the oil price per barrel will return sometime soon to US$25 dollars per barrel are a given.

PowerLess NZ urge New Zealanders and politicians unafraid of ditching their dogmas to rationally question current assumptions. Consider our economic system, predicated on debt, fractional-reserve banking and fiat currency. Much of what we consider “value” in New Zealand is not determined by anything at all measurable or tangible it is merely a perception of an expectation of future use or gain.

This system is necessarily dependant upon limitless infinite growth to survive. Rational thought ought to inform all of us that this scenario is an impossibility theorem. Growth is not possible without energy and there is nothing on the market that can currently replace oil and natural gas. Without oil and natural gas our financial system is doomed. Several respected independent scientific sources predict Peak Oil, the time at which the demand for oil exceeds the available supply, to occur between 2005 and 2007. Richard Heinberg argues the answer to this dilemma is the one no one wants to hear. So we sit, and wait, and assume, and deny.

Steve McKinlay (c)
http://www.oilcrash.com/