Oil Dependency
All the goods and services we enjoy, and which bring us employment and prosperity as a result of our industrialised civilisation, are the product of combining thought, labour, materials and energy.
While humans exist, we will think. We have an excess of labour, which replaces itself and does not run out. While shortages of materials can occur, most are capable of substitution. Among all of these ingredients, we are most vulnerable to a shortage of energy. Most of the energy that we use today is derived from fossil fuels, and all of these are a finite resource. For each form of energy there are a limited number and quantity of other forms which can substitute for it.
Today, the world's consumption of energy has become enormous. We have a population many times greater than that of even a century ago, and that population expects and now requires a far higher standard of living than even our parents enjoyed. We have come to take the provision of energy for granted, forgetting that not many generations ago most people would go to bed after the sun went down, and not rise until dawn, through lack of cheap and widely available artificial lighting.
Most people could not afford to burn whale oil, which provided lighting before oil and gas. Even so, whales came close to being wiped out by the demand, and in a sense, perhaps, were saved by the development of petroleum, the main earlier use of which was fuel for lamps. Now their numbers are increasing again. Maybe we should bear in mind that whales can breed and replace themselves, whereas fossil fuels cannot. When they're gone, they're gone.
When oil fuelled lighting did become available, and was followed by gas and then electric light, it not only provided the means for ordinary people to enjoy their home life after dusk, it also increased the productivity of workshops and factories.
There is a very close link between a nation's energy consumption and its economy. About two-thirds of the world's energy is consumed by the 1.3 billion people living in the industrialised countries, with the remaining third going to the 4.7 billion people living in what we call 'developing' countries. This means that the average person in the industrialised countries uses seven and a half times the energy used by people living in developing countries.
The United States uses about a quarter of the world's fossil fuel consumption, so the average American uses nearly eleven times the energy used by those in developing countries.
In 1995, the world used 4.5 times as much energy as it did in 1950, and twenty times the amount it used in 1850. The United States used 40 times as much energy in 1995 as it did in 1850.
The use of fossil fuels has vastly increased the productivity of each worker. Access to cheap fuel gives a nation a great competitive advantage over those that do not have such access. In some respects it is as though those fuels act like an 'army of slaves', all working on our behalf. It is reckoned that one litre of petrol contains energy equivalent to nearly four days of a human being's labour. The widespread use of energy has given quite ordinary people a lifestyle that would have been the envy of the aristocracy of even only a couple of hundred years ago. Energy, in a sense, translates into wealth. It does not often seem to occur to us that the sources of energy we are using are finite, and will one day become less available.
Its abundance of high quality coal helped power Britain to the top of the economic ladder during the industrial revolution and beyond. Cheap oil, in turn, powered America's arrival at the top spot. Today, we live in a state of relative luxury because cheap oil has permitted the 'global economy' to exist. We eat cheap fruit from other continents. Our resources are got from wherever they are cheapest, and manufactured into goods wherever labour is cheapest, and marketed wherever they will fetch the best price in a sought after currency.
Until very recently, economists were breathlessly discussing the notion that the fear of inflation has been put to rest, that we now exist in a new paradigm of perpetual inflation-free economic growth. They put this down to de-regulation of markets and the effects of competition. It seemed that they had swallowed their own propaganda about economic rationalism. No one seemed to acknowledge or even look at the fact that inflation had been held in check by extraordinarily low oil prices caused by a glut in oil production during the eighties and nineties.
But that glut in production occurred because the world was approaching the peak of output possible from its oil fields. And what happens after a peak? Well, it must be decline. That is what is before us now. It is expected that oil production post-peak will decline by about two or three per cent each year. This sounds gradual, but it is not. It means that oil supply will approximately halve over a 25-year period.
As well, it is not only the quantity that matters, but also the price. The moment that production fails to meet demand, the price goes through the roof because of the essential nature of petroleum and the difficulty of substituting another fuel for it. Because there is a petroleum input into all goods and services, any petroleum price increase bounces all the way through the economy, adding to the price of everything and fuelling inflation.
It is worth mentioning here, though it is mentioned elsewhere on the site, that it might appear that our present higher petroleum prices have been brought about by the OPEC cartel holding production down to deliberately get a better price. Whilst this is true, it is also true that OPEC can only do this now because insufficient oil can be produced outside of OPEC to make up for the cutback in OPEC supply. Just a few years ago, this was not the case, which is why OPEC was then unable to control the market as it does now.
Production of oil from outside OPEC is peaking right now and beginning to go into decline. That leaves OPEC in the driver's seat. However, even OPEC's production will peak in the not too distant future, maybe ten years or so. Meanwhile, demand continues to increase. Pretty soon, it will not even be a matter of choice for OPEC, even it will not be able to keep up with demand. We really are reaching the end-game as far as cheap oil is concerned.
Fossil energy has fuelled economic growth for centuries. The rate of growth increased enormously over the last century when petroleum began to be harnessed, because it is the most economically efficient of all the fuels and because it is beautifully suited to transport. We are now dependent on cheap petroleum for transport around our cities and between them, for the global economy to function and for the production of food, which uses about 20% of the petroleum produced.
Whilst at one time crops derived 100% of their energy to grow from the sun, grains now use 4.5 calories of energy derived from petroleum for every one calorie of solar energy. Agriculture has become the practice or turning petroleum into food, and the world's food production is now thoroughly dependent upon it.
Cheap petroleum is a tremendously precious resource, which we have burned through in little more than a couple of generations. This not only leaves little for our offspring, it leaves little for ourselves. This is not a scenario in which we just need to have a pious concern for the wellbeing of our children, it is a scenario which has grave implications for ourselves, quite probably over the next few years.
We do not even have a plan for us or our offspring to deal with the situation, because we somehow 'unlearned' the lesson that the seventies should have taught us, and allowed ourselves to think that the big economic growth party could just go on forever. The party is nearly over and a very bleak dawn awaits us.
Until we work out what on earth we do about this situation, it might be helpful if we ceased building infrastructure that locks us into further petroleum use, such as freeways, and built infrastructure that might place us at advantage in a post-petroleum world, such as rail.