The Age of Scarcity?

Or is it the age of Malthus?

To think that our natural resources can last forever is one of our society's greatest myths. As the world population rises and the standard of living in the developing world increases, the capability to cloth, feed and provide energy through non-renewable resources will inevitably diminish. A couple of weeks ago the Canadian Imperial Bank of Commerce (CIBC) issued a very frightening report entitled The Age of Scarcity.

What does the report say? Lets look at oil. Here are the major points:

- World oil production peeked about 2 1/2 years ago. The rate of new oil discoveries since then has been lower then the depletion of the "mature oil fields". Although oil production may recover somewhat in the upcoming years, oil production will fall after 2011.
- One benefit to oil depletion is the increase in natural gas production:

As an oil field matures, the resulting loss of reservoir pressure releases dissolved natural gas. The released gas forms an expanding cap over many mature oil fields, resulting in a rising ratio of natural gas to oil and hence, a rising ratio of natural gas liquids to oil production. This is precisely what is occurring in rapidly depleting fields like Mexico's Cantarell.

Bottom line: the rise in natural gas is an indication that many oil fields are being sucked dry.
- There are actually two world markets for oil, the oil producing countries who subsidize their own consumption and the rest who pay market prices. Here's what the authors had to say about this situation:

The extent to which prices ration limited supply over the next five years depends to a significant degree on how much oil will be diverted from world oil markets to meet the consumption needs of major oil exporters themselves.

So ironically the over-consumption of oil by producers may drive up fuel prices even further. The list of oil producing countries includes OPEC (Saudi Arabia, Iran, Venezuela ...), Russia and Mexico.

What does this amount to?

The other symptoms of high energy cost are beginning to show: rising food prices, inflation and perhaps the demise of suburbia. This idea is the thesis of James Howard Kunstler's new book, World Made by Hand.

Here's a clip of Kunstler on the Colbert Report:

Although the free market is great at regulating oil production and consumption is the very short term, it can't do much to help plan for the long term. We really need to start developing new energy producing technologies now. Now don't get me wrong, the market will respond eventually to this situation, there will be pressure to develop fusion energy and other technologies, but it seems like people will have to hurt first. Only our governmental funding of new technologies can preempt this situation. We have the know how but I'm afraid that may underestimate how much we'll have to invest in new science and technology to avoid the upcoming crunch. We need to start soon.

More on this topic:
'Age of scarcity' foreseen and 'Age of scarcity' will drive oil to $225 US a barrel: CIBC from The Montreal Gazette.
The Age of Scarcity? Businessweek
Oil 'Scarcity' on Horizon The Financial Post.

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I don't know if this is just my faulty perception, but this kind of panicky "omg the world is going to fall apart" seems to be coming up a lot on American blogs, but less so on European ones - a cultural phenomenon maybe?

Either way, I know it's unscientific of me, but I can't help but feel that some of this doom and gloom just comes from a fear of change.

There has been quite a bit of coverage in the media over recent food prices etc. Chalk that up to the MSM just hyping stories.

As for reaching a Malthusian point, it will happen eventually. It's not a case of "if" but "when". Any individual that studies complex systems will tell you that a network will only last if it is sustainable. Right now we have not reached an equilibrium point. Our consumption of energy sources does not equal the production rate of these sources (by energy I mean the actual synthesis of oil and coal from hydrocarbons which itself is produced by conversion of CO2 to CHO through photosynthesizing plants). This imbalance hasn't affected us because we've had a large supply of these non-renewable energy source, but it will run out eventually. Economists are starting to get an idea of when this will occur an it will happen in our children or grand-children's lifetime.

In the past people have overestimated how quickly we will run out of fuel, but this does not change the fact that we will run out. I'm just pointing out that recent estimates from economists point towards a trend of decreased oil production coupled with an ever-increasing demand. Eventually market pressures will exert a force on us to develop new technologies, but that "force" may be great. Right now a slowdown in oil can drive our economy into a recession (not that it is the only cause of our economic worries, but it doesn't help). If the force is too great we may not be able to muster up the resources needed for R&D in these new technologies.

What technologies?

Our energy problems won't be solved by wind or solar power. Nuclear power is limited as well. We really need to invest in fusion technology. This relies on deuterium - we have enough of that in the oceans to last for millions of years. However to produce and contain a fusion reactor in an economically sustainable way - lets just say that it won't be easy. It might be beyond our capability. But we need to start now.

Martin, that is an interesting perception, less doomerism in Europe than the US. Assuming that it is actually true, I'll offer up a few possibilities:
Europe is seen (by those who think seriously about energy), to have a more coherent plan. Europeans have never consumed energy like it was going out of style, and have never adapted to the serious underpricing of energy that we have had in the US and Canada. We see European politics (rightly or wrongly) as being more rational, and hence more able to take steps to prepare for a transition. On this side of the pond, we have seen too much successful denialism, so we don't think we will even try to adapt until it is too late. Couple that with the overall feeling that our economy is unsustainable. The feeling is a vague one. But the fact is that we have been substituting financial engineering and debt for the actual production of goods, and services. Only now is the hollowness of this approach starting to be noticed. The feeling that we are due for a serious retrenchment of living standards, even if energy were not a problem seems justified.

@Alex: lol, I am actually a complex systems researcher (based mostly in ecology), albeit soon to be unemployed :( I don't dispute that peak oil is real, or that it's basically happening now, I just feel that some of the panic is about genuine problems, and some is more down to fear about America's place in the world.

@bigTom: Continuing my comment to Alex, again it's very unscientific, but generally as an Englishman I feel that Americans get really stressed about being a superpower. We used to rule 1/4 of the planet, expanding before the industrial revolution even began, but then times changed, our Empire collapsed - but aside from a blip in the 70s/80s we're still doing great. I think that's why culturally we're perhaps more confident that we'll do okay after peak oil too.

I think also, with new energy technologies, you all forget that if we were back in 1750 discussing which technology to move forwards with, we'd probably be saying the same gloomy things about oil as we are now about solar... "to expensive, not enough of it, not a long term solution, etc". A new alternative doesn't have to be perfect, it just has to do. And it probably will - we humans have done without oil for most of our history.

I'll also point out that most of the sources are Canadian. We Canuks tend to have some views closer to Europe and others closer to the US. I'm not sure that CIBC or the Montreal Gazette are too concerned with American world domination.

There are two sides to the Mathusian equation. One is increase in use of resources, the other is increased productivity (e.g. more effective use of resources or development of better technology including business models). When you say that we'll run out of resources, you are really claiming that growth of resource usage is, in the long run, higher than growth of productivity. My bet is on productivity growth, which has been exponential, rather than on resource usage, which is increasing more slowly. Basically, we will always be developing new/better resources faster than we use up the prior ones.

Try reading something like Kurzweil's book The Singularity is Near to get a more positive view of where we might be heading.

There are many other sources of oil that demand that the price remain high to be cost effective. That's only been true the last two years and some are still scared that the prices are unnaturally high driven by speculation and investment by large central banks. So they fear a fall in prices such as happened in the past. (Which would make their investments into loses) But there are many new sources albeit of questionable environmental effects. i.e. more tar sands in Alberta, the shale in Utah and Colorado - and of course oil in Alaska and off California now verbotten.

As the cost of oil goes up alternative sources of energy then become more viable. Large scale solar being one example. Wind and other. Then there are wave power stations, geothermic and others. Many of these require additional expenses to store power and often still have drawbacks relative to oil. But as prices go up these can go on line.

As these other sources go into the grid people will be more likely to switch their oil heaters (and eventually gas) to electricity. Cars will tend to have battery power or, alternatively if they can solve the platinum and other problems, hydrogen as a transport energy source.

There are also alternative fuel sources such as algae based hydrocarbons that look promises not to mention methynol (although it tends to eat up engines such as to make their lifetime at best half as long as running on petroleum products).

The point being that despite all the scare mongering there are plenty of alternatives. Many aren't available now simply because it takes awhile to scale up and that depends upon consistent high prices which we simply haven't had. Even now it's not clear oil prices will remain high given the amount of speculation.

But there's no shortage of technologies that can replace oil. The transition may be somewhat painful but it's hardly a crisis IMO.

To add, I don't think this excuses Bush's short sited funding decisions. I think many could have come online much faster had Bush funded them and offered more government incentives.

But come on they will. (And let's not forget that the US is hardly the only nation doing energy research)

"I don't know if this is just my faulty perception, but this kind of panicky "omg the world is going to fall apart" seems to be coming up a lot on American blogs, but less so on European ones - a cultural phenomenon maybe?"

A quick peek at http://europe.theoildrum.com/ indicates that there is indeed a serious problem facing the Europeans. As someone who has many family members on the ground throughout Europe. I can attest to the fact that they, like the Americans, have responses that run the gamut from outright denial to some indications of saner approaches and yes culture does play a big role in their perceptions and how they respond.

By Fernando Magyar (not verified) on 13 May 2008 #permalink

@Fernando: I'm British. I can't speak for all of Europe, but it's not really an issue here at all. "Serious problem"? For who? So we switch to nuclear and cars running on fuels cells... I don't see the imminent collapse of civilization!

@Clark: Completely agree, that's basically my point.

Just to clarify, when I say "for who", I mean in the West. Obviously in the third world rising food prices have the potential to be very nasty (although I would maintain that many of the places facing food shortages are doing so largely because of climate related causes rather than necessarily the price of oil).

But we have people - even people paid to blog here at SB - talking about how the U.S. health system will collapse in the event of oil prices rising further... it just seems like the sort of rambling, unreferenced, out-of-context stuff you'd see on RaptureReady...

For tens of millions of people, the health care system is already collapsing, because, like people in third world countries, their whole families would be financially destroyed if one person needed hospital treatment for an illness or injury. The industry that is the only legal source of healthcare charges uninsured people much more than insured people for the exact same services. Of course if the price of oil doubles or quadruples, they'd go on making disposable syringes and scalpels for uber-safe treatment of the rich. But the poor would be losing their jobs and insurance just at the moment when the costs of health care were being jacked up even higher. They would suffer from rationing by price, with few alternatives for care, combined with the legal obligation to provide services to children. If Europeans are less worried, it's because they know that their kids can get access to vaccinations, basic medications and surgeries, etc. without bankrupting the family. (They are also less worried about expensive gasoline because most of them can work and obtain groceries without owning and using private cars.)

Considering that there are many developed countries enjoy high standard of living without consuming 20% of the world's energy output (that the US does), it seems to me that cutting energy consumption doesn't necessarily have to translate into a shift back to stone age.

@Chui: Completely agree.

@Jane: I'm sorry, I'm the first person to criticize the inequality in U.S. health-care, but I've got no patience with anyone silly enough to compare it to the third world. At any rate, I can't help but feel that you've taken the worst-case scenario without really providing any solid facts or figures to back it up.

Martin, take a look at WHO numbers on infant mortality in the US. Not quite third world but not much better than many countries that are borderline developing/third world. I think her point is that access to health care in some cases borders on developing world expectations. When you take into account illegal immigrants this picture gets much, much worse (in terms of access). Some apparently don't have a problem with that. I do. Jane may not have the data quite right but her point is well taken.

I heard talk in Venezuela, late '80's early '90's that at some point in the future Venezuela would cease to be an oil exporting nation but would use all her production domestically. I would guess that date has been pushed into the future by present day realities.

I understand that the USA spends the most per capita on health care in the world. I have never seen a statement that the USA was #1 in any aspect of health care.

By Jim Thomerson (not verified) on 19 May 2008 #permalink

this kind of panicky "omg the world is going to fall apart" seems to be coming up a lot on American blogs, but less so on European ones - a cultural phenomenon maybe?

It's simple - Europe has already felt the pain of resource depletion and the massacre of its people as a result of massive industrial build-up and unchecked economic growth. It's a lesson not easily forgotten, I imagine. To a greater extent than us, they have governed themselves accordingly for the last 60 years. Let's hope it doesn't take the same level of suffering for us of the New World to learn the lesson...