Peak oil and growth

Yesterday’s oil production chart prompted some interesting discussion on the economic outlook for a world facing physical limits to energy resource extraction, and the peak of oil production in particular  It is one more important factor to add to the impact of debt dynamics and the political response to recessionary conditions when considering the global economic outlook.

I have some expertise on the interaction of energy supply and economic growth and will put forward my views on the matter in this post.  First, however, I need to be clear that my expertise is not of a engineering or geological nature, so the real scope of expanding production of oil, tar sands, coal seam gas, and even renewables in the near future is the uncertain part of my analysis (and of the industry in general).  Most graphs in this post are from the BP Statistical Review of World Energy 2011.

Probably a wise place to start is from the beginning of the modern Limits to Growth movement, which gained prominence with the publication of the Club of Rome’s book of the same name in 1972. This book, by Donella Meadows and colleagues, reports on the results of a computer simulation of the economy under the assumptions of finite resources. In what was cutting edge systems model simulation at the time, the World3 computer model produced scenarios showing that under various assumptions, a decline in the rate of extraction of non-renewable resources will lead to a decline in global food and industrial production, which will in turn lead to a decline in population and greatly reduced living standards for all.

The following image is one example of the results of their simulations, showing a peak of industrial output around 2010-2015.

While I don’t doubt the finitude of many natural resources, and that the human population cannot grow indefinitely, I doubt that finite limits of a handful of resource inputs to the economy necessarily means that economic growth, in terms of producing type of goods and services that provide increasing value cannot continue, even if it is necessarily at a much slower pace.

Achieving a continuation of increasing real value of production, with a declining rate of energy resource consumption, is quite a challenge.  Some theories suggest that much of humanities productivity gains over the centuries have been due to a gradual process of substituting human labour for energy services, in the form of mechanisation and automation.  So close is the relationship that energy use is often taken as a proxy for economic growth.

However, there are many different energy resources available on this little planet, and there will be a degree of substitution towards other energy sources and each hits their geological and technological limits to production.  This substitution could enable a continued growth in useful energy sources for economic activities for some time.  Coupled with gains in the efficiency of use of energy for services which consumer ultimately value, my view is that any period of economic decline, as a result of peaking production of a single energy resource, will be far less dramatic than the World3 scenario modeled in the above graph.

Substitutions will also be made to society’s capital stock over time.  Our oil-dependent transport capital – the stock of vehicles, ships, and aircraft (amongst other oil-dependent industries) – will be gradually replaced to be not only more energy efficient, but potential run on different fuel sources.

The diagram below, from the US Energy Information Administration (EIA), shows the relationships between energy source and economic activity in the US in 2010.  We can see that 71% of oil consumed is in transportation, making up 94% of transport energy use.  The most noticeable part of this diagram is that each economic sector currently uses multiple energy sources, and I expect the change over time to show that energy sources for each sector are becoming more diverse.  A peak in oil production will continue this trend.

On the production side, we can see that non-oil energy sources have been developed rapidly over the past decade or so as a response to a combination of new technology and price signals.

We can take a look at the big picture first, with the composition of global energy production (aka consumption).  The graph below shows that the fossil fuels of coal, oil and gas have been the mainstays.  Hydro-electricity, nuclear and renewables have seen more growth than oil over the past 25 years.

In the US over the very long term we can see the gradual changes in energy source composition more clearly, with coal seeing a long period of stagnation while oil, gas, and later nuclear, were rapidly growing (below).

Next, we can break down each energy source and examine the production and price changes over time to give a better indication of how energy substitution is currently playing out.   You will have to excuse the fact that I am ignoring the geopolitical gaming that often accompanies large-scale resource development, and especially the role of State-sponsored energy companies in Brazil, China and elsewhere. The political side of resources is also an important determinant of market conditions.

First cab off the rank is oil.  We can see clearly in the graph below that global oil production has plateaued since around 2003, and that North America has seen a gradual decline in oil production, while the Middle East is the source of most growth of the past few decades.

The simple economic argument is that if prices increase, and the only barrier to supply is increasing marginal costs, then production volumes should increase.  For the wonks out there, resources are one of the few markets that closely behave as predicted by the basic medium term supply and demand framework, as they typically face increasing marginal cost for expansion of production due to geologically more difficult locations of each new deposit discovery.

Since 2005, crude oil prices have stayed stubbornly high (below), even in light of the slump in global economic activity as a result of the financial crisis.  At the same time, oil production volumes globally have plateaued, with no more oil being produced in 2011 as 2005.    This is unlike many other energy resources, and does signal that supply is restricted.  That is not to say that there are not many oil companies looking to take advantage of the price, and that with substantial investment, more oil could be produced from marginal reserves in the future.  Without a new technological advancement in oil extraction, the chances of a renewed growth in production are slim, and the expectation is for the plateau to continue for the immediate future.

Moving on to coal, which has seen similar price gains over the previous decade, in the order of 200% in some cases.  Production volumes have also grown dramatically, with global production around 60% higher than a decade ago (see below).  This is typically the type of supply response economists expect from price increases in resource markets, indicating perhaps even moderate rates of production growth are achievable at prices below the current level.  Whether or not any kind of global agreement in climate change heavily impacts this market in the near future is yet another political game I will have to ignore for now (but previously considered).

Natural gas shows the same expected market response to prices increases we saw with coal.  Prices have risen significantly since around 2003, along with production across most regions.

Finally, the remaining 15% or so of world energy production – nuclear, hydro, biofuels and renewables – show extremely high growth rates in terms of energy production.  There are some exceptions in this bunch.  The nuclear industry is expected to continue its decline, while limits to suitable locations for large-scale hydro may temper the growth of this industry, even if opportunities for small-scale hydro are widely embraced.

The future of bio-fuels is particularly uncertain and prone to political influence, due to the relationship between food cropping and biofuels production.  Complementary food production with bio-fuel by-products is one area that will continue to grow.

Development of all these renewable energy sources will be supported by technological innovation, which, relative to fossil fuels, is in its infancy.

Where does all this leave us?

First, we need to acknowledge that cheap energy has been a key ingredient in the rapid economic growth seen over the past century.  But, the above discussion shows that substitution of energy sources is a slow ongoing process that the peak of oil production may simply accelerate, but may come at a cost to the rate of growth.

And there are many other factors at play.

The rate of population growth will greatly determine the per capita wellbeing in a time of limited growth due to an energy transition.  If the trend of declining population growth continues (global population growth now around 1.1% compared to 2.1% in the 1960s), this will contribute to maintaining per capita wellbeing.

Further, developed societies may adjust to taking productivity gains as leisure time instead of more work time, dampening growth in demand for energy resources.

Often forgotten is that fixed resource inputs, even critical ones, don’t always stop growth. There are always 24 hours in a day, but that doesn’t stop us producing more each day. If a shortage of hours was encountered, would a sudden change to 23hrs (a 4% decline) have a dramatic impact? Or would society easily adjust to this new environment with minimal impact on quality of life?

While a smooth transition to prosperity under much greater limits on energy resource inputs to the economy is theoretically possible, I don’t expect this to be our future reality. Self interested governments, businesses and the general public will react to short term shocks in unexpected ways, potentially promoting conflict, and taking the bumpy road.  But the peak of oil production itself will not stop progress altogether.

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Comments

      • Or is it?

        On the one hand yes, undoubtedly.

        But on another, our dreams of the stars and the need for the growth we have (ie we need a BIG tech base and population to attain the stars) may be an illusion.

        JMG certainly thinks so:

        http://thearchdruidreport.blogspot.com.au/2011/08/elegy-for-age-of-space.html

        The question for me is always – what will win out for us – our base animal drives (which in general rule most of the time) or our ability to leverage rationality.

        Or maybe it will always be the case that we will progress “forward” until we get an enormous fright at which point we will overreact and make a mess of things.

        p

        • “…..maybe it will always be the case that we will progress “forward” until we get an enormous fright at which point we will overreact and make a mess of things….”

          I admire Cameron Murray’s honest outlining of the facts when so many of his Green mates are raving ideologues. Matt Ridley says something similar to what you just did, Peak Oil Poet – in his book “The Rational Optimist”. He says that the only thing to be really pessimistic about is political self-fulfilling prophecies.

          What I think is that the very cities and States in the USA that Greenies love to hate, will end up showing humanity the way forward, simply because they continue to accumulate PRODUCTIVE CAPITAL faster than everyone else, and to have the largest discretionary incomes due to minimal regulatory over-reach cost impacts.

          Humans will relinquish the least efficient features of their transport as energy prices rise, but they will NEVER relinquish “automobility”, and for good sound rational economic reasons even if they do not realise this.

          The modern economy is based even more on “automobility” than it is on “cheap energy”. The former USSR already tried forcing everyone to live in apartments and catch trains. This was NOT an economic “advantage” to them.

          • I think we’ll keep “automobility”, but that it may involve a lot more bicycles and fewer cars than it does at the moment.

          • I still pick something a little less sweat inducing and a little more protective against the weather…..!

            BTW I am a lifelong cycling buff myself, but was converted by THE cycling guru John Forester 25 years ago, to see that cyclists best interests are served by being “pro-roads”, NOT by being “anti-road – pro special facilities for cyclists”.

            http://www.johnforester.com/

  1. Thanks for this. Personally I expect we will find alternative energy sources, but I also think it likely we are reaching peak population. In my view that is not a bad thing at all…particularly as so many of the 7 billion souls on this planet are yet to achieve our standard of living.
    The major question now, if we are at peak oil is whether the alternative sources of energy will be sufficient to support the current population of the planet, with enough spare capacity to lift the living standards of all to our level..and on that I am not hopeful at all.
    To me a stable global population living in harmony with ourselves and our surroundings, with all of our collective intelligence used to common advantage, should be the real goal….not some slavish commitment to growth at all costs.

    • Ironically, the entrepreneur who was working on “fracking” for 30 years, George P Mitchell, was also a huge funder of environmental activism. He even funded the original “Club of Rome” talkfest.

      That’s a guy who walks the walk as well as talks the talk. He can die knowing that he 1) did his bit to warn humanity about the preciousness of resources
      2) gained humanity another few centuries of energy (and an improved form, at that) with a tech breakthrough.

  2. An excellent post Cameron – much information and food for thought.

    Let’s look at this through rose glasses and assume that our saviour will be LNG. I have confidence that technology will overcome the existing problems, and it will be suitable as a replacement fuel for our transport and electricity generation needs. Then let’s assume that oil production will be able to continue to meet the needs for synthetic goods.

    My caveat on the above is that I believe the supplies of oil will show signs of running out much faster than we think, so there will be an impact point.

    What do you see as the disruption cost to the global community in the conversion of existing infrastructure and vehicles to LNG use. How many trucks are there in the world – how long will it take to convert them? How long will it take to replace old vehicles with new ones that accept LNG?

    Alternatively could that shift be dramatic enough to actually boost GDP globally for some years?

    • “Alternatively could that shift be dramatic enough to actually boost GDP globally for some years?”

      That is something that crossed my mind when writing this post. In any economy downturn there is typically a large pool of idle workers. If these workers happen to have technical and construction skills, a logical government stimulus measure would be to invest in renewables or other emerging energy resource.

      One could easily imagine that cash for clunkers type of programs, which deliver short term benefits in terms of employment etc, would be implemented as a way to update the vehicle fleet.

      There are figures about on the average age of the vehicle fleet. It is less than a decade in most developed countries, more in the US, and much more in the developing world. So 15 years or so is a ballpark figure of the time to replace most of the worlds road vehicles.

      • Let’s assume that many newish vehicles can be converted and perform effectively for the usual period of use (actually trucks running on gas won’t last as long, but lets overlook that)

        So what if we assume a period of just 7.5 years to convert and replace fleets, as well as convert all oil fuel burning generators/ships/locomotives etc. to gas or coal.

        I’m remaining optimistic.

        Will 7.5 years of economic stimulus not make a difference. Each country will convert their own fleets, gas tanks, regulators, parts have to be manufactured and installed. Service stations need to be converted, maintenance staff need some retraining.

        It would not be a small exercise, even in my “best case scenario”.

        • While a transition from oil to natural gas is certainly possible, indeed probable, its important to note that this will be the first energy transition in human history from a more convenient, more energy-dense fuel to a less convenient, less energy-dense fuel.

          i.e. Wood -> Coal -> Oil -> Gas.

          This transition will be taking place while more than 2 billion Asians are moving from a low-energy lifestyle to a high-energy lifestyle. A massive challenge.

          P.S. The coal production chart for the Asia-Pacific is truly horrifying.

          • perhaps not in itself a problem, as long as we continue to also require less energy. Some things are getting more energy efficient.

            My phone for instance gets by for 3 days on a 5Wh battery, my laptop could easily be charged by solar but my desktop could not.

            Other things such as fridges and cooking perhaps not.

            It is food for thought.

          • The increasing demand for energy coming out of Asia will completely overwhelm any gains from energy efficiency.

            While its true that energy consumption per capita has plateaued in most developed countries (but not Australia), per capita energy demand from developing countries (particularly China) is exploding.

          • >The increasing demand for energy coming out of Asia will completely overwhelm any gains from energy efficiency

            agreed, but hopefully not the combination of that + diversification.

            (trying to see other than gloom)

            Some years ago I compiled this list from my first electronic encyclopaedia. I immediately saw that when developing countries (which have much more massive populations) start even approaching our old demand levels we would simply not have enough energy to meet demands.

            Energy consumption (1987)

            Ethopia -> 17 KwH/person
            Indonesia -> 195 KwH/person
            India -> 272 KwH/person
            China -> 459 KwH/person
            Sth Korea -> 1902 KwH/person
            HongKong -> 4023 KwH/person
            UK -> 5484 KwH/person
            Japan -> 5739 KwH/person
            W Germany -> 6867 KwH/person
            Australia -> 8224 KwH/person
            USA -> 11193 KwH/person

          • Asia is about to hit perverse limits to continued rapid growth, similar to what Japan hit in the 1980’s. Asian Crisis 2 will be far bigger than Asian Crisis 1.

            You can’t have property price bubbles as big as China and India and not hit a growth limit hard and messily somewhere along the line.

    • Peter,

      Assume all vehicles in the world moved to LNG overnight (Unrealistic i know). Isn’t this merely kicking the can down the road a couple more years? LNG has the same flaw as oil does, it will run out eventually.

      The other disturbing thing to note is that production of conventional crude oil peaked in 2004 (http://en.wikipedia.org/wiki/Peak_oil) with the extra coming from things like Shale oil and tar sands. If we are already tapping into these unconventional resources then that means that we are expending considerably more energy to extract this oil than we used to for conventional oil.

      Let’s not forget that there is only a handful of major oil exporting countries and as their own domestic needs increase they will be exporting less oil to the rest of the world.

      Also, i am not sure how much truth is in the Wikileaks articles but there was one which stated that the Saudi’s have overestimated their recoverable reserves by as much as 40% (http://www.guardian.co.uk/business/2011/feb/08/saudi-oil-reserves-overstated-wikileaks)

      Experiment time, assume the world economy and population grows at 3% per year (this is not really that much) then it would only take another 23.45 years to double in size [algorithm used — Td = log(2) / log(1 + r) ]

      From what i can see this means that we have 3 main options to allow for continuation of growth:
      1- Find a lot more resources
      2- Become vastly more efficient
      3- Substitute fossil fuels for a lot of renewables

      I honestly can’t see it happening. Ergo, growth cannot happen at this rate or even anywhere close to this rate and even if we can manage this feat how on earth is anything going to happen after the 24 years is up? The governments around the world really need to get their fingers out and stop worrying about boat people or other equally frivolous agendas

      • ILB ” LNG has the same flaw as oil does, it will run out eventually”

        Yes I agree. Honestly I don’t know what the gas reserves area, and I suspect that estimates are rough anyway, but it will buy us time, and that will be important.

        20 years? 50?, perhaps 100? – who knows?

        I have faith in our ability to develop technology that far exceeds todays efficiency levels. We get plenty of energy, we just can’t use it effectively at this moment in time, and we won’t change that until it becomes an imperitive.

        Prices of carbon fuels must increase.

        • I expect that we will be able to exploit methane hydrates (clathrates) before long.

          They dwarf all other carbon based energy sources (AFAIK).

          Our real “peak” issue problems are quite likely to be elsewhere – and if the “Black Swan” principle comes into play it will be a resource none of us had really ever considered a potential problem.

          p

          • Methane hydrates are a dangerous thing to mine – particuarly since it is a highly potent greenhouse gas. There’s enough deep in the sea floor to warm our planet significantly. Its a risky thing to mine since the act of tapping the source itself could cause instabilities in the sea floor and in the rest of the hydrates.

            I would rather nuclear in terms of risk.

          • darklydrawlMEMBER

            PoP, I think you are likely to be correct in saying it might be something other than energy constraints that get us first.

            Two things that spring to mind would be some sort of ecological collapse which results in mass starvation, and/or a global highly infectious super virus that wipes out millions.

            Of course we could always get slammed by another incoming meteor…

  3. Jumping jack flash

    But has consumption increased?

    Looking at the history and projections, consumption has generally fallen and it is expected that consumption of non-renewables (except gas) will continue to fall in the future.

    is this because of supply constraints or demand constraints? Look at the increased production of bio-fuels.

    Perhaps this is a bit chicken and egg?

    This is not to say that a constrained supply due to peak oil isn’t going to happen in the future, but it is a very interesting time to analyse peak energy supply, demand, and price while the world is in one of the greatest demand slumps in history.

    • nice collection … thanks 🙂

      It seems strange to me that in some circles saying “Malthusian” seems synonymous with short-sighted and wrong.

      The logical conclusion of continued growth is that the place is filled up.

      Already we see icons of animals being used for things (Elephants, Tigers, Panthers) which are facing extinction. Won’t it be a strange world when we keep using these icons and not only has noone seen one, but they don’t exist anymore

      • Malthusians ALL die believing that if only they had lived a few more years, they would have seen the collapse they were devoted to promoting all their lives.

        Technological PESSIMISM is a self fulfilling prophecy, just like all civilisational death of self-belief.

    • Fantastic links – thanks lemmiwinks…

      I sometimes think that we scientists/engineers/physicists must have a completely different brain structure to finance/economist types – we think so differently.

      • Check out Jesse Ausubel. SOME scientific types are technology optimists. I don’t know what the rest bothered to become scientists FOR. To gain credentials for political activism?

          • I’ve heard it all before.

            But I read that to the end.

            Before I quote a bit from the last para, I would like to say I have very little respect for experts who fail to notice that the housing bubbles around the world happen to correlate with REGULATORY RATIONING of land, not any ACTUAL “shortage”. Those huge spikes on graphs of “The US housing market” actually relate to approx 6 States. If you redo graphs “by State”, there are 6 States with even more lunatic looking spikes, and about 40 States with near “flatlines”. These are the States with relative “freedom to build”.

            But back to your linked article:

            “…..The frustrating thing for me is that I believe it is possible to beat this problem, but only if we aggressively alter our practices. We would never adopt the necessary radical changes without first agreeing on the potential for disaster otherwise……”

            What people like this guy fail to realise is that tens of thousands of tech gurus and every clever venture capitalist in the world knows there is shiploads of money to be made out of solutions to “peak oil”. The technology optimists don’t get covered by the media because the media is committed to 1) doom and gloom “SELLS”
            2) slavish adherence to leftwing and Green P.C. mantras.

            I am with Matt Ridley on this – it is “self fulfilling prophecy” politically driven stupidity that is the greatest threat to humanity today, not “resource runout”. Communism, for example, promised not just “equality”, but promised to OUT PRODUCE the free market. Green autocrats today promise to “save the environment”. I trust these promises just as much as I trust assurances that Communism could out-produce the free market. “Unintended consequences”, Hayek called them.

            Many Greens SPEW every time there is a technological breakthrough. More than one has said something like “the LAST thing humanity needs is a costless energy source”. One deep Green said this would be like “an idiot child with a machine gun”.

            Ted Nordhaus and Michael Shellenberger are honourable exceptions – of course the Green movement has excommunicated them just as they did Patrick Moore and Bjorn Lomborg.

  4. all due respect to Rumple and others
    this topic has been done to death
    on the Oil Drum for the last 6 years

    they (Nate Hagens) would tear this post to shreds

    ‘Complementary food production with bio-fuel by-products is one area that will continue to grow.’ hmmm

    • I’ve just been reading a few things from Nate Hagens and his views don’t appear so different than mine.

      Nor can I see any indication that biofuels from agricultural by-products is likely to not grow in the future.

      Care to expand a little on how you interpret the situation?

      • Well for one Rumple you’ve completely ignored EROEI…

        Industrial food production currently runs on an EROEI of 1-10 i.e. for every 10 calories of energy (oil and gas) invested you get 1 calorie of food output.

        Biofuels: corn, soybeans, wood biomass, switchgrass, and sunflower) all have an EROEI significantly less than 1 (0.78, 0.64, 0.67, 0.46, 0.79)

        All alternative energy sources currently use fossil fuels as their inputs. Solar panels and wind turbines are mined, manufactured, transported, installed using oil, coal and gas. A full lifecycle analysis of most alternative energies result in EROEIs of around 1 i.e. they barely break even.

        • You are right that the signal of the end of the economical life of an energy fuel source is when EROEI approaches 1.

          When that occurs, the resource simply won’t be extracted anymore, since the costs (in terms of energy input to make the equipment) will exceed the return from the sale of energy.

          However, EROEI can be an unreliable measure, given the problems measuring embodied energy of capital equipment.

          And over time, the EROEI can improve as new technologies and production efficiencies occur.

          And don’t forget that scale of increasing coal and gas production (although not the rate of increase) will still be far greater than renewables for some time yet.

          • Cameron, I am really appreciating this intelligence and honesty that I am unaccustomed to finding in an environmentalist.

            Have I ever recommended George Reisman’s “Environmentalism Refuted” to you?

          • Given the current pretty hopeless ability to measure these things,
            surely there will be a lag phase whereby the resource will continue to be produced IN THE HOPE OF adequate renumeration. May I ask then, how many years do you think the lag phase may be one, five, ten years?

  5. There are a lot of alternate technologies out there. The thorium fuel cycle that India is working on could revolutionise the nuclear fission industry. Breakthroughs in nanotechnology have yielded massive results for solar cell construction in labs, including increase efficiency and even paint-on solar cells.

    All the peak oil panic is largely unfounded, imo.

    • rather than see it as panic, try putting on a view of “the status quo must change” and see it as people raising awareness of issues which perhaps *you* are well aware of, but others may not be.

      I for one am regularly dumbfounded at the ‘common knowledge’ items (taught at my school) which seem to be revelation to many today.

      • There are oil and gas “finds” constantly occurring all over the world, ESPECIALLY as supply/demand pressures build. Do any of you people actually follow reportage of this?

        • yes, those of us scientists engaged in environmental assessments of oil and gas development projects are acutely aware of them….but what’s your point here?

          • My point is that MOST members of the public never hear anything about this, and are fed a diet of doom and gloom by Green activists presented by the media as “experts”. While optimist voices are dismissed as “in the pay of…..(fill in the space)”

            Ironically, “big oil” loves the free PR for price hikes.

        • A month too late…

          Correct there are constant oil and gas finds occuring throughout the world.

          Only problem is that they are at a third of the rate of depletion, and from much smaller deposits that are harder and more expensive to extract.

          There are no more Ghawars (100Gb+) to find!

          Take a look at this graphic, you can see that most of the oil being produced today was found at least 30 years ago, and how the 2000’s is just a small layer on top:

          http://gregor.us/wp-content/uploads/2011/12/XOM-Outlook-for-Energy-A-view-to-2040-Page-43-figure-2011-e1323787832757.png

  6. Reading thru the comments on yesterday’s article, a lot of people expressed optimism that there would be a shift to alternatives (such as gas, nuclear or renewables) as oil supplies decline.

    While I have no doubt that considerable effort, ingenuity and investment will be channeled in this direction, let’s think about what such a shift would involve.

    First of all, there will need to be massive construction of new infrastructure. We might be able to take advantage of the existing electricity grid to a certain extent, but there will still need to be massive construction of new lines out to the wind farms or nuclear power plants, etc. Or massive investment in gas liquification plants, etc.

    This is on top of the massive investment in constructing new solar panels, reactors, etc.

    This investment and construction requires three types of resources: 1) financial resources, 2) material resources, and 3) energy resources.

    Even granting that, as a social construct, financial resources can be conjured into existence to a certain extent, ultimately money is a claim on goods and services, both of which tend to be heavily dependent on energy for their creation and delivery. Restrictions on energy supply tend to restrict economic growth, and so coming up with the necessary financial resources to implement to shift to alternative energy supplies will be challenging in an energy-constrained future, even assuming we can sort out the current debt-induced economic malaise.

    Second, the material resources required for the construction of the alternative energy infrastucture all require significant energy inputs for their extraction, manufacture, transport, maintenance and operation.

    Thus the financial resources (1) and material resources (2) required to implement a shift to alternative energy both depend heavily on increasingly constrained energy resources (3).

    Note that I’m /not/ saying we don’t have the energy resources to do this, my point is that the transition to alternative energy will require a massive diversion of energy resources precisely at the time when these energy resources are already coming under increasing strain.

    There is considerable scope for better energy efficiency, and there is probably plenty of scope for non-productive energy uses to be abandoned entirely, but I expect we will face two real problems that will not have easy solutions.

    First, the additional energy demand generated by the transition will most likely result in even higher energy prices. While this will probably spur greater investment in alternatives, it will also mean that such projects will face greater costs in getting off the ground (both in terms of direct energy costs and the indirect flow-on costs to material resources). Which way this two-edged sword will cut is anyone’s guess.

    Second, much of the world’s existing energy supply is already committed to quite important projects, such as agriculture. This means that the transition to alternative energy will have to compete with these existing allocations, and may face significant resistance, as we are already seeing with opposition to coal seam gas, for example. How this political dimension will play out is another unknown quantity, but at the very least will be a headwind slowing down the transition.

    There are a lot of uncertainties, but my gut feeling is that there will be a transition of some kind, but that it will not be able to achieve the scale necessary for “growth as usual” to continue, and that per capita energy usage will be dramatically lower in the not-to-distant future. Efficiency and technology will help soften the blow to an extent, but I am pessimistic about their ability to avoid it altogether.

    In any case, true believers in a transition to need to think carefully about the implications of such as transition.

    • “Note that I’m /not/ saying we don’t have the energy resources to do this, my point is that the transition to alternative energy will require a massive diversion of energy resources precisely at the time when these energy resources are already coming under increasing strain.”

      Yes, exactly. This interaction is what I expect to lead to volatility during a period of rapid energy source transition.

      I also agree that ‘growth as usual’ is not to be expected in the near future, or even the coming decades.

      Another commenter mentioned peak population. I also expect this to occur in the near future (surpassingly close to the World3 model simulations). This is an important consideration, and the figures show that global population growth rates have been falling pretty consistently for decades, so even with 30 years we could see the human population peak. This is not a bad thing.

  7. Jason,

    I agree all of these technologies are great for base power generation but the issue is that oil is used for transportation, pesticides, fertilisers and plastics just to name a few.

    How is thorium and solar cells going to help with any of these?

  8. Diogenes the CynicMEMBER

    The problem is that humanity (in general) can not imagine in terms of exponential growth.

    Check out Bartlett’s video here – well worth it.
    http://video.google.com/videoplay?docid=4364780292633368976
    or you tube (8 parts) http://www.youtube.com/watch?v=F-QA2rkpBSY

    For example take China (our hope and saviour), it will need more oil current estimates of its usage are around 11-12m per day. Let us say 11m, if China was to grow by 8% p.a. until 2020 and this translated into a 1 for 1 correlation with oil use then it will need 20.36m barrels per day in 2020.

    Where is another 9+m barrels per day going to come from if oil production has plateaued? Note this is just China. Now obviously the numbers are rough, you could argue that they will not grow that fast, my starting estimate is wrong, they will use less oil per unit of “growth” ie the correlation is less than 1, etc. but the mathematics paint a very nasty picture that is just around the corner.

    • There is a big confusion between growth in material production (in terms of say, kg’s of stuff), and growth in the production of goods and services of value on a per capita level.

      In economic terms a fixed annual supply of energy and materials can still produce allow growth to occur. First, we use some of the energy and materials from each period to make capital goods – our building, roads, machinery and equipment – that mean in the next period we can produce both better capital, and better goods using last period’s capital.

      Remember, if the supply of oil is not there, than China definitely won’t be increasing it’s consumption by 9million barrels per day. They will, however, invest in other fuels and other equipment to allow production to increase.

      • Cameron, you take my breath away. A Green who understands the role of capital……amazing.

        By the way, on “exponential growth”, is not technological change exponential rather than linear?

  9. people will howl me down here, but I see the next potential source of energy as being space based solar. We have all the required technology now (unlike say, Fusion) so we don’t have to wait for SciFi developments involving the discovery of the “Unobtainium” to make it possible. This could easily dovetail in with supply of energy to industry AND break the usual requirement of putting the energy generation generation beside the energy demand.

    Nice article

    • no howling from me – I think its a great idea and would rather see money spent on this (which could be a dead end) than fighting wars in Iraq, Afghanistan, Pakistan, Iran etc ad nauseam…

      the Japanese have done a lot of work in this area from memory.

    • Haha I thought about bringing up space based solar too, I was also expecting to be howled down. But if there’s one thing I’d never short, it’s human ingenuity.

    • I suggest searching ‘Do The Math’ by Tom Murphy. Space based solar, thorium, tidal, wind, conventional solar all gets considered.

      Enough for you to get your head around the scale of the problem and scale of the solutions.

  10. A question which is seldom asked in this is: “do we want to live lives that way?” and “do we want to make that the future for our children?”

    There remains something in Walden which still distinguishes city culture from that of countryside. Despite the economic advantages of cities I can’t say its the only thing I want the future humans to experience.

    • The whole point of deeper and deeper networking, is the innovation and the commercialisation of innovation that it enables. My money is on the networking beating the “limits” of CURRENT technology and capital.

      UNLESS, as Matt Ridley says in “The Rational Optimist”, we blow it with self-fulfilling prophecy political “solutions”.

  11. “The whole point of deeper and deeper networking, is the innovation and the commercialisation of innovation that it enables,,,”
    Yet ever increasing “efficiency” means less redundancy in the various networks, increasing their brittleness in the face of various shocks

    Capital is constrained by a diminishing energy supply and alternative energy systems are / will be constrained by diminishing capital – catch 22

    From the above link
    “…Oil appears to be at or near peak capacity–exports are dropping. As for the food network–world grain reserves are at historic lows, and expected to drop a little more next year. And the environment? Climate change is clearly with us, indicating that the environment has already gone past its capacity.

    When looked at in these terms it appears that the network is already in decline. Each of these three parts of the network is at or past capacity. If a span of years is the natural time-frame for a crash in this system, then it seems quite plausible that we are watching a very broad-based crash of our energy systems–right now.

    Our actions in increasing the connections to the food and environment networks will not help, and may simply speed the crash.

    The signals indicating the start of a crash would be seen in the monitoring and communication system–-the financial systems. Prices for oil would go up. Which we have seen…. Prices for food would go up. Which we have seen…. We might expect perturbations, volatility, and attempts to “price” the environment…. Hmmmm…”

  12. As I see it, the struggle to comprehend “sustainability” is starting to impinge on the nations and corporations of a finite planet. Try as they might, the proponents of continual economic expansionalism are finally realising that there are, after all “limits to growth” …….. until the next inhabitable planet is colonised of course.
    Gee whiz, on reading this back to myself, I see I’m probably showing my over 60 + age…..

    • On “unintended consequences” to political “solutions”, read “The Wrong Trousers” by Gwyn Prins and Steve Rayner.

      A Google search will bring up a PDF of it.

  13. I’m a bit surprised that Nuclear is forecast to decline. Dont India and China have several dozen new reactors in the pipeline? I cant see a little hiccup like Fukushima changing that.

    Also, the quicker this planet hits Peak Population then starts slowly decreasing, the better.

    We can see what that kind of future will look like already. Just visit Japan. The big cities absorb the youngsters so depopulation isnt really noticeable there. But in the small rural villages you can sense nature reclaiming what it once owned. The small communities are populated almost exclusively with old timers.

    • As someone who was living well within the evacuation zone for the worst case scenario for Fukushima, I resent it being described as a “hiccup”.
      OK, so the worst case scenario didn’t eventuate, and the wind blew offshore for about ten days after the accident, but that was just dumb luck. If the accident had occurred during January or February, when the NE monsoon blows directly from Fukushima to Tokyo 90% of the time, then it would have been a very different story. And if any one of the troubled reactors had released enough radiation that the workers couldn’t get close enough to do their jobs then there would have been no choice but to sit back and watch radiation spew out for years. This is not random speculation, this from a report by the Japan Atomic Energy Commission that the Japanese government tried to suppress, but which was leaked last December (http://www.japantimes.co.jp/text/nn20120122a1.html).

      As it is, tens of thousands of people will have their health affected, and tens of thousands more have had their livelihoods affected. Hardly a “hiccup”.

      China and India may press on with their nuclear programs, altho last I heard they were pausing for a review. But nuclear is dead in the water politically in Japan and Germany (at least). And nuclear projects can’t get off the ground without government support, not just to help cover the massive construction costs, but also to limit liability and provide backup insurance given that private insurance companies won’t go anywhere near these projects. Nuclear is dead, get used to it.

      • Human life involves some risk and danger, hold the front page.

        Nuclear “concentrates” the risk and danger, both heightening the potential consequences AND enabling the concentration of safety mechanisms.

        Every other significant form of energy involves ongoing but mostly under-the-radar health consequences and human deaths. Nuclear is now orders of magnitude AHEAD of every other energy system on this score, and has every chance of IMPROVED risk management in the light of the decades of experience that has been gained.

        The prominent Green George Monbiot has this right – Fukushima, for him, was PROOF in FAVOUR of nuclear:

        http://www.guardian.co.uk/commentisfree/2011/mar/21/pro-nuclear-japan-fukushima

        14,000 people killed in an earthquake and Tsunami, and nuclear reactors stood up to it? And a minor redesign would have prevented even the minor leakages that did occur? The anti nuclear media will scream from the headlines when Doomsday comes and 7 billion humans die in the tectonic meltdown: “Nuclear Power Plants Fail: skeptics vindicated”.

        130 million Japanese know they can’t do without it. Good luck getting them to build enough coal fired generation or hydro dams on a land mass the size of NZ, to provide electricity for 130 millions.

        And the French are laughing all the way to the bank building nuclear plants and selling the electricity to the scaredy-cat Germans. Not to mention cleaning up their economic competitors who gut THEIR economies paying carbon indulgences.

        • My main point was that nuclear power plants cannot be built without government support, which is dependent on turn on public support. This support is gone, and won’t be coming back in a hurry, so the forecast in the original article is probably right on the money for at least the medium term.

          Yes, life is risk, and I accept that. But in considering the consequences of a risk eventuating you need to take into account both scope and longevity.

          For example, driving a car involves risk, but the consequences are basically limited to the people in the car and the (limited number) of other cars and pedestrians etc that the car interacts with. A bad accident can be terrible, but once it happens it is basically over.

          A nuclear accident, on the other hand, can devestate a huge area. If the wind had been blowing from the NE when the reactors at Fukushima blew up (as it does almost every day for several months of the year) then the fallout would have affected about 40 million people in the Great Tokyo area. And some of the contaminents remain nasty for time frames that are orders of magnitude longer than all of human civilization put together.

          So, in terms of scale and longevity, the consequences of the risks associated with nuclear are so negative that it places question marks over whether such projects are even worth starting.

          With respect to Monbiot, he wrote his article too early into the Fukushima saga, and without a full understanding of what happened.

      • PB: The collapse of Japanese demographics will be slow, drawn out affair. You’re right that it is serious, but TJ’s observations square with my experience exactly. That is, the aging population is far, far more exaggerated in rural areas than in the cities.

        I agree that policy makers don’t have a ‘solution’ in the conventional sense, but trust me, they are thinking about it quite hard.

        A fairly large fraction of the Japanese workforce is employed in quite unproductive jobs, so as the supply of workers dwindles they have plenty of scope for being a bit more selective about what work gets done. Paying the pensions for an increasing proportion of retirees will be a bigger challenge, but I suspect that the Japanese work ethic will result in a lot of people working well past retirement age.

  14. Apologies friend.
    I ALSO have first hand experience of the Fukushima accident and didnt mean to make light of it. My own family was in Tokyo at the time, too. We made a hasty evacuation back to Oz. So take one foot of the high horse.

    I picked the word “hiccup” in the sarcastic sense to describe how energy industry officials no doubt see the events. Not necessarily how the public or you or I see things.

    And given the way decisions are made i still doubt that nuclear plants will be mothballed in China at the least. Energy needs drive industy and public health and safety is a lesser priority for the Politbureau.

  15. Rumples,

    it’s a good post that presents SOME facts quite well, yet I’m afraid it will be used by the eternal optimists who deny the severity of the peak oil issue (which I believe is extremely serious) to say that our fossil fuel binge party should go on as usual.

    The main point we all miss when we start to talk about non-renewable substitutes is that it is a one way road to a global warming disaster. Any approach that aims to “solve” the issue of peak oil that ignores climate change is not even worth considering! The two problems must be considered together, not separately.

    I see the challenge of peak oil as a tremendous opportunity to rethink WHAT we do, not HOW we do it. In other words, it is far more important to re-assess our priorities and whether we want all that energy rather than worrying how we are going to get that energy replaced. As an example, instead of worrying whether the truck that brings spinach to my plate over a distance of 1000kms is powered by petrol or ethanol, maybe we should ask whether there’s another means by which the spinach can get there, maybe without having to travel quite that far, somewhere close by instead?

    Growth at any price is a meaningless obsession whose benefits are not clear cut. Many people realise that these days, even though it is the undisputed holy grail of mainstream economics. I say let’s question more things! The structure of our society, the relevance of the institutions that we have built up (or had imposed on us) in a post peak world, the practicability of debt money in the long run, the artificially imposed scrarceness of both money and goods in a profit-oriented economic paradigm, how to get out of a linear economy that only works when it is producing huge amounts of waste and finally the inability of capitalism to put an appropriate price on finite resources.

    I really think we are at a moment of truth. Peak oil will force us both individually and collectively to take a good look at what we’re doing and whether it is worthwhile in the most fundamental sense. This is where we find out who we really are.

    As an aside, I don’t believe that there will be very strong and clear pricing signals in a world of interlinked commodities, many of which are approaching their peak at roughly the same time. Every producer is going to see things as “there’s still plenty of it in the ground, I just need more and cheaper inputs to get it out”. And they won’t be able to raise the prices because noone can buy their commodity at those prices. And when everybody finds themselves in the same situation, it’s game over. The evidence you present to suggest that alternatives will just be substituted in response to market prices only works in a fairly narrow price band. The collapse of production will be extremely non-linear and will create truly horrific feedback loops – that’s how I see it. Substitution of energy sources will seem like a pipe dream. Moreover it will not be obvious what the actual problem at hand is – because everything seems to be falling apart at the same time. The collapse of the soviet union is a good example in my opinion. You start off with a couple of well defined problems, but very quickly they appear to have multiplied into a million issues. Some people may argue the collapse of the Soview Union is a special case, based around an unsound economic system that was outliving its usefulness and couldn’t compete in an evolving world. Well, does that really sound so different to where we are now?

    • Peak oil will force us both individually and collectively to take a good look at what we’re doing and whether it is worthwhile in the most fundamental sense.

      Amen, Sister Nancy.