An edited transcript of an interview on the Extraenvironmentalist Podcast, Episode #55. If you’d prefer to view the video interview that this excerpt is based on, you can watch it here: http://bit.ly/ZekRDz. After the transcript, some potential ideas as to how to put this into effect for Southland NZ are added.
Seth: Gail’s been in this peak oil scene for a long while, and she’s watched the whole scene play out. And being an actuary, she knows how to look at the numbers and see where the risks fall, and it’s very interesting her perspective that she comes from.
Gail: One kind of response is to kind of agree, but then put it out of your mind and say, “well, maybe it will happen to my grandchildren,” or something like that. Or maybe “she just doesn’t know what she’s talking about.” I think that the people who are closer to a situation, maybe the other actuaries for example, they look and they say, “Aha! I think she’s got something there.” Well, when I talk about the oil situation, I think I explain it a little bit differently than what a lot of people understand.
The way I see peak oil is different. The way I describe things is sort of in terms of a triangle of resources, and the way I see things is that we start at the top of that triangle, and the resources at the top of the triangle are the easy-to-extract, cheap oil. We started there a long time ago, and most of those are already extracted. Then we have to move down and we get to the little bit more expensive, little harder to extract oil, or maybe a little farther away, or maybe not quite as good a country that’s got a good political system.
Figure 18. Oil and Gas Resource Volume Versus Resource Quality. This graphic illustrates the relationship of in situ resource volumes to the distribution of conventional and unconventional accumulations, and the generally declining net energy and increasing difficulty of extraction as volumes increase lower in the pyramid.
Source: "Snake Oil: How Frackings False Promise of Plenty Imperils Our Future" Chapter 2, ‘Technology to the Rescue’ - Richard Heinberg. http://bit.ly/1iqIAJa
We keep going down the triangle, and there always looks like there’s lots more oil there, but what happens is the more oil that’s there, it’s harder to extract. It’s more expensive to extract and it disrupts the economy. It’s not the cheap oil that our economy started with when the economy was first set up. So it tends to lead to recession.This was never factored in.
People who are looking at the situation just look at the big triangle and say, “My! There’s lots and lots of oil down there.” Yeah, there is lots and lots of oil down there, and that oil may permanently stay in the ground because it’s so expensive to extract and it causes so many economic problems. When we do extract it, we really can’t afford to extract it.
Well, I think what happens is that the oil prices don’t necessarily go up all that high. In fact, I think what we’ve been seeing is exactly what happens. The price goes up a little, but what happens is that you start getting debt defaults. It goes up and you start seeing the situation like we had in Europe.
Europe is a little bit different than the United States because in the United States, we’ve got cheap natural gas which is kind of helping us along to kind of offset the high price of oil. But in Europe, they don’t. They’ve got high-priced natural gas besides high-priced oil, and they’re the ones that are going to be hit worst by the debt defaults. But I think that the way this all evolves is through debt defaults from the high price of oil, and we’re going to see Greece and maybe we’ll see Spain – I think we’re also going to see some kinds of situations in some of the oil-producing countries, for instance Egypt, the countries that find that they’re out of balance as well. And we’re going to see bad financial situations there too. It’s not just in Europe, but the way this all plays out as peak oil, what it looks like is financial collapse.
I think a big piece of the reason why the economies of Greece and some of these other countries are falling apart is because they are such big oil importers, such big users of – they’re so dependent on fossil fuels. I think Greece is actually coal that they’re using a lot of, but what happens is that as the prices increase, the tourists, for example, are not able to travel as much, so it cuts back on the tourist packages that they were selling. And so things don’t go as well. They lay people off of work, and you start seeing the recession that we see, and the taxes aren’t high enough to pay the benefits that they’ve promised the laid off workers, and you start seeing the pattern that we see today.
I think what we’re going to see coming ahead from what is being called peak oil, but I guess it’s really the high oil prices is we’re going to see more and more of what people will think of as financial collapse. And that’s going to be happening around the world. It probably will start in Europe, but it’s going to spread to the United States. It may very well spread to China. It is going to have an impact on places like even Africa too, because they are depending on us for some of the exports that we send them as well.
It’s hard to see a good solution to the problems that we’re coming to right now. I mean maybe there are few mitigating things, you know, that we can have our gardens and we can try to make things better, and not plan for a new bigger car and a new bigger house, and a new bigger all of these things, but I think a lot of it is a question of how long it takes for the whole situation to play out. We don’t have a whole lot of control over it. If it plays out over a long enough period, it may very well be that some of those mitigating things that we do will actually be a reasonably good help for some people…
Justin: So Gail was saying that a lot of what we actually do to respond to peak oil depends on how fast this plays out. We really are at the mercy of how quickly we’re depleting our oil reserves, but we’re also at the mercy of the geology and how quick the oil does deplete because we can do things like frack the land and pull out shale oil, and delay some of the absolute scarcity of oil, but like Gail was saying, if you look at the big picture, it is like a triangle. And as you get further down from the tip of the triangle, which is that easy-to-extract oil, as you get towards the middle, if you’re still inside it, you just look down and you see – wow, there’s so much oil remaining. And you see that everywhere now, with so many reports that are coming out saying that we just have basically a limitless oil reserves. But that oil is not the same as the stuff that was at the tip of the pyramid…
Editor’s note: The Extraenvironmentalist spoke with Gail Tverberg of ‘Our Finite World’ during the 2013 #degrowth conference in Montreal. The full podcast episode is available to listen to here: http://bit.ly/1qhWluX
Peter Brown on degrowth – 6m
Michael M’Gonigle on education – 17m
Josh Farley on money and alternatives to GDP – 26m
David Suzuki on localism – 43m
Bill Rees on denial – 53m
Mary Evelyn Tucker on a new narrative – 1h06m
Janice Harvey on culture change – 1h12m
Charlie Hall on energy return – 1h27m
Gail Tverberg on peak oil – 1h43m
Juliet Schor on working less – 1h5om
Joan Martinez-Alier on ecological economics – 2h6m
Erik Assadourian on degrowth – 2h15m
Gregor Macdonald on the IEA, claims about US oil production and Jeremy Grantham – 2h38m
Transcripts of the other interviews from this 2013 ‘degrowth’ episode are being released following on from the 2014 degrowth conference in Leipzig, to keep the buzz going, and stimulate further conversation. For a playlist of the video recordings from the live sessions from Degrowth Conference 2014, click here: bit.ly/degrowth2014_sessionsplaylist_ee.
This transcript was originally prepared for my blog, Southern Energy and Resilience. Regular readers will know that I try to put a Southland, NZ spin on things I post. Here’s a few thoughts on what this means for this region:
New Zealand is in many ways exceptional when considering Peak Oil. It has its own oil and gas supplies, which at the time of writing are producing enough liquid fuel to support around 70-75% of our current needs. However, our current proven reserves are subject to the same eventual declines that we’re seeing globally. Recent efforts to find further productive wells in risky deep sea locations are so far proving fruitless. Reliance on the same strategy as in the USA – massive expansion in fracking activities – is both a short term strategy only, and also dependent on huge capital expenditure which has to be debt financed.
Globally, this risk is growing of supply disruption, because of soaring costs of production, and a ceiling on the price the market can bear, beyond which the global economy goes into recession:
“The world’s leading oil and gas companies are taking on debt and selling assets on an unprecedented scale to cover a shortfall in cash, calling into question the long-term viability of large parts of the industry.
The US Energy Information Administration (EIA) said a review of 127 companies across the globe found that they had increased net debt by $106bn in the year to March, in order to cover the surging costs of machinery and exploration, while still paying generous dividends at the same time. They also sold off a net $73bn of assets.
This is a major departure from historical trends. Such a shortfall typically happens only in or just after recessions. For it to occur five years into an economic expansion points to a deep structural malaise.
The EIA said revenues from oil and gas sales have reached a plateau since 2011, stagnating at $568bn over the last year as oil hovers near $100 a barrel. Yet costs have continued to rise relentlessly. Companies have exhausted the low-hanging fruit and are being forced to explore fields in ever more difficult regions.
The EIA said the shortfall between cash earnings from operations and expenditure — mostly CAPEX and dividends — has widened from $18bn in 2010 to $110bn during the past three years. Companies appear to have been borrowing heavily both to keep dividends steady and to buy back their own shares, spending an average of $39bn on repurchases since 2011.”
Full article here: http://bit.ly/1pKCvre
And in recent months, sell prices have been trending down again, worsening the situation for the producers, due to major reductions in demand from Asia, amongst other reasons:
“So far this week, oil prices in New York and London continued the collapse that has been going on since mid-June. New York futures closed at $91.67, after hitting the lowest intra-day level since May 2013, and London closed at $98.18, the lowest close since April 2013. As has been the case for several months, the markets are seeing too much production and too little demand. US crude output hit a 28-year high last month and Libya’s National Oil Company is saying that Libyan production is up to 800,000 b/d, despite the turmoil in the cities.
The EIA and OPEC have lowered their expectations for global demand growth in 2014 and Saudi Arabia announced that it had cut its production by 400,000 b/d in August due to a drop in exports to Asian markets.”
Full article here: http://bit.ly/1qpyoDL
Yeah, the big news right now is that the industry needs prices higher than the economy will allow, as you just outlined. So we are seeing the major oil companies cutting back on capital expenditure in upstream projects, which will undoubtedly have an impact a year or two down the line in terms of lower oil production. That is why I think that Campbell and Laherrère were right on in saying 2015, 2016 maybe, we will also start to see the rapid increase of production from the Bakken and the Eagle Ford here in the US start to flatten out. And probably within a year or two after that, we will see a commencement of a rapid decline.
So you know, on a net basis, taking all those things into account, I think we are probably pretty likely to see global oil production start to head south in the next year or two.
But this change in capital expenditure by the majors, that is a new story. You know, just a couple of years ago, they needed oil prices around $100 a barrel in order to justify upstream investments. That is no longer true. Now they need something like $120 a barrel but the economy cannot stand prices that high. So you know, if the price starts to go up a little bit, then demand just falls back. People start driving less. And so the economy is unable to deliver oil prices to the industry that the industry needs. This is—I think Gail Tverberg is saying this is the beginning of the end. I think she is right.
Full article here: http://bit.ly/1lYqfFg
In NZ, we are geographically dispersed, and heavily dependent on oil supply in our economy. Furthermore, we produce none of the electronics, etc that will be unavailable if disruption in globalised supply chains occurs.
Risk of long term disruption from fuel shortages is growing yearly as our energy budget, or the net energy available to us as a species declines, and the situation we face may well be very different from the past, for a set of reasons Gail Tverberg outlined earlier this year:
The big problem in the past with civilizations that collapsed was that humans were using renewable resources faster than they could renew. Population continued to expand as well. The combination of rising population and depleting soil and forest resources led to diminishing returns, lower wages for many workers, and difficulty funding governments. A 500 year gap between civilizations took the population pressure off an area. Forests were able to regrow, and soil was able to renew (at least partly through regeneration of soil by erosion of base rock).
Today, we sill have the problems we had in the past, but we have some new ones as well:
- We are depleting aquifers much more rapidly than they regenerate. In many cases, the water table is far below what can be reached with simple tools. It will take thousands of years for these aquifers to regenerate.
- We are depleting minerals of all kinds, so that we now need “high tech” methods to extract the low ore concentrations. These minerals will be out of reach, without the use of electricity and fossil fuels. In fact, the vast majority of fossil fuel energy supplies will also be out of reach, without today’s high tech methods. Eventually this may change, with new fossil fuel formation and with earthquakes, but the timeframe is likely to be millions of years.
- Most people today do not know how to live without fossil fuels and electricity. If fossil fusel and electricity disappeared, most of us would not know how to produce our own food, water, and other basic necessities.
- Most of us could not just “pick up and do as we did before,” with respect to our current jobs, if the government and 95% of the population disappeared. Our jobs are often supported by global supply chains that would disappear, as well as direct use of fossil fuels and electricity.
- The world is sufficiently networked that most of it is likely to be drawn into a world-wide collapse. In the past, areas that did not collapse continued to function. These areas could act as a back-up, if functions were lost.
In the past, the 500 year gap was enough to allow regeneration of forests and soil, once population pressures were reduced. If that were our only problem now, we could expect the same pattern again. Such a regeneration would allow a reasonably large group of people (say 500 million people) to get back to a non-fossil fuel based civilization in 500 years, with new governments, roads and other services.
In such a new civilization, we would likely have difficulty using much metals, because ores are now quite depleted. Even reprocessing of existing metals is likely to require more heat energy than is easily available from renewables sources.
We are now so dependent on fossil fuels and electricity that any collapse that does take place seems likely to be faster than prior collapses. If the electric grid goes down in an area, and cannot be repaired, most business functions will be lost – practically immediately. If oil supply is interrupted, it also will bring a halt to most business in an area, because workers can’t get to work and raw materials cannot be transported.
We are being told, “Renewables will save us,” but this is basically a lie. Wind and solar PV are just as much a part of our current fossil fuel system as any other source of electricity. They will only last as long as the weakest link–inverters that need replacing, batteries that need replacing, or the electric grid that needs fixing. We are being told that these are our salvation, because politicians need to have something to point to as a solution–not because they really will work.
For the full article: http://bit.ly/TOXvkL
How do we address these risks?
Firstly, we need to know as a nation what they are, and their relative importance. The Wise Response Appeal, here in New Zealand http://bit.ly/wiseresponse, is calling for a non-partisan appraisal of the global risk environment we’re operating in, and asks the question: “As demand for growth exceeds earth’s physical limits, causing unprecedented risks, what knowledge and changes do we need to secure New Zealand’s future wellbeing?”
I think that’s a really good starting point, and will hopefully point central government, and in time, local government, in the right direction if it is allowed to inform policy decisions.
However, in the meantime, and because we may not have that much time, I feel it’s imperative for local government, particularly the likes of our regional economic development body to consider putting some money into heading in the right direction, aside from central government directives. That direction acknowledges that; the oil won’t be with us forever, that it will be very difficult to ‘adapt’ at the point of crisis, and that ‘degrowth’ in economic activity is a reality we’re facing far sooner than the mainstream media will admit (with some notable exceptions: http://bit.ly/1pKHXZx http://bit.ly/1zhiyNW).
In Southland, we have some of the most productive farmland in New Zealand, and it’s possible that given our low population density and remoteness from nuclear facilities (try managing the waste at those locations successfully, without the high energy budget we currently are squandering…), that we have the potential to be a place where humans can continue to thrive.
I’ve already posted some ideas regarding how we might enable this under the ‘how’ category http://bit.ly/1lzmhmD on the blog, and will continue to do so. In the meantime, I’d like to add that it would make sense for Venture Southland and the Regional / District Councils to consider the following observation when deciding how much resource to throw at preparation for this probable future:
” 3. A love/hate relationship with risk. It’s a paradoxical idea, but one way to build resilience, or antifragility, is to keep the vast majority of the business as safe as possible, but then take big risks – ones that may pay off 10-fold or more – with a smaller part of the business.
Think of the famous idea from Clayton Christensen of trying to disrupt or cannibalize your own business before someone else does. Imagine setting up a skunk works to identify major risks to the business stemming from resource constraints or climate change – and then lean into those risks and come up with products and services that avoid them and challenge the core business (for example, a car company investing in car sharing programs which consumers use to save money, but also reduce material and energy use dramatically).”
For the full article: http://bit.ly/1qOsSbF
We already have some independent economic analysis supporting this general direction in the form of the BERL report from 2012: http://bit.ly/1qpuVVU http://bit.ly/1qpwP8O and Venture Southland continues to explore these possibilities: http://bit.ly/1qpv5N4, however, the content of the major development initiatives as outlined in the annual report http://bit.ly/1qpvsHd is mostly lacking in this type of thinking, despite my submission suggesting some potential avenues to explore http://bit.ly/1sTdmeB.
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