Technology is driven by energy. The economy is driven by energy. Life is driven by energy. With enough energy, you can do just about anything. When I was a bit younger, it thoroughly amazed me how much technological progress mankind had made over the last 100 years or so. I often wondered how that was. Here I am many years later and I know: it is energy.
The Industrial Revolution began with coal and steam engines. Internal combustion engines were demonstrated in the early 1800s but were of little practical widespread use until the onset of industrial oil production in the 1850s, which breathed new life into the Industrial Revolution.
The availability of energy is directly linked to the well-being and development of capitalist economies, and to the continued development and production of technology. If you are reading this, this is the most important point.
In my mind, the high point of the dominance of modernist, industrialized Western culture was in the 1960s. The US was the biggest producer of petroleum in the world. The Railroad Commission of Texas was the OPEC of that era, controlling production and thus pricing. The Western world, through the US, was in control of the lifeblood of modern society.
The US peaked in March of 1971, when the Railroad Commission lifted all production caps in the face of declining production. Economic power passed to a group of Middle Eastern nations through OPEC. Our assistance to Israel provoked them to use this power to choke off this petroleum lifeblood to the US, resulting a decade of economic hardship and stagflation.
The Western nations embarked upon an emergency course of efficiency initiatives and alternative oil production. With new production from the North Sea, the Western nations were able to drive demand for OPEC oil down far enough to break their economic power over the West. The oil glut of 1980s ensued, allowing America to pick itself back up and charge into the 1990s.
The North Sea oil was the great new savior that would fuel the economic growth of the Western advanced economies. The recession of 1991 correlates to lowered North Sea production as a result of economic forces. The recession of the early 2000s correlates to the peaking of North Sea oil production.
Increasing production from Mexico’s Cantarell field and rampant financialization of mortgages resolved the recession of the early 2000s, until the world oil production peak of 2005 (Cantarell peaked at the same time). It evidently took about three years for the underlying economic damage of diminishing cheap oil to break the bubble in 2008- after a summer of record-breaking oil prices.
We then turn our gaze to next great savior: shale oil. To the extent that our economy has recovered, it is recovering because of continued FORCED financialization (US federal quantitative easing) and shale oil. The pathetic nature of the US economic recovery is matched by the small bump in production shale oil provides—barely taking us to 2005 peak levels.
Shale oil is hyped to make the US a world leader in oil production for a generation. First of all, that’s not saying much. Secondly, increases in shale oil production are requiring an exponentially higher number of new wells as time goes on, because the production of each well drops off considerably after a year or so. It is taking the majority of oil generated from shale oil just to keep up the amount of new drilling necessary to increase production. The public consensus is looking at shale oil plays as if they were conventional oilfields, and NOTHING could be further from the truth. Conventional oilfields are like a soda fountain machine; shale oil is like a shaken-up bottle of Coke that spurts its contents in a few moments.
Another growing source of post-peak oil is the Canadian tar sands, although this is more of a minor contributor than even shale oil. Let me put it this way—if there was plenty of oil to be had, why are we drilling through shale rock and power-washing sand?
The shale oil boom will not last more than a few more years. By 2016, this will be obvious, and the economy will yet again head south because of it. It may be even worse because there is evidence to suggest that much of shale boom is being financed with all of the loose money and low interest rates that have come out of the US fed over the last few years. The decline of shale oil will not only deprive us of an energy source, but will pop another bubble!
Can we find, develop, and ramp up production on another new mega field in time for this? Why should we assume that this is even possible?
And so we return to our understanding that modern industrialized society and its technology are dependent on energy—lots of abundant, cheap energy. We’ve been dodging bullets since 1971. The best we have right now is an exotic extraction technique that will not last more than few years. We have not truly invested our energy resources into finding a replacement for oil, only into finding new ways to get more oil. The 1970s should have been a wakeup call, but the 1980s made us think it didn’t matter.
If we don’t find more oil, we are in for economic boom-bust cycles that will:
1. Increase in frequency
2. Increase in intensity
3. Increase inequality
What is going to happen, is that we will turn to gas-to-liquids or coal-to-liquids, but not before our economy hits the skids again.