Soft_Landing:
One of the aspects of peak oil that interests me the most is how the Middle East will hold up. In the initial phases of peak, higher prices should mean a temporary windfall for oil supplying countries. However, once the first peak related recession sets in (and the concomitant destruction of demand), this poses an extreme problem for those countries that derive a large portion of their income from oil revenue. In particular, for those countries that are past their peak of oil production, they may well be equally past their peak of revenue (and this is to totally ignore per capita revenue).
If surplus capacity appears tight now, one can assume it will only be moreso during the playing out of peak. Just as the world can ill afford the disruption of even small flows of oil now – the market reacts strongly to every little piece of news – we must expect that during a peak plateau, this sensitivity would be even greater. Thus, the world has a great interest in maintaining the stability of all oil producing regions once peak plateau is upon us.
Now considering a proactive program of powerdown, or a worldwide adoption of the Uppsala protocol, this problem remains (i.e. revenue to oil exporting countries declines throughout the powerdown process). There is clearly a sizable risk of large scale supply disruption, and this risk will increase as a powerdown progresses. So the question is this:
Can you imagine any feasible alternative income sources for Saudi Arabia, Kuwait, etc., that might supplement their income throughout a powerdown? Do you imagine foreign aid could be used to fill this gap?
How can countries that derive much of their income from oil survive a gradual powerdown? How can the rest of world act to reduce the risk of regime failure in oil exporting regions throughout a proactive (or otherwise) powerdown?
Is the concept of voluntary powerdown and the Uppsala Protocol not then fundamentally flawed?
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RICHARD HEINBERG:
First of all, I should make clear what is only implied in my book Powerdown: that my prescription for a coherent, coordinated global response to the decline of availability of fossil fuels is essentially a thought experiment. I wanted, not to demonstrate how easily such a project could be accomplished (as Amory Lovins attempts to do in his new book Winning the Oil End Game), but rather to show how difficult it would be. Clearly, I was unable to catalog the full extent of the difficulties. As I say in the later chapters of the book, the overwhelming likelihood is that humankind will be unable to mount a coordinated peaceful response, and industrial civilization will descend into a chaotic, violent collapse. Hence the chapter on Building Lifeboats.
However, if we are to do the thought experiment fairly, we should explore the possibilities for a cooperative Powerdown in good faith.
The Uppsala Accord (also called the Rimini Accord) has as one of its objectives “to avoid profiteering from shortages.” It says nothing about maintaining current prices, however. As exporters export less, and importers import less, the resource will become more scarce and valuable. With international agreements in place, it may be possible to avert the whipsawing of prices that would destroy the economies of both energy importing and exporting nations. But as less oil changes hands, prices could nevertheless increase substantially, if gradually. Thus, for exporters (like Saudi Arabia), revenues would decline, but not necessarily precipitously. Under the Protocol, both importers and exporters would have to figure out for themselves how to wean themselves from petroleum and revenues generated from it. This would not be easy for anyone; the sole incentive would be the inescapable fact that the alternative would be violent, chaotic collapse.
So what could Saudi Arabia (let us take just one example) do as the oil revenue declined? That’s not a simple question to answer. But it is a question with which the country will be faced whether or not it chooses to cooperate with the Accord. Foreign aid is not a likely solution.
If I were the Saudi king in the years ahead, after signing on to the Uppsala Accord I would immediately implement a draconian birth-control policy. I would put the royal family on a tight budget and use the money saved to institute a universal training program teaching people bioregionally appropriate cooperative survival skills. And I would build factories to make advanced low-cost nanotech dye-based PV and solar-thermal collectors. I would probably be assassinated before I got very far, but that’s what I would try to do.
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Soft_Landing:
How do you see higher oil prices affecting world economies?
In particular, it is often said that industrialized economies are less sensitive to oil price fluctuations. This seems to have been achieved because:
1. Industrialized economies have become more service orientated, and manufacturing jobs have been exported overseas.
2. The infrastructure required to support an industrialized way of life has been built, and now only needs to be maintained, which might require less oil.
In opposition, it is sometimes claimed that:
1. Industrialized economies do not use less manufactured product (quite the opposite), and therefore are just as sensitive to oil price rises in the form of increases in the price of imported goods.
2. The greater amount of modern infrastructure in the industrialized world may actually be a liability in a low energy world, as more energy is inefficiently devoted to maintaining historic infrastructure.
It seems to me that the displacement of manufacturing industries to low wage areas is particularly problematic. As wages decline relative to the cost of the final manufactured product, the cost of energy inputs as a percentage of total costs increases. This should mean that the total cost of producing the good should be more sensitive to the cost of energy (oil). It should follow that the cost of this manufactured product (to the importing developed world) should increase more than if the product was manufactured domestically (where labour would form a higher percentage of costs). This effect is similar to the comparison between the sensitivity of fuel cost between Europe and the USA. By having high non-oil cost (tax; for manufacturing goods -labour), total price is less sensitive to oil price.
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RICHARD HEINBERG:
I am not an economist, so I may not be the best person to answer these questions. Of course if I were an economist, what I had to say might be worse than useless! So I guess I might as well try. We are the most dependent on oil for transportation. It follows that places most dependent on transportation will suffer most as oil becomes scarce. We should be considering both the transportation of people (to and from work and stores), and the transportation of resources/manufactured goods. The suburbs in the US will be some of the worst places to be: nothing is within walking distance—no food, no jobs, no nothing. There will be some angry people in suburbia when they realize they can’t afford to fill their cars with gas to get to empty stores or non-existent jobs. Less industrialized countries will suffer to varying degrees depending on their dependence on imported food, their degree of urbanization, their vulnerability to global warming, and so on.
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Soft_Landing:
Of course, if the cost of imported manufactured product increases, then demand for it (in the developed world) will decrease. This increase in the cost of imported manufacturing goods represents both a decrease in the real purchasing power of developed world countries, but also, should hurt the economies of exporters. Also, if imported manufactured product competes with a domestic equivalent, then that domestic equivalent should be at a relative advantage. Both these factors have the potential to insulate developed economies from the relative impact of higher energy prices.
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RICHARD HEINBERG:
Yes, this is all very complex, which makes the details impossible to predict. There are so many unknowns: What if the global economy tanks because of the US debt burden before the absolute oil peak, thus dramatically reducing demand for a few years? What if China’s economy suddenly springs a leak? What if Israel bombs Iran’s nuclear reactors, sparking a general war? What if…what if…?
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Soft_Landing:
It appears very difficult to cut through the multiple layers of effect with regards to how various economies might respond to higher oil prices. Again, how do you see higher world oil prices affecting world economies?
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RICHARD HEINBERG:
Eenie meenie chili beanie, the spirits are about to speak….
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{ Shocked ; EE}
================================================================ tkn317071:
What steps have you personally taken to prepare for Peak Oil? Are you trying any financial strategies, buying second homes in the country, encouraging your families to move or prepare for blackouts, anything like that?
Some people are honestly concerned about a so-called “die-off” scenario, where oil and gas depletion lead to serious resource wars, starvation, and possibly societal collapse. Do you personally worry about, or prepare for the “die-off” scenarios at an individual level? Or is that over-reacting?
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RICHARD HEINBERG:
I am taking mostly symbolic steps. Four years ago my wife and I bought a house on a quarter-acre lot and retrofitted the house for energy efficiency. We installed a one-kilowatt PV system that produces enough for our needs. I drive as little as possible and have an old Mercedes diesel that I usually run on biodiesel. We grow an increasing portion of our food using Permaculture techniques.
But the fact is that we are living in the inner suburbs of a small city. We’re here because this is where I teach in a college program on Culture, Ecology, and Sustainable Community.
We have little money to invest. Our fortune, such as it is, is sunk into the house and gardens.
Do I worry? Yes and no. I think things are going to get very rough. I am 53, so my personal survival is not a big issue in my mind. If I were a couple of decades younger, I would be joining an ecovillage, but I’ve already spent years living in intentional communities and I know how much effort that takes. I am more interested in getting the word out and educating the next generation.
================================================================ JohnDenver:
Doomer Logic Glitch:
The doom argument in a nutshell:
(1) World oil production will peak, therefore (2) Oil consumption in the US and other countries will peak, therefore (3) The economies of the US and other countries will go down the toilet.
The glitch is between steps (1) and (2). Who says a world production peak means US consumption has to go down? That’s not necessarily true. Maybe world production starts declining, and US consumption doesn’t, or even goes up. After all, the US is rich, and the schoolyard bully.
Obviously this situation can’t go on forever, but it’s certainly a good stopgap, and I don’t see anything to really prevent it from happening.
Or consider Canada. The world peak is irrelevant there, because their production’s going up, and it’s going to keep going up for quite some time with the syncrude. So their economy’s not going to crash, and the party’s still on! No threat to crappy debt money up there.
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RICHARD HEINBERG:
If US consumption goes up in the context of global peak, the rest of the world will start sharpening knives. That is already happening. There is only a brief period, perhaps 5-10 years, during which this scenario could play out. Afterwards, the deluge.
================================================================ Geingreen:
How much of the US GDP is tied up in trade with nations that will certainly be affected?
RICHARD HEINBERG: 100%. Everyone will be affected.
Geingreen: How will the demise of other significant world economies affect the USA?
RICHARD HEINBERG: The US will be unable to attract investments to enable it to run up huge government deficits and trade deficits. The US dollar will collapse, followed by the US economy.
Geingreen: Will they pull their money out? Sell dollars to raise wind platforms? Will the PetroDOLLAR stand or fall?
RICHARD HEINBERG: See my essay “The Endangered US Dollar” at www.museletter.com/archive/149.html
