Bill Totten's Weblog

Monday, March 28, 2005

The Big Rollover

Are We Facing Another Oil Crisis?

by Tefel Hall

tefelhall@msn.com (December 19 2002)


The Big Rollover is another term for Peak Oil, the point at which global oil production peaks and demand starts exceeding supply.

For the last hundred years, scientists have been trying to estimate how much oil is in the earth and how much longer it will last. For example, Albert Bartlett, a doctor of physics at the University of Colorado, has shown that even if the entire volume of the earth were filled with oil, the supply would not last humanity more than 342 years ("The Oil Coup"). Such calculations are great for keeping first-year calculus students busy; however, most serious analysts agree that they are completely irrelevant.

The important question for humanity, they say, is this: How long will cheap oil last? In other words, at what point will oil become so exorbitantly expensive that civilization as we know it cannot continue to exist? The answer is disconcerting. Experts from many different fields agree that the days of cheap oil are already over, and the ramifications are enormous.


Understanding the basics of oil depletion/production

It is widely accepted that the depletion of a finite resource such as oil follows a bell curve ("The Hubbert Peak for World Oil"). See first graph at

http://tefelhall.com/oldwebsite/Articles/The%20Big%20Rollover.htm


To understand this curve, start on the left side of the graph. It is plain that when oil was first discovered, only a dribble was produced. The reasons are fairly obvious. First, there was hardly any demand for oil, and second, engineers did not have the technological know-how to extract large quantities from the ground. Then, following the development of the oil combustion engine, the demand for oil picked up, and therefore so did production. More holes were drilled in the ground, and the industry's growing expertise led to a faster rate of discovery. These things account for the steep rise in the curve.

However, there comes a point when drilling more holes does not lead to an increase in production. All the really good oil fields have already been discovered, and the ones which remain are smaller and less accessible (like at the bottom of the sea). At this point, the curve starts to peak (or flatten out). And that is pretty much where we are today.

In the future, new oil fields will certainly be discovered, and some of them may be quite large. But petroleum geologists predict that each new hole which is drilled in the ground will have less of a chance of striking oil, and each strike, on average, will be smaller and of poorer quality. Meanwhile, old wells are drying up ("Investing on").

These things account for the downward slope of the curve. Eventually, the remaining oil becomes so hard to extract that the curve once again flattens out, as only a dribble can be pulled from the ground, no matter how hard anybody tries.

In short, the curve represents the rate at which oil is pumped, or depleted, and the space beneath the curve represents the total amount of oil that remains. Since we are now at the peak of the curve, we have, theoretically, consumed about half of the recoverable oil in the world. That means the glass is both half full and half empty. While it is true that there is still a lot of oil left, from now on, the rate of recovery will decrease.

Here is another way of looking at it: Picture a giant tap from which the world's oil flows. About a hundred years ago, someone opened the tap, but only slightly. Then slowly, over the last hundred years, the tap has been opening wider and wider. At the moment, the tap is open full blast, and oil is gushing out at an unprecedented (and unsustainable) rate. Soon, the tap will slowly start to constrict, until, about a hundred years from now, it will, for all practical purposes, close shut.

This theory of oil depletion has already proven accurate on smaller scales. The bell curve is used to predict the longevity of individual oil fields, as well as the life span of oil-producing regions. In Texas, for example, oil production peaked in the 1970s. In the Middle East, oil production may not peak for another ten years ("Oil Supply Prospects"). But globally, the peak is now, or next year, or certainly, within the next few decades (Magoon).


Understanding the basics of oil consumption/demand

The demand for a finite resource such as oil follows a very different kind of curve. It is widely accepted that demand for oil will continue to grow exponentially. This is due to population growth, and the fact that much of the underdeveloped world is just now starting to drive cars and convert to petroleum economies. See second graph at

http://tefelhall.com/oldwebsite/Articles/The%20Big%20Rollover.htm


The problem

By now, the problem should be fairly obvious. If both curves were superimposed, it would be easy to see that at some point in time, demand outstrips supply. Since for all practical purposes this point coincides with the peak of the oil-hump, it is often called the Big Rollover. See third graph at

http://tefelhall.com/oldwebsite/Articles/The%20Big%20Rollover.htm


The Big Rollover (often called peak oil), is the subject of a complicated scientific debate, and the actual (or predicted) shape of the rollover depends on which expert is crunching the numbers. The numbers, too, are contested, since no one can be certain how much oil is in the earth, or how future technologies may impact both supply and demand.

Yet despite the intricacies and uncertainties which surround this debate, the consensus of expert opinion is that the Big Rollover is happening now, or next year, or in the very near future: certainly, within the next few decades (Magoon). In short, the world oil market is currently in the midst of a grand transition, from a buyer's to a seller's market. And that means that oil is about to get a lot more expensive.


Then what?

In an ideal world, rising oil prices would spur investment in conservation and alternative energy technologies. A "price signal" would cause people to switch to more economical sources of energy (Fleming). It might be a bit uncomfortable, at first, but surely within the next few decades, some breakthrough technology will once again make energy cheap and abundant. Industrialized nations will easily be able to wean themselves off oil.

That is called the so-called "economic" model, and it's the scenario which many government and industry officials are pitching (Leach). Certainly, the oil industry doesn't want to alarm people into thinking that oil will soon become scarce. Their biggest fear is that people might switch to other sources of energy, before they have finished pumping all the oil out of the ground (Fleming).

Meanwhile, a significant number of futurists are screaming from the sidelines, trying to get the world's attention (Stanley). They claim that the economic model is patently unrealistic, when applied to a finite resource such as oil. David Fleming, author of The Lean Economy, is one such vociferous critic, and he points out at least four reasons why the principles of market economics do not apply.

First, he notes that the price of oil today has virtually no influence on the rate at which it is discovered. In fact, most of the oil consumed today was discovered over forty years ago. Back then, the world was in the midst of a discovery boom. But, according to Fleming, "There is no conceivable increase in prices" which could bring those boom days back (Fleming). In the words of another scientific doomsayer, "This is a matter of oil reservoir physics rather than production technology or economics" (Leach).

Second, Fleming claims that many economists have failed to grasp the importance of the Big Rollover. The problem is that they look at the total quantity of oil that is left in the earth, and therefore they see no reason for immediate worry. What they have failed to grasp, according to Fleming, is that the total quantity is largely irrelevant, since it is the rate at which oil is pumped from the ground which determines the world's supply. And, as the oil-tap starts to inexorably close, there is simply no way that producers will be able to supply an oil-thirsty world with all the fuel that it demands.

Third, Fleming decries the use of abstract figures which do not take into account the realities of specific oil-dependent industries. For example, he states:

"Arcane calculations about the impact of oil prices on growth rates are irrelevant. While it is true that oil has declined as a percentage of all energy use in the UK since 1973 (from 45 per cent to 33 per cent), the volume of transport, which depends entirely on oil, has doubled. We are twice as dependent on transport as we were in 1973 [the year of the Arab oil embargo]. Arguments about 'reduced dependency' would be correct were it not for one problem: we do not fill up our cars with percentages.

Fourth, Fleming claims that economists tend to presume, erroneously, that as soon as the price of oil becomes prohibitive, alternative sources of energy will suddenly flood the market, ready to heat the world's homes and power its cars. But Fleming points to studies which show that even a determined push toward renewable energy sources would not have any significant impact for at least another 25 years. That leaves a 25-year "energy gap" in which all sorts of global upheavals are likely to occur.

Fleming concludes that many economists are simply out of touch with the real world:

"So it does seem that one reason we find ourselves in this surreal situation, with devastating change unrecognized by the experts and dismissed by government, is that the problem falls outside the mind-set of market economics. Expertise, it seems, trumps common sense. Maybe, for a moment, we should stop thinking, and just feel the reality of energy famine. In the last few months, there are already people in the poorer countries who have found that the cost of paraffin for cooking is beyond their reach" (Fleming).

That passage was written in November 2000, when the price of oil was rising steeply after a decade of relative stability. Since then, prices have not come back down. In 2001, volatile oil markets convinced some analysts that the Big Rollover had finally arrived, as originally predicted more than thirty years ago (Hubbert, Fleming). Then the terrorist attacks of 9-11 caused a reduction in air travel, and global recession also slowed the demand for oil, perhaps postponing the inevitable slide down the depletion curve a little longer.

In 2002, oil markets remain volatile, and no one seems sure whether this is due to a flattening supply, OPEC militancy, or simply the political uncertainties caused by the war in Afghanistan, renewed tensions between Israel and the Arab world, and the current US saber rattling against Iraq. Perhaps the answer will be clear by next year. In any case, there's at least a good possibility that the amount of oil which is pumped from the ground today may be the largest daily total ever pumped - in the entire history of the world.


Doomsday scenarios

If, as Fleming and others contend, alternative technologies are in no way ready to make up for the world's dwindling oil supplies, then a lot of grim scenarios become plausible. One highly respected (albeit controversial) futurist predicts a total collapse of civilization within the next thirty years (Duncan). Others are less pessimistic, but their forecasts still abound with gloom and doom. They note, for example, that many solutions to the world's problems depend on a cheap source of energy. Drinking water can easily be made from sea water, for instance, but only if a cheap source of energy (such as oil) is available. They also note that technological cures have never fully materialized.

At present, the industries most heavily dependent on oil are agriculture and transport. When prices jump, these industries will be the first and most severely affected. Poorer countries (already ridden by debt because they must borrow money in order to import oil) will suffer famines due to food distribution problems and the prohibitive cost of irrigating and fertilizing crops. As people starve and industries grind to a halt, economies will collapse and political upheavals will likely become commonplace.

Nor will richer nations be spared the agonies of rising oil prices. In fact, some people point out that highly developed nations may suffer the most, because they have the farthest to fall. The US, for example, currently consumes about a quarter of the world's oil supply. This is an exorbitant amount, considering that Americans comprise only five percent of the world's population (Huffington). In this regard, an interesting analogy has been made by author and college professor Richard Heinberg:

"The significance of [The Big Rollover] is difficult to overstate. The industrial revolution, still continuing, is all about replacing human and animal labor with the work of machines running directly or indirectly on fossil energy. Each day, the energy from oil used by people around the world equals the work of some 180 billion humans. It is as if the average global man, woman, or child had 30 slaves toiling around the clock. But those petroleum "ghost slaves" are not evenly distributed. Each of us in the US has, on average, more than 120 of them. This is the energetic basis of our American Way of Life."

Can Americans cope without all their oily ghost slaves? Barring some new miracle technology, it appears the answer is no. If and when oil prices skyrocket, long gas lines and empty shelves may the least of America's worries. The US economy is built around the assumption of cheap, long-distance transport, and a sudden disruption of oil supplies could shut the US economy down "within days" (Fleming).

Even more ominously, futurists predict a semi-permanent state of war between oil-gluttonous nations, such as the United States , and the oil-rich Arab countries in the Middle East (Ehrenfeld).


America's dependence on foreign oil

Nixon once boasted that he was the first president to address the energy problem (LeRoy Miller 15). Certainly, every successive administration has also spoken of the need to lessen America's dependence on foreign oil. But rhetoric is one thing, and action is another.

As the oil industry rode the production curve skyward, reaping enormous profits, it undermined efforts to change US energy policy. Meanwhile, oil-producing nations have kept prices low, in order to encourage profligate consumption. The end result is that very little has been done to prepare America for the inevitable rollover. Richard Holbrooke, currently the head of the anti-terrorism task force at the Council on Foreign Relations, spoke publicly about this failure when interviewed for the program Frontline:

"If you believe, as I do, that our problems should be less dependence on oil, foreign oil, then the one president in our lifetime who really attacked this problem head on was Jimmy Carter with his Project Independence. And that project, which was designed to reduce our dependence on foreign oil over a ten-year or twenty-year period, was abandoned the minute his successors took power in 1981. I think that was a great tragedy (quoted in PBS: Frontline).

Given this lack of concerted action, it appears that America will probably face the full brunt of rollover, and the only real question is: How bad will it be? L B Magoon of the respected US Geological Survey says, "If we don't recognize the problem soon and deal with it, it's going to be quite a ride!"

Donald Hodel, former Secretary of Energy under Ronald Reagan, has put it more bluntly: "[The US] is sleepwalking into a disaster" (quoted in Kelly).

To say, however, that the US is wholly unprepared is somewhat misleading. Some years ago, someone asked Irwin Stelzer of The Weekly Standard what America's energy policy was. He replied: "Aircraft carriers" (quoted in Stelzer).

Those aircraft carriers are now arrayed against a single man, Saddam Hussein. Could there be a link between the Big Rollover and the current conflict with Iraq? Many analysts think so (Chin, Kolskegg). In fact, it's something of an open secret, as many very influential conservatives have publicly called on the Bush administration to "secure" a supply of Mideast oil before it's too late (Moorer, Lowry), and the oil-soaked objectives of some powerful US policymakers have been widely reported in the media (Klebnikov, Tolan). In any case, the fate of Iraq's oil wealth is certain to be a major issue following any war (Beaumont).


Conclusion

Modern politicians can't really say, "We're going to war because we covet more oil than we can cheaply get our hands on". Historians, however, invariably conclude, "The war was fought over oil". Given that historians always have the last word, it would be reasonable to place the burden of proof on anyone who claims that the current war with Iraq is not about oil.

Yet this particular war may not be the issue. The uncomfortable truth is that geologists have long predicted that the turn of the millennium would mark the beginning of the end for the world's petroleum economies (Fleming). Yet American policymakers have largely ignored their warnings. So now, or soon, Americans will face a stark choice: either send their sons and daughters off to die in foreign wars, or learn to live without so many oil-slaves. Either way, it is plain to see that the ramifications of the Big Rollover are enormous.


Works Cited

Beaumont, Peter, and Faisal Islam. A Focus: Attack on Iraq : Carve-up of oil riches begins: US plans to ditch industry rivals and force ed of Opec, write Peter Beaumont and Faisal Islam. @ The Observer 3 Nov. 2002: 16.

Chin, Larry. A The Deep Politics of Regime Removal in Iraq : Overt Conquest, Covert Operations. @ Online Journal . 24 Oct. 2002. 15 Dec. 2002. .

Duncan, Richard C. A The Peak of World Oil Production and the Road to Olduvai Gorge . @ Geological Society of America , Summit 2000 . 13 Nov. 2000. 14 Nov. 2002. .

Ehrenfeld, Temma, and Jane Byrant Quinn. A Iraq : It = s the Oil, Stupid. @ Newsweek 30 September, 2002. Vol. 140 Issue 14, p43 1p, 1bw; Database: MasterFILE Premier; also posted on MSNBC 2 Nov. 2002. .

Fleming, David. A After Oil. @ Prospect Magazine November 2000. 28 Oct. 2002. .

Heinberg, Richard. A Oil, War, and Terror. @ Museletter # 116 . Oct. 2001. 16 Dec. 2002. .

Hubbert, M. King. A Energy and Power. @ A Scientific American Book 1971: 29. Graph pictured in M. King Hubbert. The Coming Global Oil Crisis . 15 Dec. 2002. .

Huffington, Arianna. A Support Our Troops, Dump That SUV. @ Arianna Online . 14 Nov. 2001. 15 Dec. 2002. .

A Investing on the Hubbert = s Curve. @ Editor = s Comments. Oil and Gas Investor . Jan. 2002. 15 Dec. 2002. .

Kelly, Martin. A American Spies and Blood for Oil. @ Nonviolence.org . 15 Jan. 1999. 31 Oct. 2002. .

Klebnikov, Paul. A Hitting OPEC By Way of Baghdad . @ Forbes . 28 Oct. 2002: Vol. 170, Issue 9. Database: MasterFile Premier.

Kolskegg, Max. A 9/11: A Desperate Provocation by US Capitalism. @ Boston Indymedia . 24 Jan. 2002. 16 Dec. 2002. .

Leach, Gerald. A The Coming Decline of Oil. @ Tiempo [Date unclear, late 2001] 15 Nov. 2002. .

LeRoy Miller, Roger. The Economics of Energy: What Went Wrong and How We Can Fix It . New York : William Morrow. 1974.

Lowry, Richard. A End Iraq B To conclude the Gulf War, ten years later. @ National Review 15 Oct. 2001.

Magoon, L. B. A Running Out Of Oil? @ USGS 11 June 2001. 15 Dec. 2002. .

Moorer, Adm. Thomas H. A Oil is not well in the Gulf. @ WorldNetDaily . 23 Dec. 2000. 25 November, 2002. .

A Oil Supply Prospects. @ 15 Dec. 2002. .

PBS: Frontline. A interview richard holbrooke. @ Oct. 2001. 29 Oct. 2002. .

Stanley, Bruce. A Oil Supply Seen Set to Decline. @ The Washington Times 28 May 2002. 15 Dec. 2002. .

Stelzer, Irwin M. A What to Do About the Energy Crunch. @ Commentary March 2001.

A The Hubbert Peak for World Oil. @ Hubbert Peak of Oil Production . 12 Feb. 2001. 28 October, 2002. .

A The Oil Coup: Bush = s Master Oil Plan? @ 28 Oct. 2002. .

Tolan, Sandy . A Beyond Regime Change; The administration doesn = t simply want to oust Saddam Hussein. It wants to redraw the Mideast map. @ Los Angeles Times 1 Dec. 2002: M.1.

http://tefelhall.com/oldwebsite/Articles/The%20Big%20Rollover.htm


Bill Totten http://www.ashisuto.co.jp/english/

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