Oil: Living with Less : Melbourne Indymedia

Alanah MacTiernan, who seems to be a genuine peak oil convert, recognises that "a problem is emerging" and mentioned peak in the time frame 2010-2035 although obviously thought it was more likely sooner than later. While she is perhaps the only one in cabinet who is onto the problem her portfolio is perfect for a peak oil advocate. There are some large projects underway in Western Australia such as a new train line tunneling under the CBD and a second gas pipeline coming down from the North West shelf that apparently have been brought forward at least in part by the oil supply concerns. An emphasis on bus transport and a move away from our car based culture was also evident.

The view from the convention centre windows at the lunch break was informative, there is a big field of mud where there used to be a freeway onramp soon to be a rail station for the new line. Is Perth the only capital city in Australia that is demolishing freeway to make way for rail?

Bruce Robinson of the Sustainable Transport Coalition claimed that WA is a 'world leader' in its approach to oil depletion although I think we've got a long way to go as it is still very much a car based culture with massive suburban sprawl.

Brian Fleahy warned that while "water is renewable the energy used in its delivery systems isn't". A new peak capacity power station is being built to cope with growth in electricity consumption, probably using gas, and the desalination plant will use a lot of that as well. A sustainable water policy is important for Perth's future as rainfall runoff into our catchments has apparently fallen by over 50% since the mid-70's and the drought is accelerating. Fossil fuel based global warming is having a drastic effect on our local climate and apparently Perth is the canary in the coal mine for all of Australia with Dr Tim Flannery warning recently it may become a ghost town.

Dr Ali Samsam Bakhtiari, of the National Iranian Oil Company, suggested that Australia is better placed than perhaps most other nations and was surprised at the level of discussion of the problem in WA. He sees a global peak in oil production by 2006-2007, no later than 2008 and does not think non-conventional (deepwater and arctic) oil will make much of a difference. Outside of the Middle East, oil production worldwide is already falling and the Persian Gulf oil supply is itself largely founded on old super giant fields like Ghawar.

He claims both Saudi and Iranian fields are overextended and the only good fields left are in Iraq. The largely unexplored Iraq western desert may hold upwards of 40 Gbl, or nothing at all, and if ever brought online optimum production in all of Iraq could be over 6 mbl/d according to his calculations. However, this optimistic level of production should be compared with our current consumption of 81+ mb/d and strong demand growth of 3% or more per annum, a production level that Dr Bakhtiari thinks is already very close to its peak.

There will probably be a fairly long plateau period for Persian Gulf oil though which will therefore increasingly play an even more important role in world supply but there is currently very little leeway as far as spare capacity goes. He warns that our way of life will change 'very, very soon' and that change will be absolute and unprecedented.

Dr Bakhtiari left after his talk to brief state cabinet on the oil situation before returning for the afternoon sessions. He also appeared on the local commercial news with Channel 10 leading with a short interview and the headline 'petrol to rise to $3/L in 2-3 years'. It's the first mainstream peak oil news byte I've seen on Australian TV, and both the conference and cabinet meeting made the business section headline in the West Australian newspaper. His talk at the conference seemed to make the biggest impact as he stressed the global urgency of the problem and its massive implications for our way of life, something the STC perhaps isn't as focused on with its emphasis on transportation issues. The food production problem for instance didn't get much of a hearing, an omission Brian Fleahy pointed out.

Overall there was a good mix of people from business, the unions, government, charity organisations and others. There was even a talk by David Smith from the state Treasury Department on the modeling they've done based on a 20% rise in fuel prices. Nothing particularly interesting apart from the fact they're looking at the problem in the first place. Lisa Baker of the WA Council of Social Services (WACOSS) gave a talk on the growing poverty levels in WA and the problems faced by especially rural communities that rely on car transport to connect with services that are already shrinking along with employment. She claimed charity organisations around the state are already strained by rising fuel costs and the regional poor are very vulnerable especially where demand for charity assistance has risen sharply the last couple of years with over 500 000 transactions per year statewide. So much for trickle down economics.

The afternoon session was divided into three scenarios, fuel prices staying at $1, rising to $3, and the supposedly extreme scenario of $10/L oil. I opted to see what they thought of the $10 scenario. It started out rather optimistically with estimates of the timeframe for $10 petrol within about 20 years or so until we considered the possibility of the outbreak of a wider Middle East conflict. The scenario was then split into two possibilities, one being a short term spike in price due to war or other unforeseen circumstances and the second due to the longer term supply decline as the resource depletes. The severe oil shock was seen as much more problematic as far as its economic consequences and our community's ability to respond goes.

Generally there seemed to be, at least initially, an emphasis on how we might transition to more efficient transport and the STC people seem to believe that a hydrogen economy is possible. The ultra-light sub 1 litre car was even economical at $10/L petrol. However, after it was pointed out that the US economy is over $US30 trillion in debt, the Australian economy over $AUS1 trillion in debt with both economies driven by middle class credit spending, the possible economic chaos caused by this $10 scenario highlighted the difficulties that might be faced in any transition to a more energy efficient economy.

Basically by the end we seemed to agree that the $10/L scenario is quite probably a national and state emergency scenario, especially in the event of a sudden oil shock driven by war. Such a shock could very well result in a global economic crash and the collapse of international trade as air and sea freight costs go through the roof. By the time I mentioned the possibility of hyperinflation and terminal economic depression with the debt ridden middle classes being just as vulnerable as the poor the discussion got rather heated. I think there may have been a few debt ridden middle income earners there.

Overall the scenario calls for a massive localisation of travel, manufacturing of basic commodities, food production, education and other services - that is, a return to earlier modes of community. The STC delegates put the big picture together rather quickly and stressed the need for a move to cycling and public transport, to the use of trains and even shipping for moving goods around Australia, and the necessity of a coordinated response at the local, state and national level. In the medium term WA's gas supply looks like a lifesaver so long as we don't turn into a desert too quickly and the stated reserves don't deplete too quickly. A point was made that transport and travel will revolve more around considerations of cost rather than time, for instance moving freight by truck in 36 hours coast to coast will give way to slower rail and even possibly shipping as the costs scale up. There may even be a return to passenger shipping with someone mentioning the cheap Asian sea fares that students took advantage of in the 70's.

Dr Bakhtiari sat in on the session for the last 30 minutes or so and by the end we were into emergency government and war economy scenarios in the context of a severe oil price shock and/or global economic depression. Dr Bakhtiari suggested that it would require an act of god for the world to avoid warring over depleting energy resources, at which point our time was up. He also said the best thing we could do is to talk about it as we were already doing since planning and change needs to happen now, and that change is already on its way whether we plan for it or not.

Sustainable Transport Coalition - 'Oil: Living with Less'
Media Statement - WA Dept Planning and Infrastructure
Association for the Study of Peak Oil
Energy Bulletin

(CBS) The Department of Justice reportedly has thousands of hours of Enron employees recorded during the West Coast power crisis. Now, some in Congress want all the tapes released.

"I want to make sure no federal agency suppresses this information," says U.S. Sen. Maria Cantwell, D-Wash. "Justice needs to be served."

After CBS broadcast the voices of Enron energy traders gloating over the crisis they helped create, more tapes were released.

In one tape, an employee says, "You gotta think the economy is going to fucking get crushed, man. This is like a recession waiting to fucking happen."

Elsewhere on the tapes, another employee says, "This is where California breaks."

And they proposed to do that by exporting energy out of the state so the company could drive up prices even more.

"What we need to do is to help in the cause of, ah, downfall of California," an employee is heard saying on the tapes. "You guys need to pull your megawatts out of California on a daily basis."

"They're on the ropes today," says another employee. "I exported like a fucking 400 megs."

Traders can be heard manipulating the market, using now-infamous schemes with names like death star, ricochet and fat boy.

One employee is heard asking, "You want to do some fat boys or, or whatever, man, you know, take advantage of it."

In fat boy, Enron traders used fake power sales to hide megawatts, shrinking the supply of energy and driving up prices. They also used the oldest trick in the book: LIES.

"It's called lies. It's all how well you can weave these lies together, Shari, alright, so," an employee is heard saying.

The tapes could affect dozens of cases already filed against the company by California Attorney General Bill Lockyer.

"If they're ever heard by a jury, they're going to string them up," says Lockyer.

After hearing the tapes, the state's two U.S. senators demanded an immediate $8.9 billion refund.

At a recent hearing Sen. Barbara Boxer, D-Calif. said, "All I can tell you is you have to listen out there to what's happening to ordinary people who you are responsible to help through this."

Greetings, Simon, Dr Strangelove, and the Trolls!

We meet again. Thanks for the encouraging words, Strangelove and Simon, and thanks, Trolls, for the constant opportunity to repost your learning difficulties provide. The below is from a post to an Australian Academy of Science Forum on Population.

Although Prof Castles (an economist) comes pretty much from the Troll perspective, it will probably send the Trolls to sleep (and possibly everyone else) but it contains some references and figures.

I'm sorry if the graphs don't come out; they are the same as the ones in Chap 7 of my thesis mentioned in a previous post.

Response by Sheila Newman to
Ian Castles?s post of Thu Oct 30, 2003 5:38 am
Post subject: Resources and politics Reply with quote

Professor Castles, in his earlier contributions to the discussions started off by Peter North, about where we might get the energy to pursue the goal of economic growth, leaned toward ?optimism? on the outlook for economic growth. He stated that he was inclined to attribute this optimism to a 1963 American study by Chandler and Morse. This study had led him to write the following for an Australian Treasury Report in 1973, "As an historical fact, the long-term trend has been for the cost of mineral inputs to DECLINE as a proportion of total production costs.?

[Please excuse my use of upper case letters; it is because of the problems in cutting and pasting italics and bold and other formatting and lack of time to convert these.]

I take it that by ?minerals? Dr Castles is referring to fossil fuel energy, primarily oil.
I interpret his statement that the ?long-term trend has been for the COST of mineral inputs to decline as a proportion of total production costs? refers to the MONETARY COST rather than the THERMODYNAMIC COST of total production.

Professor Castles then adds, ?Numerous studies of the available statistical data, spanning more than a century, have demonstrated that the tendency during this phase of unprecedented growth in the world economy and in the use of minerals has not been towards scarcity but towards abundance.?

From the rest of his statement I understand that he is saying that past trends have indicated that fossil fuel energy [= minerals] was increasingly abundant. From his expressed optimism about the future I assume that he is basing his optimism on an expectation that past trends will persist.

I have no quarrel with either of these statements up to the dates of both studies. Neither, I expect, would Ehrlich.

From reading contributions by Professor Castles on the subject of the IPCC, to various publications, such as Quadrant Magazine, I noted that he cited a particular set of statistics as more reliable than those used by the IPCC. These stats were from Angus Maddison, Monitoring the World Economy 1820-1992, OECD, Paris, 2000. I purchased a copy and it is indeed a treasure trove! I use it now because I know that Professor Castles finds its economic data far more reliable than some other kinds. Maddison uses the concept of ?purchasing power? to estimate economic growth.

Maddison divides world per capita economic growth (which he breaks down into a variety of regions) into five phases between 1820 and 1992.

Economic growth was the greatest it had ever been between 1950 and 1973, coinciding with massive expansion of the petroleum based economy.

The decline of the rate of economic growth coincided with the first and second oil shocks (approx 1973 and 1980). After 1973 per capita economic growth never recovered and unevenness of growth has increased.

There are numerous economic theories to explain what happened. Most rely on the notion that superior technology made it possible to decouple production more and more from fossil fuel resources.

Some dissenting theories surmise that the first world cornered wealth and used it to purchase better quality petroleum fuel at lower real prices. [C.J. Cleveland, R.K. Kaufmann, D.I. Stern, "Aggregation and the role of energy in the economy," Ecological Economics 32 (2000) 301 317, http://www.dieoff.org/cleveland.pdf. Their (fascinating) work has been criticised in an unpublished document for a circularity of definition of economic indicators of fuel quality and for the lack of comparability of international data used in some graphs.]. This study suffers from failure to standardise monetary values.

How did the first world manage to purchase such high quality oil cheaply?

An explanation which the Left is very partial to, is that they were able to gouge cheap deals from parts of the world where the economies were too unsophisticated to demand higher prices.

A more sophisticated analysis suggests that many of these economies became the captives of development financiers and technicians who failed to communicate their skills or appropriate technologies, destroyed viable local cultures, and interfered (wittingly and unwittingly but certainly witlessly) with local systems for balancing population with local resources, at least partly causing massive population growth. (Abernethy, for instance.)

The internationalisation of small local economies accompanied by breakdown of their land-use planning and population planning systems (such as those of Pacific Islanders) caused depletion of their resources, including soil vitality, through export of commodities at the same time as it blew out their populations by commodifying land and assigning new gender, settlement, and birth control systems, under an ideology of economic growth. Note that the Easter Island was the exception to a rule that saw stable populations and societies over many centuries in many Polynesian and Micronesian societies.

(Note also that Australia ? that big Pacific largely desert island - is more and more in this position of a commodity dependent economy with a rapidly increasing population which is being skilled from overseas.)

Due to these and similar factors, the explanation goes, poor commodity dependent economies became mired in debt to the first world economies, or their leaders cornered what wealth their oil reserves brought and used it to enter a first world international coterie (e.g. Saudi Arabia). An exception might be, for example, Brunei.

It was really the English speaking settlement countries like the USA, Australia, Canada and New Zealand that may have behaved most in this way.

Western Europe behaved somewhat differently. It reacted to the first oil shock as if this was a practice for the first real oil shortage and they may still have perceived that this was the beginning of the ?great draw down?. Certainly when I was in France in 1973 the government behaved as if the end of oil was nigh. We need to realise that different factors prevailed there; W. Europe had experienced oil shortages during the war and again during the Suez Canal crisis. Not being a pioneering culture formed on the expectation of windfalls, Western European culture includes safefty valves which US, Australian and NZ cultures have never really come to terms with. (Let us leave the UK out of this; defining its post war culture is too complex, but has to do with long term use of coal and long lasting colonial resources access.) Whitlam also behaved as if the end of oil was nigh, but the Australian body politic was quickly convinced otherwise.

Such socio-economic explanations aside, demographic records combined with historical geological records of oil exploration and extraction show that growth in petroleum energy draw down began to decrease PER CAPITA globally shortly after 1978 and this was exacerbated by a fall in oil extracted around 1980. Oil extraction rose again in the 1990s but has not kept up with population growth. See various graphs, such as those by Jean LaHerrère's graphs. Read also demographic anthropologist, Abernethy?s, recent articles on fertility and fossil fuel.

Is Professor Castles actually expressing some doubt that fossil fuel is a factor in economic growth? "As an historical fact, the long-term trend has been for the cost of mineral inputs to DECLINE as a proportion of total production costs.? ?Numerous studies of the available statistical data, spanning more than a century, have demonstrated that the tendency during this phase of unprecedented growth in the world economy and in the use of minerals has not been towards scarcity but towards abundance.? These statements do not appear to challenge the thermodynamic importance of fossil fuel ? mainly petroleum, one would assume. What they seem to imply is that Professor Castles believes that the growth in petroleum production is continuing now as it did in the thirty years up to the first world war, and going back to its first commercialisation.

AND HE IS RIGHT! As far as we know petroleum production is still growing.

The implication in Castles?s statements is also that economic growth is preceding apace with growth in oil extraction, since he bases his argument on these past trends when the two went together.

We know, however that world economic growth has not kept pace with growth in oil extraction. Maddison?s statistics show that world economic growth as measured by purchasing power has declined since 1973.

Professor Castles probably doesn?t believe that economic growth is preceding apace, since he has read Maddison, whose statistics show that world economic growth as measured by purchasing power has declined since 1973. Since Maddison?s statistics correlate purchasing power with population growth, I will ask Professor Castles here to give us his explanation for why per capita purchasing power has declined.

The explanation which I offer is that population growth has outpaced oil extraction growth. That is why purchasing power overall has declined although growth in oil extraction has continued to increase, albeit less reliably, with more oil exploration companies finding less oil annually, using increasingly costly technology in both monetary and thermodynamic terms.

What else could explain the coincidence? Yes, technology has improved to a limited degree our capacity to take advantage of thermodynamics. My guess, though, is that technology hasn?t improved enough to offset the losses in world per-capita petroleum energy availability terms due to world population growth and the statistically likely prior discovery of most of the largest and most accessible reserves, plus the rising monetary and thermodynamic cost of exploration and extraction along with the smaller margin for profit on a tightly managed world market. My guess is based on the curves for world population growth and for oil and gas petroleum extraction yields, plus technical information about exploration and production. (See Jean La Herrere again, or Campbell ?#).

All graphs which I have seen and made comparing population growth with hydrocarbon production (oil and gas) more or less follow Maddison?s figures for world economic growth, and indicate that there has been a decline in economic growth after the first and second oil shocks, world wide.

I admit that some first world countries appeared to experience forms of recovery of economic growth between these times. Overseas borrowing, superior currencies, access to cheap labor in ?developing? countries and the rate of population growth in the first world country also must be taken into account. For instance, Western Europe per capita economic growth appeared to recover to some degree, but this was at the same time as population growth slowed. In Western English speaking countries where economic growth appeared to recover, such as the US, Australia, Canada and NZ, those national economies relied on debt to fuel their continuing expansion and rapid population growth. Finally, it also does seems likely that the exploitation of cheap labor in the third world, to which much manufacturing was exported, and the ability to outbid developing countries for fossil fuel, thus slowing their economic growth, also helped to offset actual reductions in hydrocarbon energy use. Thus, even though global oil production was outstripped by human population growth, so that the amount of hydrocarbon energy per capita stopped growing around the mid 1970s and began to fall from about 1980, in some countries, per capita hydrocarbon consumption increased rapidly after a couple of massive interruptions. See, for instance LaHerrere?s graphs.?.## in ? This is also what happened with per capita economic growth according to Maddison?s figures.

For my own graphs I have used petroleum consumption data from BP historical energy stats. Compare France, which did not borrow to sustain petroleum energy fed growth, with Australia, which did in the graphs entitled ?France: Total Oil consumption and total population growth 1965-1997 and Australia: Total Oil consumption and total population 1965-1997, which are in Chapter 7 of The Growth Lobby and its Absence at http://www.alphalink.com.au/~smnaesp/populationspeculation.htm or I can forward these to you by email, since this forum doesn?t appear to support graphs.

The point I am making here is that, overall, economic growth followed the global per capita availability of oil. Even though some countries appeared to partially recover, Maddison does not show evidence anywhere that economic growth has ever gone as fast, nor been as sustained, as in the thirty post war years prior to the first oil shock.

PREDICTING ECONOMIC GROWTH IN GLOBAL WARMING

By the way, looking at Maddison and Laherrere I am inclined to agree with you that if economic growth went ahead according to the trends in Maddison, it would not reach the heights relied upon for the IPCC scenario.

That strikes me as a problem associated with economic measurement tools and what they purport to measure. As such it is not a thermodynamic measurement problem which scientists are responsible for, since they are merely taking advice from economists. Irritation with the IPCC should perhaps be directed at fellow economists who use GDP rather than Maddison?s purchasing power method as an indicator of the size of economies. In fact trends in energy use as shown by Laherrere and others would be more relevant to predict future trends in CO2 emissions, one would think. It would also follow that they would probably be more relevant for predicting economic growth than whatever method has been used by IPCC economists.

Whilst Prof Castles?s assertions about economic growth and the IPCC based on Maddison seem reasonable to me, Maddison?s measurement indicators seem to me to tend to undermine Castles?s argument to Peter North about how availability of ?minerals? (by which I have assumed he means ?energy? (largely petroleum energy, since that is the major world fuel) has not affected economic growth.

DOES MONEY STAND FOR ANYTHING IN THERMODYNAMIC TERMS?

Professor Castles also wrote:

"As an historical fact, the long-term trend has been for the cost of mineral inputs to DECLINE as a proportion of total production costs.?

At the outset of this email response, I stated that my understanding was that Prof Castles?s was using ?cost? in the statement above, to mean ?monetary? [or purchasing power?] cost?. This brings me to a final question about Prof Castles?s measurement tools, which I find fascinating and know very little about.

I want to ask him if he also intended to suggest that economists believe it is possible to define the availability of energy (?minerals?) by monetary standards. That is, if petroleum energy has remained cheap then availability of petroleum has remained abundant.

If that is the case, then I am not sure of the basis on which economists would accomplish the transition from the question of energy availability (thermodynamics) to the question of monetary cost of energy (some kind of economic theory).

Does Castles, as an economist, mean to imply that there is a measurable correspondence between the value of money and the availability of energy? In fact monetary prices for petroleum did climb steeply after the first oil shock and have never returned to the very low prices pre 1973. Nevertheless they remain comparatively cheap if you live in a country with good purchasing power for US dollars.

So, if energy is cheap if you have US dollars and live in the US then that means that there is a lot of energy. What would that mean if you live in Nigeria and don?t have US dollars? What does World Oil Price mean on a World basis? What IS the value of money on a world basis?

I admit that I haven?t payed enough attention to how money might measure energy. I have been tempted to follow a series of discussions by people who are interested in thermodynamics and energy resources about whether money could be assigned some kind of thermodynamic equivalent, but I have not had the time. Their consensus is that there is no sensible relationship between money and wood, coal, hydrocarbons, or nuclear.

SUMMING UP:

Maddison clearly shows that world economic growth per capita slowed after the oil shock on a long term basis. He alludes to the shock but avoids directly connecting subsequent economic growth decline to the thermodynamics of reduced world hydrocarbon energy consumption per capita combined with increasing populations. My suspicion is that the connection for him was obvious, but that he knew it was ideologically incorrect, economically speaking. (By the way it is less ideologically incorrect to talk about energy and economic growth in France, which has a decent body of literature on oil economics and responses post 1973.)

So, the (thermodynamically speaking) myth that economic growth continued after a blip in 1973 and another in 1978 - 1990 could be explained as due to distribution of oil consumption per capita. The apparent low $ cost might find an explanation in the exchange of undervalued equity - and Australia would be a good case in point.

It does look to me as if Paul Ehrlich was right about oil supply running down relative to population on a global basis. He was right also that petroleum would become more costly to a large proportion of peoples whose currency was virtually worthless and he was right that less oil would be used and that people would suffer because their standard of living would not keep up with population growth. What he didn't anticipate, it would appear, was that the higher financial cost would lead to a restraint in world economic growth, but that some populations, notably the English speaking settler states, would continue to purchase oil and to increase the amount they used overall and per capita and to maintain rapid population growth, without apparently paying much more, giving the illusion of persistant rapid economic growth although less sustained and less rapid. But they would do this by going into debt, by selling off equity, and by commodifying land in tandem with citizenship on the global market, and by keeping the rich happy and corporatising democracy. Although the USA diversified its energy resources, demand for oil still increased.

Countries, like France, which did not borrow and exchange equity, reduced instead their population growth and increased their technological efficiency and their energy resource diversity. Industrial relations and citizenship rights were maintained.

No industrialised country has managed to replace petroleum for its major transportation fuel, but West Europe considerably increased km per litre in its automobiles and has maintained this in comparison to the US and Australia.

Between 1973 and 1992 labor productivity grew much faster in West European countries except Sweden (Maddison p. 79) than in the US and Australia. $ productivity per kilogram of oil equivalent is also far higher in Western Europe than in Australia, Canada, and the US. [I think, but am not sure, this is despite the US diversifying its energy resources more than Australia has done.]

Of course, what the dollars here are actually measuring bears further discussion.

Sheila Newman smnaesp@alphalink.com.au