Style Switcher

Predefined Colors

Peak Oil

Here’s all you really need to understand about peak oil.

First, what is it? Second, what are its implications? Third, what, if anything, should we as individuals do about it?

First, energy is the lifeblood of every economy. The globalized world economy today is tied to oil.

This is the critical fact: oil is a finite commodity.

In particular, we in the United States depend heavily upon oil [see below]. Roughly, the best estimates as I write this are that there are just over 7,177,000,000 human beings and, according to the U. S. Census Bureau, only 312,774,000 are Americans. That means that we are less than 5% of the world’s population.

However, we consume about 25% of the oil in the world today.

Furthermore, we import over 70% of the oil we consume!

We are not in imminent danger of running out of oil; the world’s supply of petroleum is not yet depleted. However, there’s more to this story.

“Peak oil” is the name given to the time when all the petroleum that is relatively inexpensive and easy to find is gone. In other words, at some point rate of the extraction of petroleum around the world will enter a terminal decline.

The Hubbert model, developed by M. King Hubbert, showed that the rate of production of a finite resource like oil follows a roughly symmetrical logistic distribution curve. He accurately predicted in the mid-50’s that peak oil in the United States would occur in the late 1960’s.

What about peak oil in the world? Nobody knows. Optimistically, we haven’t yet reached peak oil and we won’t reach peak oil until 2020 or even slightly later. Perhaps, though, we are already past the point of peak oil worldwide. No matter: if peak oil hasn’t happened yet, it soon will.

It’s inevitable.

According to the Association for the Study of Peak Oil and Gas: “the world started using more than was found in new fields in 1981” and the discovery/production gap has been widening since.

Second, what are the economic implications of this? Experts disagree.

The price of oil will rise. Not only is oil at about $100 a barrel here to stay, but expect $200 a barrel oil in the not too distant future.

What about other types of fuel and energy? They will become more realistic as the price of oil rises. In fact, if resources are poured into research and technology soon, they could in a few years force a drop in the price of oil.

However, the alternatives such as wind and solar are not close yet to being able to replace oil.

Will nuclear energy work after peak oil? It’s foolish in my judgment to ramp up power from nuclear reactors for the simple reason that we haven’t a clue about what to do with all the waste from them that will be dangerously radioactive for centuries.

We Americans passed the point of peak oil decades ago and, so far, we have no good alternative. It’s the same, or soon to be the same, worldwide.

Why is peak oil so important?

Well, what is oil important for? It’s almost better to ask the question the other way: what isn’t oil important for?

Refining it produces hydrocarbons that are mixed with nonhydrocarbons to produce all kinds of products in addition to gasoline and jet fuel such as plastics (from alkenes), lubricants (such as light machine oils, motor oils, and greases), waxes (such as paraffin wax and others used, for example, to package frozen foods), sulfur and sulfuric acid that have many industrial applications, tar and asphalt, special carbon products, and petrochemicals used to produce other chemical compounds.

Very importantly, many fertilizers and most pesticides are made from oil – and where would global food production be without them?

The Second Agricultural Revolution and consequent huge increase in human population would not have been possible without oil.  We replaced abundant solar energy with limited energy from a fossil fuel!

In short, with the sole exception of silver, no natural substance rivals oil with respect to its economic usefulness for humans. If you are reading this on a computer monitor, it was made using oil.

So oil is of extreme economic importance. Worldwide demand is increasing, but peak oil is a fact: worldwide supply has either begun a terminal decline or will so do so. It’s the end of cheap energy and many other products from oil.

No alternatives are close to being ready to replace it.

Unfortunately, there’s no quick way to solve the coming energy crisis. Maybe research and technology will eventually bail us out, but they haven’t done much to replace it even though President Carter in the 1970’s warned the nation this was coming decades ago. (President Reagan’s policies severely but temporarily retarded development of alternatives.)

Third, what should we do as individuals?

Conserving energy is an excellent start. As energy gets more and more expensive, the economic savings from energy efficiencies will become greater and greater.

You’ve heard the mantra: Reduce. Insulate your home. Drive and travel less. Drive a more fuel efficient automobile. Re-use. Recycle.

It’s much more controversial, but I happen to believe in zero or even negative population growth. Obviously, a finite energy supply will go further will fewer people using it. Reducing the number of offspring we have could mean a huge improvement over the alternative.

Still, what can we do now to protect ourselves?

My suggestion is simple: if you notice a truck hurtling rapidly toward you, step aside.

Peak oil is one of the factors making an economic implosion inevitable.

Our fiat currency will collapse sooner rather than later. Once you understand that, why not take steps to protect yourself and your loved ones?

For example, I recommend buying silver and gold. Put as many dollars as you are able to into buying silver and gold. I suggest silver and gold bullion such as American Eagles [and I intend soon to do a post on how best to do that].

After the collapse, you can use those precious metals to purchase safe assets with big positive cash flows (such as large apartment buildings). That’s how to preserve and even enhance your wealth.

If you don’t do something like that, unfortunately, if you are middle class you will soon find yourself much poorer than you are today.

If you are alert to the danger, you may be able to mitigate its consequences.

As always, I encourage your feedback in the comment section below.

This my first post of 2012. [If you are curious, there are now over 200 posts!] Permit me to be among the first to wish you a safe, serene, and very Happy New Year!

Posted in financial well-being

Post a Comment

*