Consider the following math problem.
   Start with the present population of the world (about 6.4 billion (6.4 * 10^9) people). Assume the world’s population grows at 2% per year. (We were growing at this rate a few decades ago). We have records of human history back to Babylonian/Sumerian times. (Let’s say 5,390 years ago.) Project this growth rate another 5,390 years into the future. Describe the result.

   Further assumptions. Assume there are no restrictions to this growth. Assume you can cram each person into a 1 ft. by 1 ft. by 3 ft. rectangular solid. Ignore gravitational/relativistic effects.

Answer:
   5390 years into the future there would be 145 million million million million million million million million million [(6.4 * 10^9) * 1.02^5390 = 1.45 * 10^56]  human beings. The volume required would fill a sphere more than 1780 million million miles in diameter. (The earth’s diameter is less than 8,000 miles.) Since our population would still be increasing at 2% per year, this mass (mess?) would continue to grow in size. In the first months of the following year the expansion rate of the radius would reach the speed of light.

   We can reasonably conclude the process will stop in less than 5,390 years. (If we include gravitational effects, we would collapse into a black hole well before 5,390 years.) In order to get a better prospective on when, how, and why the growth will stop; we turn to mathematical models that reflect the real world.




   In 1968 a group of thirty scientists, educators, economists, etc. met in Rome to discuss the growth problem. An economic/resource model was constructed and fed into a computer. The output was the book “The Limits To Growth” which was authored by Meadows, Meadows, Randers, and Behrens in 1972. One of the components in the model was “Nonrenewable Resources”. At the time, no one knew what the most vulnerable commodity (weakest link) was in this Nonrenewable component – thus the model used a conglomerate representing many Nonrenewables. The purpose of the model was to see what would happen as you ran time forward; and as best as possible, get a ballpark idea of when “The What” would happen.

   The result of the research model was published in the book “The Limits To Growth”. The graph on page 129 showed the “Standard Run”. Other runs of the model used different starting conditions or changed other variables. For example, a graph on page 133 showed the result if you doubled the original amount of nonrenewable resources. In both cases world population, industrial output per capita, and food per capita would run up to an “overshoot maximum”, and then fall off a cliff. Doubling the nonrenewables just postponed things a couple of decades.

   At the time, the results were a very popular topic of conversation - as in “Everyone talks about the weather”. Everyone waited a few years for the spectacle to unfurl. Nothing unusual happened. Everyone dismissed the book and the “Club of Rome” as a bunch of crackpots. Everyone forgot about the book. The book itself downplayed the time element due to various unknowns, but all you had to do was look at the time scale at the bottom of the graphs. Everyone failed to notice that the “overshoot maximums” and subsequent cliffs weren’t scheduled for the 1970’s. Everyone forgot that the “subsequent cliffs” were due in the early part of the present century.

   In the years since the 1970’s we have done nothing to avert the consequences, but we have learned what the weakest link is in the “nonrenewables”. We now have a better measurement of when and how “The Crunch” will hit.

The weakest link in the “nonrenewables” turns out to be “fossil fuels”, and in particular, oil.




   Over the years, there have been multiple estimates (“guesstimates”) of the earth’s initial “endowment” as to reasonably recoverable petroleum resources. In recent decades most of these estimates for “regular oil” have clustered around 2 trillion (2 * 10^12) barrels. Colin Campbell and Jean Laherrère have done the best work of organizing what is known plus estimating what remains to be found. In March 1998 they published their conclusions in an article in Scientific American. (Available online at either http://dieoff.org/page140.htm or http://dieoff.org/page140.pdf). The title of the article was “The End of Cheap Oil”.

   In the years since 1998 “cornucopian economists” (e.g. the egotistical Michael Lynch who has been dogmatically bearish (and wrong) on oil prices for years) have tried to belittle the work done by Campbell and Laherrère. However, one overriding fact has emerged. In March 1998 the average price for WTI oil was $15.02. Today it is more than double this amount. (Added 3/18/06: It has since doubled again) Please see:

1) “Oil Scarcity…” (1999)   http://www.iaee.org/documents/99win.pdf
2) “Closed Coffin: Ending the Debate on “The End of Cheap Oil””(2001)
      http://sepwww.stanford.edu/sep/jon/world-oil.dir/lynch2.html
3) "Michael Lynch predicts $25 oil by summer 2004"   http://www.freep.com/money/business/gasfut5_20040405.htm
4) (Added 8/7/05) “I think by the time the next annual meeting occurs the price will probably be under $30, absent a huge political crisis.” -  Michael Lynch (ATCE, September 2004) (Forecast was for September 2005)
http://groups.yahoo.com/group/energyresources/message/64785
5) As of March 18, 2006 Michael Lynch is once again forecasting oil prices to drop to $40 sometime during 2006. “But you will see $40 this year, IMHO, and maybe $30.”
Source: http://groups.yahoo.com/group/energyresources/message/89058
6) The most recent Lynch forecast was quoted in the Ottawa Sun on April 24, 2007
“Lynch predicts oil prices will remain above $50 for the rest of year, then gradually drop to the mid-to-low 40s in 2008.” http://ottsun.canoe.ca/Money/2007/04/24/4124793-sun.html

As for Mike’s previous forecasts, we wait.


   Jean Laherrère and Colin Campbell have expanded their original work and have formed the Association for the Study of Peak Oil & Gas (“ASPO”). Details about ASPO and links to their monthly newsletters are available at the ASPO website (http://www.peakoil.net/), and I have additional information from these and other sources at http://www.durangobill.com/Rollover.html. Most of these models conclude that the world’s production of crude oil will hit a maximum sometime about 2010 to 2015 and then go into decline. (Updated 3/2/2007: “The Peak” is now likely no later than 2010.) This decline in oil production will generate the “cliff” in the world’s economy that was forecast by “The Limits to Growth” model.

   There are two advantages to using any predictive model. First, a model provides a reference system and can guide forecasts of what will happen in the future. Second, as new information becomes available, the model can be updated/modified to refine these forecasts.

Should we believe the dire forecasts that result from these models?



   The graph above shows ASPO’s May 2008 Base Case model of expected world oil production over the next several decades. (Chart has been updated since the original 2004 chart)




   In the last year there have been several hints that assumptions made in generating the above graph and model may be too optimistic. If this is true, the peak in oil production may actually occur before 2010. (The earlier ASPO charts showed an expected peak in oil production about 2010. As seen in the above chart, this estimate of a peak has now been moved forward to 2007.)

   The “official” 2002 measurement of Saudi Arabia’s oil reserves (according to the Oil & Gas Journal) is 259.3 billion barrels. The ASPO model assumes that Saudi Arabia’s remaining oil reserves plus future discoveries will total about 206 billion barrels, and Saudi Arabia will be able to increase production from these resources in the future. At ASPO’s 2003 seminar in Paris, Iran’s Ali Bakhtiari indicated that Saudi Arabia might only have 130-160 billion barrels left. (This range is looking very good as of May 2005.) (http://www.peakoil.net/iwood2003/paper/BakhtiariPaper.doc)  Matt Simmons (Simmons International http://www.simmonsco-intl.com) has said “Over the last year. I have obtained and closely examined more than 100 very technical production reports from Saudi Arabia. What I glean from examining the data is that it is very likely that Saudi Arabia, already a debtor nation, has very likely gone over its Peak.” In Dec. 2003, Aramco confirmed these downgrades when they announced that over the next 5 years Saudi Arabia does not plan to expand production above current levels.

   The “official” measurement of Iraq’s oil reserves (according to the Oil & Gas Journal) is 112.5 billion barrels. The ASPO model assumes that Iraq’s remaining oil reserves plus future discoveries will total about 118 billion barrels (ASPO Newsletter 26), and they will be increasing production in the future. A technical article published by AAPG’s Search and Discovery subsidiary indicates there are only 41 billion barrels left in Iraq’s 28 largest fields. (http://www.searchanddiscovery.net/documents/gong03/index.htm)  Since then, there have been hints that Iraq’s fields have been damaged by inefficient production methods over the last decade, and this would reduce recoverable reserves still further.

   Finally, in January 2004 Royal Dutch/Shell downgraded their estimated reserves by 20%. It is interesting to speculate how many more of these downgrades have yet to be disclosed.

   If the above refinements of the model are true, then “The Peak” will be brought forward in time. But, as dire as the above model and forecast appears, it gets worse.



 
   In addition to the above supply side of the equation, we also have to consider the demand factor. Over the next few years, the world’s population will continue to expand. On balance, each of these people will want an increasing supply of fossil fuel energy. As we approach “The Peak” the relentless increase in demand will outstrip the last remaining expansion in supply. Thus the total demand will run into a ceiling before the actual “Peak” is reached. The geologic supply restriction will set in at this point. Even before this point is reached, the energy return on energy investment will continue to decline. The “easy” oil is pretty much gone. The remaining oil will take a proportionately larger unit of input for each unit produced.



   Over the last 100 years the world’s economy (and population) has expanded tremendously due to utilization of fossil fuels. In the past it has taken relatively little energy to get oil out of the ground, and the products derived from oil have produced a great benefit to world. It is this huge difference between “selling price” and “cost of production” that has produced the “energy profit” to drive the world’s economy. As “easy oil” disappears and is replaced by “difficult oil”, this “profit margin” will continue to disappear. Then, after “The Peak”, we will have less “product” to sell whether there is any “profit” or not. If you compare this “world economy” to the operation of an ordinary business, the conclusion should be the same.

   Finally, it is easier to look at the big picture as if you had inherited a large amount of money. If you inherited a fortune, you could splurge, live-it-up, etc. until you had spent everything. Then what?

   The human race has inherited a large endowment of fossil fuels, courtesy of 500 million years of geological storage of solar energy. Our technology has not fabricated a way to create energy. We have only learned how to raid the bank account. We are living-it-up and splurging the whole inheritance. Now what?





(This section added on 2/24/04)
   There are various ways to measure our standard of living. Perhaps the best way would use an index that would combine both our financial ability and available time to do what we want and have the free time to do it.



   The above chart shows the number of visitors per year at Grand Canyon, Glacier, and Yellowstone National Parks. It is an index that measures our ability to take a vacation trip. From the early 1900’s up to the early 1990’s, the number of visitors to these major national parks showed a general increase. The recognizable dips were caused by:

1942 – 1945: World War II
1973 – 1974: Economic recession, oil prices tripled
1979 – 1980: Economic recession, oil prices doubled
1980’s: (Improved air service to Las Vegas -> Grand Canyon)
1999 – 2002: Oil prices doubled, drop in stock prices

   Over the last 15 years, in spite of a steadily increasing population and increased air service, the number of visitors to each of these landmarks has been stagnant at best. The graphs are telling us that on a per capita basis, we don’t have the time and/or the financial wherewithal that we had 15 years ago. We are already stagnating. As the economy starts to come apart toward the end of the current decade, we can expect steep declines in our ability to take vacation trips.
 
 


   As we approach “The Crunch” what are the signs to watch for. The most obvious of course will be increases in energy prices. Oil prices will tend to rise relentlessly. (In North America, natural gas prices are already up sharply, and over time, will continue higher. Efforts to alleviate the demand/supply gap with imported LNG will not bring prices down.)

   Before “The Oil Crunch”, the diminishing margin between maximal supply and demand means it will take less in the way of “temporary problems” to produce short term price spikes. Temporary relief resulting from the occasional periods when “everything goes right” will diminish in frequency. After the crunch begins in earnest, oil distribution will be allocated via price. The highest bidders will get what oil is available. Everyone else will get a diminishing supply of scraps.

   Products that depend on oil and natural gas will be the first “collateral damage” victims. It takes a lot of natural gas (fertilizer) and oil (pesticides, processing, transportation, etc.) to obtain today’s high crop yields per acre. As fossil fuel expenses go up, farmers will have to increase food prices just to break even. Then as the supply of fossil fuels begins to decrease, the world’s supply of food will also begin to decrease. At this point there will be little difference as to whether your Internet access is by dial-up or broadband.



   First, you should realize that the following sequence will be spread over at least a decade. As we approach “The Crunch”, there will be an extended period of rising oil and natural gas prices as speculators begin to take long positions in anticipation of coming shortages. Countries that have large reserves (e.g. Saudi Arabia) will begin to hoard what they have got, as opposed to increasing production. It will become increasingly obvious that anyone who has large energy resources in the ground owns a valuable commodity. We appear to be beginning this stage now.

   Except for temporary respites when “everything goes right” the rise in oil prices will be relentless. There will be logical explanations that oil will be plentiful and cheaper in the near future. The politicians will assure us that everything will be OK. The price of oil will continue to rise.

   Other signs that should appear in the financial markets would be falling bond prices (rising interest rates) in spite of Federal Reserve (and other government) efforts. Capital requirements for frantic searches to find more oil will combine with generalized commodity inflation. The combination will suck money out of the bond markets. This phase hasn’t started yet, but may do so in coming months. If/when you see 30-year bond rates go over 6%, it should be a good confirmation that “The Crunch” is underway. This will probably be accompanied by oil prices in excess of $40. Eventually most other securities will start their declines as the era of growth comes to an end, and the era of contraction begins. 

   Food prices are likely to rise rapidly. Agriculture is basically a process of turning fossil fuels into food. When fossil fuel prices rise, food will follow. The world’s food supply will begin to decrease. What food is available will be allocated by price. Those people that can’t afford the price will be left behind. 

   Precious metals may not fare well. In an ordinary financial crisis, people tend to buy gold, silver, etc. to protect their purchasing power. However, in the expected energy crisis, precious metals will have to be sold in order to pay for the basics of life.

   Finally, there will be a widespread decrease in our standard of living. Our standard of living is a product of ample fossil fuels (and in particular oil) that can be supplied via a “large profit margin”. Without the profit margin, which in turn will be followed by less fossil fuel energy, someone has to lose. Eventually (decades from now), the earth’s population will stabilize at a lower level that can be sustained by renewable resources, but we face a very difficult time making the transition.



Also, Please see the Great Rollover Juggernaut
and “Less than 2 Baseball Parks per Capita”



   For reasons unknown and for which Yahoo refuses to disclose, this entire website has been banned/blacklisted from Yahoo’s search engine. Other websites have suffered a similar fate. If you are trying to find information via Google’s search engine vs. Yahoo’s search engine, you should understand that Yahoo’s results may not include the information that you are seeking.


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