Nicole Foss, at theautomaticearth.com, writes about the intersection of Peak Oil and the economic system.
Harvard recently wrote a study that got a lot of coverage and convinced some people, like George Monbiot, that Peak Oil isn’t an issue to worry about because of all the unconventional sources. Below is my summary and bits of Nicole’s July 8, 2012 response Peak Oil: A Dialogue with George Monbiot
Because the coming financial collapse will be as bad if not worse than the Great Depression due to the enormous size of the bubble, demand will drop and attention to Peak Oil will diminish.
We’ve used the cheap and easy to access fossil fuels, so what’s left will be awfully expensive in BOTH financial AND energy cost.
“During the period of financial crisis, deflation and deleveraging, weak demand will buy us some time, but at the cost of setting us up for a supply crunch later. The period of sharply falling prices will kill investment in the energy sector, because the cost of production will fall less quickly than prices, meaning margins will be squeezed. Both physical and financial risks will be much higher”.
It will be hard for energy companies to borrow money for drilling since these are long term projects and financial collapse will mean that there’s a lack of credit to be had. Financial collapses have knock-on effects, such as letters of credit becoming hard to get, and not enough money spent on energy infrastructure, causing supply problems later on.
If there’s social unrest, people may destroy some of the energy infrastructure as well, reducing supply even further.
“When supply and demand become tight, what transpires is not a simple price spike, but an exaggerated boom and bust dynamic. This has been underway since 2005/06. The first full cycle unfolded from 2005/06 to 2008. The second began in 2008/09 and will probably end with a price bottom relatively early in this depression with a resurgence of military demand, given that oil is liquid hegemonic power”.
“That should feed into the 3rd cycle, which should send prices sharply higher in real terms, if not to a new high in nominal terms. This price volatility, against a backdrop of severe economic contraction, upheaval and fear is leading towards a profound societal change, most likely a significant period of involuntary loss of socioeconomic complexity”.
“The hype surrounding shale gas has crashed the price to the point where it is on the verge of putting producers out of business. Natural gas in North America appears to have bottomed, while the perception of glut in unconventional oil, combined with weak demand and a lack of appropriate infrastructure for internal North American sources, is set to undermine oil prices considerably.
Tar sands projects will be under acute threat under those circumstances – not imminently, but over the next five years or so. Once one cannot make money from some combination of artificial input/output price disparity, public subsidy and the ability to socialize externalities, then EROEI becomes the defining factor, and the EROEI for tar sands is pathetic.
While I agree that oil men do not base decisions on EROEI, ultimately EROEI will determine their ability to make money, and that is their driving motivation. Finance can only temporarily allow people to ignore thermodynamics.
EROEI effectively determines what is and is not an energy source for a given society (ie to maintain a given level of socioeconomic complexity). Unconventional fossil fuels are caught in a paradox – that their EROEI is too low for them to sustain a society complex enough to produced them.
They can only be produced for the relatively short period of time that the complex society built on conventional sources continues to maintain its current capacities, but as the conventional sources disappear, and that society can no longer support itself, the ability to undertake all the activities required for unconventional production will be lost. The hype has no foundation.
We have been living in a major departure from reality in many ways, as always occurs during bubble times, but those times are coming to an end. Instead of overshoot, we are headed for undershoot, and we are not going to like it”.