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.