Monthly Archives: January 2009

Oil, So Much More Than Fuel For Your Cars

With job losses, inflation, energy price fluctuations and the stock market fluctuating, who isn’t aware of the troubles our economy is going through.  With this post I hope to give a basic overview on how intertwined our economy is with oil and how it is causing turmoil in our society today…

Since the industrial revolution, oil has increasingly become the lifeline of our economy. Now over 150 years later we have become fully dependent on oil in ever aspect of our lives.  It is completely crucial to think about oil as more than just gasoline for your cars.  Oil is transportation fuel, but oil is also plastic, electricity and a key component of pharmaceuticals.  Once you start thinking about everything that oil is used for and what aspects of your life it plays an important role in, you see that we have become completely and totally dependent on oil in everything we do in our modern lives.  I have just briefly listed a very minute list of how we rely on oil but lets get into how our society needs oil to survive.

In the early 1900′s mass production of the automobile was introduced by Ransom E. Olds and further perfected by Henry Ford.  This opened the door for a completely new way of transportation for the common person.  This increased the demand for oil in the transportation sector not only because of the gasoline that was used, but now the demand for nice smooth roadways existed.  Construction and upkeep of our transportation system demands large amounts of energy to produce road materials like concrete and asphalt.  As vehicles became larger and more accessible, this required the transportation infrastructure to also become larger.  With the improvement of the transportation infrastructure people began living farther away from cities, which increased distances normal people had to travel on a day-to-day basis.  All of this added to an increased demand in oil.

This is only the beginning of our dependence.  As oil became more available, it was given more uses because it was relatively inexpensive.  Oil was used to power our developing cities in several ways; it could be burned in order to generate electricity and was also used by the coal mining equipment.  Coal is the largest source of electricity generation; unfortunately a large amount of diesel fuel, which is derived from oil, is used during the coal mining process.  As the demand for more and more consumer merchandise rose, so did the need for electricity generation.  Unfortunately electricity is not the only use of oil that rose as consumer goods began to be mass-produced.

Mass production requires that oil be used in several different stages of the production process of consumer goods.  Some of these consumer goods and services are: plastic products, aluminum, steel, fabrics, medicines, household cleaning products, package delivery (like UPS or FedEx), vehicles, makeup and food.  For a more detailed example let us look at a simple loaf of bread and see how something that is so common consumes oil in the production and delivery process.

Bread’s common ingredients are water, flour, oils like soybean oil and extract from corn and barley, which are just a few ingredients from whole wheat Wonder Bread.  Now look just at the main ingredient listed above, flour, which is produced from grains. Grains are grown in fields using large farm equipment like tractors.  In order to ensure that the farmer gets a larger plentiful crop, petroleum based chemicals are used to kill off foreign plants using pesticides.  Then these grains are harvested, with a combine, and then trucked to a grain elevator where the crop is stored and eventually sold.  While at the grain elevator the crop may need to be dried, so large dryers that run on an oil supported energy source dry the crop.  When the crops are sold, the grains are then shipped, either via rail or truck, to a manufacturing plant to be made into flour.  These modern flourmills require an oil supported power source in order to operate.  After the grain is ran through the mill and turned into flour, the flour is then packed (probably some petroleum based packaging used here) and delivered to the bread company.  Again this flour is delivered by either truck or rail.  Once the bread company gets the flour it then processes it in a manufacturing plant that is powered by some sort of oil based power source.  The bread has to be baked in hot ovens (more oil usage).  When baking and quality control is done the bread will end up in a plastic bag (plastic is made from oil in a manufacturing plant powered by oil, supplied by semi-trucks and/or trains with necessary materials to make plastic).  Now the bread will be shipped to different distributors, restaurants and shopping centers.  Now I know that this is a rather long drawn out paragraph that doesn’t have an overly exciting topic, flour, but I hope it helps you see how even with something as simple as a loaf of bread, oil is needed every step of the way.

I didn’t get into as much detail as I could have when talking about the flour to bread example.  Pick something, anything, and think about how the object you choose used oil in some form in order for it to be what it is. I think it could be shocking and possibly even scary to see that we have allowed ourselves to become totally and completely dependent on a finite source.

So are we in trouble if we continue our ways?  It is fairly safe to say that oil production has peaked (based on Dan’s previous blog post) and as the production of oil continues to drop there will be less available energy for the world to use. If the economies of the world are healthy, lowered oil production will mean higher energy prices but if the economies of the world are not healthy then we could experience lower energy prices.  If there is less energy for the world to use then how is an economy based on consumerism going to fair?  Consumerism is based on the consumption of goods which dictionary.com defines as “the using up of goods and services having an exchangeable value.”  Our economy has been weakening and in return oil demand also has been shrinking, this is why we experiencing these low oil prices.  The economy isn’t the problem; the total reliance on oil and fossil fuel based energy is the problem.  We cannot expect to improve the economy if we continue to be completely reliant on oil and until that begins to change, we will continue to experience an unpredictable volatile market and economy.

When will oil production peak?

When will peak oil happen?

One of the most common questions people ask when first learning about peak oil is when will “it” happen. People want to know “When will we run out of oil?” and later, “What is the date of Peak Oil?”

Unfortunately, these questions probably do not address what people really want to know. One of the most difficult things in educating people about peak oil is that you have to start off by telling them that their questions are incorrect. These questions stem from a lack of understanding about the world’s tiring oil production system and the extremely complex interaction between fossil fuel production and the economy.

Energy that can be summoned up at man’s command is his wealth in the physical world, and fossil fuel currently provides the vast majority of this wealth. At any given time, the net energy available for use by industrial man is given by the formula:

Eg – Ep = En

Where:

Eg is the gross energy extracted.

Ep is the Energy that has been consumed in the production of energy.

En is the net Energy that is available to power the industrial economy.

The net energy that is derived from fossil fuel production sets the possible wealth that our economy can potentially create. How much fossil fuel is produced over a given period of time is determined by a great many factors.

One of the most interesting and poorly studied factors in fossil fuel production is how the economy is affected by the decreasing availability of high quality oil reserves. While the U.S. Department of Energy and IEA show that gross oil production has been approximately flat over the last few years, this data does not take into account the increased amount of energy consumed in the extraction of decreasing quality reserves. Nor does it take into account the large amount of diesel fuel energy that has been converted into less desirable Ethanol or that the increase in the world’s population has decreased the quantity of oil energy available per person.

As the quality of a fossil fuel resource declines, the net energy available from its production decreases and the strain on the economy increases. Eventually, the economy will reach a point that it cannot afford to increase production, and thus will be resized for lower energy consumption. For a time, the price of oil may decline. This decline in price will actually further reduce the supply of oil because the new, more expensive production and recovery projects will be canceled or scaled back. And while the decreased oil prices from the economic downsizing may encourage the economy to grow again, this growth will quickly be stopped by the limited supply of high net energy resources.

Consider how the long-term, global trends of increasing energy consumption in oil extraction have affected the U.S.

In 1965 when the oil industry was just starting to experience declining results from increased efforts in oil production, the U.S. was the world’s largest creditor nation, and the wealth of the U.S was growing each year. In 1970, U.S oil production peaked and began to decline in spite of the greater amounts of energy expended in attempts to increase production.

Move to the fall of 2008, with the U.S as the world’s largest debtor nation and its wealth declining each year. Not even global oil prices in the $100 range and above for several months could raise oil production substantially above the level that it was in 2005 when oil prices were in the $45 range. Now in the winter of 2008, the economy has given in and oil consumption and oil prices have crashed. This cycle can be expected to continue unless proper management is implemented.

Without correct management of the economy, it is possible that the economy can be stimulated enough to get a short economic up cycle with oil prices and production higher than ever before. However, this becomes increasingly unlikely with each cycle.

I am convinced that no one understands all of the things that would be necessary to predict when global oil production will be at the highest level. There are just too many factors, including some that are completely unpredictable like the weather and politics.

I think that the question “When will oil production peak” is more accurately addressed by the following two questions:

1. When will increasing energy intensity of fossil fuel production begin to limit the wealth that can be created with the U.S. economy?

That already occurred in approximately 1965.

2. When will the increasing energy intensity of fossil fuel production really show up as a serious problem to the global economy?

That too has already happened, in the fall of 2008.

As for when the all-time peak of oil production will occur, each month that passes with the economy in decline increases the likelihood that the peak is now past. The reason is that high net energy reserves are being depleted, and low net energy reserves are not being developed. This makes it unlikely that any economic up cycle can last long enough and allow oil prices to be high enough to ever increase production above levels that were seen in the summer of 2005 – fall of 2008. But we will have to wait for the history books to be written for the best answer.