Peak Oil refers to a time when humanity is no longer able to produce more oil globally than we did the year before. When peak happens, economies will shrink instead of grow, and the planet could feel a deeper global oil shock than those that were felt during the seventies.

Economically, politically and socially, the results could be catastrophic if we do not change the way our world operates before this event. As global corporations and governments do little or nothing to prepare for this eventuality, it becomes a community imperative to try to become more self-reliant in order to mitigate some of the effects of political and economic meltdowns.

Is this just a theory? How certain is all this?

Wikipedia, the online encyclopedia, explains:
“The Hubbert peak theory is named for geophysicist M. King Hubbert, who correctly predicted the peak of U.S. oil production fifteen years in advance. While controversial, the theory increasingly influences policy makers within government and the oil industry. The current debate is rarely about whether there will be a peak, but rather when it will occur and the severity of the post-peak effects.”

Regardless of debates on the origins of oil — whether it is a naturally replenishing resource or a finite one-time endowment — the fact remains that the U.S. has produced less oil every year since 1970, and we have used more oil than we found in almost every year since 1982. The world is showing signs of a plateau and decline formation similar to the one the U.S. has experienced over the last 35 years, as shown in the graph below:

U.S. production is the bright green area on the bottom. Note that U.S. production peaked around 1970, which is what Hubbert predicted in 1956.

The reason we know the declines are coming is because Hubbert found that the curve of production lags behind the curve of discovery, but follows it in shape. The current global picture looks like this:

This graph is perhaps the simplest possible proof that we will experience a peak in oil production. After all, how can we pump out oil that we can’t find?

Can’t we just use less?

We will have to live with less oil eventually. However, until it is simply not available, voluntarily cutting consumption would be the equivalent of suicide for our economy as it is structured today.

Our modern economy is based on debt, and such an economy must grow to ensure that ever larger future revenues can pay today’s debts. For decades we have heard economic watchdogs complain that politicians in Washington are sacrificing our childrens’ future to pay for the deficits of today. A growing economy ensures that we don’t need to face up to today’s deficit or last year’s debt, but economies can only grow by using more energy.

A big part of the problem is the way our monetary system works. Money is created as debt when loans are made. The banker creates the money based on the borrower’s promise to repay the loan in the future. The money is destroyed when the loan is repaid. But banks never create the interest, only the prinicpal. Therefore, all the people in debt throughout the world are trying to pay banks principal plus interest from a money-supply pool that contains only the prinicpal.

This lack of interest in the money supply creates a constant money shortage. The shortage sets up a mass competition where everyone works hard to earn the scarce money needed to pay off his bank loans. Due to the money shortage, people start competing for scarce money even when they have plenty of goods.

This competition has devolved into a constant, pointless battle to get others to consume things they don’t want or need if it helps us to pay off our bank loans. In the end, this consumer economy ends up looking like a competition to turn resources into garbage faster than our neighbors.

There is nothing ‘economic’ about such a system, but modern economists still call the results of this battle “strong economic growth”. However, when a growth phase loses the ability to turn into a stable, maturity phase, doctors and scientists call it “cancer”. Ecologists simply call it “unsustainable”.

Let’s step back for a moment. Remember how all the money was created? It was based on the borrower’s promise to repay the loan in the future. So, if we encounter resource limits, what will happen to all those promises? You guessed it: they will become broken promises, and the perceived wealth represented by our paper money could disappear very quickly. Those promises are what we risk when growth becomes impossible, but our economic lives are very tied up with many of those promises: mortgages, 401(k) plans, social security, college funds, everything.

One has to keep in mind that money is merely the representation of wealth. The real wealth is contained in the resources that we want to buy with our money. If our monetary system is forcing us to turn that wealth into garbage at an already alarming and still growing rate, then it obviously needs to change before we could even begin to address peak oil on any significant scale.

You can imagine a simple diagram of this economic machinery. Picture a square on a piece of paper. This is the economy. Add some arrows to the square: resources as input, and garbage as output. Because of the way lending at interest works in our monetary system, the only requirement for continued smooth operation is for the volume of resources (and garbage) to constantly grow and grow. Add a finite planet to the mix and you have a recipe for disaster. Unfortunately, this recipe is already in the oven, and the timer has been counting down for decades already.

As we pass the global energy production peak and there is less oil to use than there was yesterday, our nation (and the world) will have to reckon with the downsides of the debt-based growth economy. Those downsides may be just as extreme as the upsides have been for the last 60 years.

Despite these issues, the prospects for meaningful monetary reform are, at best, absolutely dismal.

What are business and government doing? Why haven’t we heard about this?

The simplest answer is threefold:

• They have no tools to solve this problem
• It is not a problem that fits into their relatively short planning horizons
• They have nothing to gain from bringing the problem to light

That is not to say that there is a conspiracy of silence around the issue, but merely that institutions have little incentive to tackle the energy depletion problem openly. Many powerful institutions are aware of the problem and addressing it behind the scenes. Some of those responses are productive, but most are probably not for pernicious, structural reasons.

One way to understand the corporate response is to think about it in terms presented by Dutch economist Maarten Van Mourik. At a conference in 2003 he asked “What if it is not profitable to slow decline?“. Doesn’t the question itself reveal the depth of our civilization’s structural problems?

Take the oil companies. When Shell cut their reserve estimates in 2004, their stock plummeted 6% on the news (see www.oilcrisis.com). Admissions like that are risky business. Corporations are legally bound to serve the interests of shareholders above all else. Clearly, a 6% loss in value is not in line with those interests. Ultimately, responsibility to the shareholders means that the most important planning timeline for a corporation ends at the next quarterly profit statement.

Still, the industry is starting to face up to what has become obvious: world demand is going to outstrip supplies that cannot substantially grow any more. Even as early as 2005, the industry began to prep people for what is becoming an undeniable reality. In an article in Financial Times (archived at www.energybulletin.net), Carola Hoyos discusses some of the industry responses to Peak Oil. It is a tricky area because there is so much at stake.

Yet even when industry tries to face the problem directly, they only take up with the symptoms. When you see a businessman talk solutions on TV, ask yourself how much sense it makes to drill for more oil and try to beat last year’s record. Sure, it would “fix the problem” for a few months, but what then? After all, if the economic growth-mandate is still the baseline assumption, then the finite planet still inserts itself as “the problem” again next year. We can’t set records forever, but nobody wants to solve the demand problem, only the supply problem. Perhaps what we really have here is a cultural problem?

Government has just as much to lose by admitting peak oil. If they admitted that the most important commodity on earth was about to go into production decline, wouldn’t it be obvious to everyone what Iraq was really about? Even today, as news shows are reporting on the 14 permanent bases we’ve built in Iraq, it is just dawning on the media that we might not be planning on leaving.

Was this war about spreading democracy, or about control of resources? If it was really about spreading democracy, congress should be pleased to hear that Iraqis have democratically voted themselves a subsidy to use their own oil at a discount. Instead, congress was outraged, as if they have a different perspective on whose oil it really is. To the victor go the spoils?

The reality is that the U.S. can’t afford to lose any military footholds in the most oil rich area in the world. Why can’t America afford it? Because our economy must always grow so that we don’t have to face the deficits and debts, remember? Today, we need at least 21 million barrels a day from the global oil bounty. We’ll need even more tomorrow to keep our economy afloat.

China and India contain half the world’s population, and their citizens would love the chance to use just 1/4 of the energy that each American uses. The world produces 85 million barrels of oil per day. America has but 4% of the global population yet uses almost 25% of its cheapest energy. Any official admission of peak oil would be an implicit admission that the U.S. is in no way entitled to its disproportionate consumption of the remaining global reserves at current rates.

But at least the planning horizon for Government is a little longer, right? Not really. Nobody gets re-elected for scaring the public, and businesses don’t contribute to your campaign if you are desperately trying to get consumers to buy fewer goods. No, government officials cannot afford to have this debate openly and honestly. Jimmy Carter was the last politician to tell us we have to live more simply and conserve energy. We booted him out of office for it.

So, instead of having a heart-to-heart with the public over our cheap energy addiction, business and government jockey for strategic positions around the energy rich Middle East and Caspian regions. Meanwhile, major media outlets keep the American public dreaming of all the ways that some mythical “they” will invent a solution to the problems we face. We can’t affort to keep all our eggs in that basket.

What about alternative energy?

Alternative energy is great! Renewables might save our lives, if we’re the lucky ones. Unfortunately, alternatives are not energy-rich enough to maintain an industrialized planetary population of 7 billion people. Only oil has been able to create the kind of power mankind requires to run this world we’ve built. Without it, we’re going to be short, no matter how well we do with alternatives. As societies ignore issues like Peak Oil, global warming, habitat destruction, soil depletion and watershed destruction, each day brings a higher likelihood that the only resolution will come in the form of a massive population reduction via exposure, disease and starvation.

If you think that’s an outrageous statement, you’re right! But, think about our continued economic growth coupled with ongoing global population growth. Then watch this 8 minute video about the meaning of growth rates while you ponder those trends: Are Humans Smarter Than Yeast?

The magnitude of these problems is staggering to us, but people frequently propose ‘easy’ answers like building massive algae domes or growing biodiesel to replace oil. Hopefully by now, you can see that it isn’t a question of which alternative, but more a question of scale and reaction times. Moreover, if a finite oil supply can’t sustain an infinite-growth economy, then how can a finite landmass conquer the same problems? Soil depletes, too. The answer to the video’s question is starting to look like “no”.

In addition to the oil crisis, we also face a natural gas crisis. Moving to other fossil alternatives just depletes those sources even faster than we already deplete them: we’re already using everything that’s cheap enough to be used. Solar generation requires petroleum energy to mine silicon, silver and copper. Nuclear requires uranium, concrete and time. The hydrogen economy is a fairy tale. Alternatives don’t work well for transportation, and that’s why we still use oil for 90% of transportation energy today.

There are no easy answers here. The best thing to do is stop thinking of peak oil as a “problem” that has a matching “solution”. We’ve grown fond of replacing the term ‘problem’ with the term ‘predicament’ in an attempt to prevent our minds from taking us down that road. All of the realistic responses are off in the other direction.

Excellent and thorough treatment of the alternatives question is offered at http://www.lifeaftertheoilcrash.net/

Okay, but should I buy a hybrid car, or what?

Generally, no.

We believe the future will require changes so deep and pervasive that the automobile-based norms of today will have to be given up altogether, or at best, become a luxury for the wealthy. America has a love affair with cars, so naturally people want to try to keep that going. James Howard Kunstler calls this tendency “the psychology of previous investment“. Resist that urge.

In our view, the obsession with the cars is a major impediment to the kind of critical thinking we will need to redefine the way we inhabit the Puget Sound region.

If you must drive frequently to support yourself in the current system, we have a simple and useful proposal for you. Devote as little money, energy and thought as possible toward maintaining or improving either the motoring system or your participation in it.

When is peak going to happen?

Most realistic estimates put the year at 2007-2020. Some highly optimistic figures put it at 2037 or later. Some highly qualified energy insiders, like Matthew Simmons (a respected energy investment banker and a member of Cheney’s 2001 energy task force), believe it may already have happened. We happen to believe it has.

What can I do to prepare myself and my family?

Simply focus your efforts on these three areas:

Is it really that simple?

YES! … and no.

If you use these three items as guide posts, you’ll be on the right track. The thing to understand is that we’re all dependent on the global economic system today because we’re all in debt and we’re all consumers.

Think about the word ‘consumer’ and what it means. The opposite of a consumer is a producer. If we can become our own producers, then we’ll gain some independence from this system before it fails us.

If you spend some time thinking about this, you quickly realize how backwards popular culture is today. Freedom is not being able to drive your car all over the city, real freedom is when you don’t need to!

So, yes: it is as simple as trying to live with these thoughts in mind. But growing your own food? Producing usable energy? That’s not simple at all! We can’t walk out into the backyard tomorrow and ‘Just do it’, as the sneaker ads suggest. But we can start.

Here are some simple things you can start to change today, right now. Don’t attempt them all. Just pick one to start. You’ll be surprised how fast you can change your whole life if you can just get a good start.

• Get out of debt. Credit card debt first. Yes, your mortgage, too.
• Learn how to garden organically and start growing your own food.
• Save rainwater and use it on your garden.
• Store some gasoline in the garage.
• Begin following an emergency preparedness regimen.
• Keep some clean water and a month of food around the house.
• Buy a share in a Community Supported Agriculture cooperative.
• Imagine your home during a blackout. Can you make it more livable?
• Shut the power off one night and practice. Camp out in the living room!
• Keep a week’s worth of cash hidden in the house.
• Get to know your neighbors. Make friends with them.
• Find a way to bike or use transit, or, consider moving closer to work.
• Learn how to store and repair things instead of throwing them away.
• Keep yourself in good physical shape.
• Shed chemical dependency as much as possible, from coffee to tobacco.
• If you own your home, consider a solar hot water system. It is the least exciting of all the alternative energy options, but the most effective.

Unfortunately, none of these moves guarantee safety. Personal perparations are the foundation for addressing the problem, but if society disintegrates, we all lose. The best defense against Peak Oil is a strong community.

So, What else can you do?

Come to Seattle Peak Oil Awareness meetings and get involved!

Updated May 2008. (Previous 2005 version here)