A Crude Awakening: The Oil Crash

Oil
-

excrement of the devil

black blood
blood of the dinosaurs
bloodstream of the world economy
blood of the Earth

Era
- cheap, abundant energy -> scarce, hard-to-get, expensive energy
- dependent on unstable regimes of the world: important
When Society Collapses
- increased unemployment
- poverty
- bankruptcy
- starvation
PRECIOUS AND NON-RENEWABLE
Carbon - essential part in hydrocarbons in crude oil
Oil - outcome of millions of years of geological history
- great bulk of it was formed at 2 brief moments of extreme global warmi
ng:
1. 90 million years ago
2. 150 million years ago
How Oil was Formed
1. Animals and plants died in the ocean
2. Compressed by more deposits of sand
3. Deposits squished and compacted more and more
4. Cooked (called "the kitchen")
5. Organic material buried at a depth of about 2000 meters
6. Chemical reactions converted it into oil
Average man performing physical labor for 25,000 hours = 1 barrel of oil
Barrel of oil pulled out from Iraq = 1 dollar
Oil
-

so dense
essentially free energy
nonrenewable
capital intensive
most invaluable raw natural resource discovered

WE USE IT FOR EVERYTHING!

1960 - wonderful new world of new Fords
Oil
- our God
- people worship petroleum
70% of the barrel of oil - refined into transportation fuels
Transportation Fuels
- motor gasoline
- diesel fuel
- jet fuel
- railroad fuel

- maritime fuel
98% of all transportation energy - comes from oil
Construction of average car = Consumes 27 to 24 barrels of oil
Construction of average desktop computer = Consumes 10 times its weight in fossi
l fuels
Construction of microchip = Consumes 630 times its weight in fossil fuels
1 calorie intake (in the USA and similar nations) = Burns 10 calories of hydroca
rbon energy
Green Revolution - second half of the 20th Century
- consequence: most of the 6.4 billion people in the world are well-fed
- large measure of fertilizing land with petrochemicals
Petrochemicals - fertilizers derived from petroleum
Farming - changed more in the last 50 years than it did in the previous 1000
Farmer's work today = 5 times the land his father worked
Petroleum that runs modern "hired hands" - not confined progress and farming to
the fields
Liquids that come out of oil as it's processed and refined - create the building
block for all petrochemical, chemical, plastic, pharmaceutical, zillions of thi
ngs
FROM BOOM TO BUST
Caspian Sea - one of the earliest oil provinces in the world
Baku - people were simply digging holes to produce oil
- huge industrial center
- one of the most affluent cites in the world
Oil production really took off - when western oil companies were granted concess
ions in the late 1800's
95% of Russian oil - came from Baku by 1900
Oil fields - produced up to 5,000 tons of crude oil a day
Venezuela - discovered oil at the beginning of the 20th century
- at one time, became the largest exporter in the world
1914 - real first discovery
December 16, 1922 - real turning point
- blowout in a well being drilled at Cabimas
- day of the black rain
- 150,000 barrels in the air for 2 or 3 days running
USA - was the world's leading producer of oil, not Saudi Arabia
- much of their military and industrial might arose out of their giant o
il industry
- Saudi Arabia of the world until the 1950's
McCAMEY, TEXAS 1930
McCamey - boom town for many years
- attitude was that this was going to last from now on
- people could not forsee that they were ever going to pump all the oil
out the ground in that part of Texas
- people couldn't picture ever running out of oil because it was everywh

ere and got on everything

McCAMEY, TEXAS TODAY
- Dead
- Supply will deplete sooner or later
- Not making a lot of dinosaurs anymore
MARACAIBO, VENEZUELA TODAY
- Dead
BAKU, AZERBAIJAN TODAY
- Dead
A MAGNET FOR WAR
Oil - magnet for war
- starts war
- associated with war
Darfur, Sudan - everybody is treating as an ethnic and religious struggle
- in fact, a struggle about major oil finds located in the south
- government in the north, a different ethnic and religious makeup, is d
isplacing those people and moving them out of the area so that oil revenues belo
ng to them
WWI and WWII - important elements of oil in them: reason for war, allowing war
to go on, way of securing supply
WWII - war of engines
- continuous supply of oil from Baku ensured the Russian victory against
Germans
Sadam Hussein's invasion of Kuwait - first war absolutely about oil
- seizing an oil field
IRAQ, 2003
Iraq oil - giant kept dormant for many years
- least explored, least developed, and the least produced
USA - did not secure areas of weapons of mass destruction
- did, in fact, secure the oil fields
- planned to bring in US companies in Iraq where they have previously no
t been allowed to operate
- maps of oil fields involved in the planning of the war
- instead of creating conditions for peace, they are making conditions f
or conflict
Iraq - reason for interest: geopolitical position and it's right in the middle o
f the world's oil patch
Iraqis - wanted to get rid of Saddam Hussein
- happy that the Americans helped, but look what happened
After Saddam Hussein
- no institutions
- no state
- no army
- no real police force
- people are kidnapped, killed, decapitated, everything
-no law: made the country stateless

Oil - more and more of it is going to come from less and less stable places, sec
ure places, places that challenge the taking of oil in the first place
- fuels war
- catalyst for war
- prolongs war
- intensifies war
THE NUMBERS DON'T ADD UP
Classification of reserves - depends on the motivations of the person that's cla
ssified them
Public data - extremely misleading and misunderstood
- try to keep people guessing, keep them off-balance
Most numbers - seen around the world are proven, plus probable, and sometimes e
ven possible
OPEC - Organization of the Petroleum Exporting Countries
- exaggerated how much oil it's got left, for all sorts of political rea
sons
50% of Kuwait's reserves - were added overnight in 1985
OPEC quota - amount of oil that the OPEC countries could produce was based on th
e reported reserves
- more you reported = more you could produce
Venezuela's reserves - doubled overnight in 1987
Saudi Arabia - announced enormous increases overnight
- reason: to protect their production quota
Numbers - have not changed since
- absolutely implausible to imagine that it should stay the same, when
they're all the time producing
8 or 9 million barrels a day - same reserves at the end of the year as they were
at the beginning, as they were 10 years ago, etc.
Plan
1. Produce oil
2. Prove up reserves to offset the oil produced in the year
3. Beginning of the next year, reserves are exactly what they were the y
ear before
OPEC countries - do not care about what might happen 20 or 30 or 40 years from
now
- care about what they get now today
- politicians, want more money, more money to spend
- have budgets but are prisoners of these
- what'll happen 20 years from now they don't care: by that time, they'l
l be dead
PEAKING OUT
- We're going to run out of oil and gas a lot sooner that a lot of peopl
e think
- If it peaks = They've taken more than half of it out of the ground
-We're going to come to a time when we don't have oil
USA - largest oil producer on Earth for almost a hundred years

- nobody thought they'd ever peak

Many geologists - if not all, thought that that was going forever
Dr. Hubbert - continuous student of energy resources and their implications in h
uman affairs
- 20 years ago (1975-20=1955), he pointed out to the petroleum industry
that the US would probably reach its peak in petroleum production within 10-15 y
ears
- virtually laughed out of his profession for making such a ridiculous p
rediction
- realized that the US peaked in the 1930's and extrapolated that to fig
ure out how much oil there would be altogether
Hubbert's peak - peak in the production curve
Produced 50 billion barrels in 100 years and 100 billion barrels still to go ->
how long will it be before an oil shortage?
December 1970 - true enough, the US oil peak happened just as Dr. Hubbert said i
t would
- US peaked at 10.2 million barrels a day -> oil prices went through the
roof
- drilling boom of epic proportion
10 years later - US was drilling and completing 4 and a half times more oil well
s that it was going backed when it peaked
- domestic oil production: 10.2 million barrels a day -> 6.9 million bar
rels a day
Last Great
1.
2.
3.

Frontiers of New Oil Discoveries

Alaska North Slope oil (1967)
Siberian oil (1968)
North Sea oil (1969)

Irony - the better you do the job of exploiting oil and gas, the sooner it is go
ne
British government - admits that it will be a net importer in the next year (?)
- gone by 2020
All promising areas - for oil have been identified
- the world has been sufficiently explored
"Technology and ingenuity will bring out all these changes."
- took 30-35 years to develop all of the great tools
- fantastic technology to find oil, seismic surveys which are of unbelie
vable resolution to see the smallest formations in the Earth's crust
- advanced engineering to produce oil
These tools - ended up being great enhanced production techniques
- basically super-straws just sucking the last easy oil out of the groun
d at faster rates
- to NO extent significantly increasing the amount of oil going to be pr
oduced: myth
Energy used from natural gas to produce oil > energy taken from oil shales and t
ar sands
2/3 of the oil reserves - in the Middle East

- Persian Gulf, 10 times as much as any other source

Middle East - only region in the world that hasn't peaked
2030 - Middle East producing 50-51 million barrels a day
Iran - peaked at 6 million barrels a day in 1978
- struggles to stay 3-3.5 million barrels a day
Kuwait - struggles to keep 2.5 million barrels a day intact
Qatif Field - only significant exploration success of Saudi Arabia from 1967-200
5
If Saudi Arabia has exceeded its sustainable peak supply -> the world has exeede
d sustainable peak supply
Whole world has gotten used to the growing side of the mountain range -> has to
face the opposite side
M. King Hubbert - predicted that the peak should be occuring about the turn of t
he century
- his prediction slipped a little because of the Arab oil embargo, oil p
rince spike highs, and the worldwide recession = reduced the demand for oil quit
e significantly and pushed oil peak off until about now
150 years - growth of everything: of industry, transport, trade, agriculture
- explosion of the number of people
- growth made possible by the cheap, abundant supply of energy
AN INSATIABLE DEMAND
Supply and Demand
- Demand is on the march and supply is flattening out
- Supply 80 million barrels a day -> 120 million barrels a day by 2030
- To meet new profile, 200 million barrels a day of new oil must be adde
d: compensate for depletion of existing wells
Early 70's - over half the world essentially didn't use any oil
Only Serious Oil Consumers Back Then
- Europe
- Japan
- USA
- Canada
- Former Soviet Union
Areas Which Don't/Hardly Use Oil Today
- Papua New Guinea
- 2 or 3 isands in the South Pacific
India - demand for energy will only increase as the standard of living rises
- economy becomes more diverse and dynamic
- continues to narrow the gap with more developed nations
China - exponentially expanding their need for energy: just getting started
- fastest automobile market on Earth
- most urban Chinese believe they will own a car withing 5 years
- 1/3 have driver's licences
- demand for oil and gasoline is really going to take-off
- number 2 importer of oil in the world

25% increase in China's importation of oil -> 14.7% increase in China's use of o
il
10% growth of China - a year
- doubles in 7 years
NOW: 10%
7 YEARS FROM NOW: 10% x 2 = 20%
14 YEARS FROM NOW: 20% x 2 = 40%
- 4 times bigger than before
China and India - getting into the party when the glass is literally half-empty
- have to fight with the rest of the world to get what's left
THE END OF THE AMERICAN DREAM
Hummer - status symbol
- 10 miles per gallon
USA - uses 25% of the world's oil
- 1 person in 22
- only 2% of the known oil reserves
Price of bottled drinking water > Price of gasoline
Gasoline - cheapest liquid you can buy in the US
To have no economic consequences - anticipate it by 20 years
- we don't have 20 years, we don't even have 10 years
- we're almost there
Political system - controlled by major corporations
- requires downscaling to address this
America - nation on wheels
- automobile and the powers behind it have been major factors in growth
- victim of own success
Suburbia - in a lot of trouble
- concept: commute 30, 40, 50 miles to job and back
- only viable so long as there's relatively cheap oil and gas
Three Things Needed That are in Short Supply
1. Money - can be borrowed
- accumulating debt
2. Time
3. Energy
Make energy available to invest and buy time - solution: vigorous conservation p
rogram
Sunday, July 20, 1969 - first man on Earth prepared to set foot upon the moon
Bush administration - closest connections with oil companies themselves in the l
ast 40 years
- married energy security with national security and the US foreign poli
cy
USA - imports 2/3 of the world's oil
Secure oil supplies and create a more stable world - democratize the Middle East

Oil - one of the materials that is making a truly great contribution to modern c
ivilization
Exchange of secure, cheap, reliable oil - basis of foreign policy from US from 1
945-today
- in return for protection for the governing rulers of Saudi Arabia
Exchange = threatened
$28,000 - per capita income in Saudi Arabia 10, 15 years ago -> $6, 000 - today
- huge drop in the standard of living of the average Saudi
Young people in Saudi - coming on to the labor market
- feel alienated
Saudi Arabia - tension between the oligarchy (power to few) which rules the coun
try
- government system is corrupt
- selling oil to the West -> West is arming the regime -> The regime use
s guns against its own population
Fundamentalist movement - strong and dangerous
Options
1. Militarize the taking of oil - get the population to understand that
if they want to continue to consume energy in the way they are, that they will b
e in war after war
2. Begin to prepare for what we all see coming - end to the era of cheap
oil and to invest in alternative technologies for energy
TECHNOLOGY TO THE RESCUE?
- Replacement for oil and natural gas
- Natural resources can become depleted but human creativity is inexting
uishable
Hybrid electric automobile - both internal combustion engine and an electric mot
or
Energy consumed if every car on the road were hybridized = Gasoline consumed in
about 5 or 7 years
WHY? Each passing year -> economy grows = More and more oil consumed
14 terawatts of energy by 2050 = 220 million barrels of oil per day
700 million internal combustion engines - running around the world
Hydrogen - going to do "the trick" and replace oil, eventually
- conceptually a good idea
- major challenges to the industry
- needs substancial breakthroughs in technology: fuel cell technology, h
ydrogen production technology, fundamentally unresolved issues.
Industry - reluctant to invest in fuel cell technology because there's no hydrog
en infrastructure to deliver and produce hydrogen cheaply
- not in place because there's no demand for hydrogen: how do you get st
arted?
3-6 gallons of gasoline to make enough hydrogen = to drive a car the same distan
ce that 1 gallon of gasoline would = IMPRACTICAL
Biomass - generally inefficient

Energy inputs in producing ethanol > Energy you get out

Quantities from ethanol and biodiesel - very, very small
- small percentage of the fuels we consume today
How much of our food acreage are we going to convert to growing fuel?
How much world hunger can we stand with that fuel of choice?
Nuclear energy - expensive
- discussion on how to treat the waste and what to do with that
10 terrawatts - energy we consume today = 10,000 of the biggest possible nuclear
plants
U-235 - burned
- worldwide reserves of uranium would be exhausted in 1-2 decades
Wind energy - becoming more popular and economically viable
- intermittency and low power density: never contribute more than a smal
l fraction of energy supply
Wind and solar energy - very small
Sunlight - plenty of energy
- haven't found a way to use it properly
Total amount of sunlight that falls on the planet = 20,000 times the amount of f
ossil fuel power we're using right now
- BARRIER: cost
To generate the same amount of power we use now in fossil fuels = Cover land are
a roughly half the state of California
Solar cells - cover only 10 square km
- not impossible, not unthinkable, but a huge technological challenge
LIFE AFTER THE PEAK
- Evolution is always fowards. We're never going backwards.
Air travel - essentially stop
Money - people thought made the world go round
Cheap supply of energy - what actually made the world go round
Time of Christ: 300 million people
Coal Came On (End of 18th century): 300 M x 2 = 600 million people
Oil Came: 600 M x 6 = 3.6 billion people
Without petrochemicals - population of the world cannot be sustained
- Does it mean we have to go back to a population before oil?
- Whether mankind will carry on living some different, simple way, that'
s another question.