POLITICS, RELIGION, ECONOMICS, & OIL.

A WONDERFUL LIFE

All thing considered, life today is better than in any other time. We have very comfortable homes and ready availability of high quality foods. We also have lots of "stuff" to support and amuse us. Hygiene and medical science has extended our healthy life span. World travel is available to a high proportion of people.

TRANSPORT FREEDOM

One thing our ancestors did not have is personal transport such as we have, nor did they generally have the freedom to travel so easily to anywhere in the world. This is possible through the use of liquid fuels which energise our cars and jet transport. These liquid fuels are so wonderfully cheap considering what they do for us. They allow us to make use of chain saws, weed eaters, motor mowers, leaf blowers, jet skiis, runabouts, motor homes, and even light aircraft. Liquid fuels are so useful, it would still be worth paying twice or three times as much as we do now. We can behave as if we had a thousand energy slaves working for us. How we wish that this comfortable life could continue. On one hand we are told there are more wonderful things to own being developed. We are encouraged to think that to have more is our right. However on the other hand, there does remain a niggling thought that this is the peak of comfort, and this way of life cannot continue. This must be the best of times.

FAILED CIVILISATIONS.

If we look into the past we can see a long history of failed civilisations. There were the ancient Egyptians, Romans, Mayas, Greeks, Minoans, Mesopotamians, Harappans, and Chacoans for example. Why could they not develop and progress like we have? These collapsed societies must have had economies strong enough at one stage to have built the great monuments which remain as tourist attractions. There seems to be a multitude of reasons for failed civilisations, such as moral decay, invasion, disease epidemics, overextending the area of command, declining resources, and failed crops. It is clear that whatever civilisation made those large Easter Island statues, their failure was brought about by using up all their trees. Some failures remain intriguing mysteries. One recent study suggest that increasing complexity of such civilisations brings in a lack of flexibility and diminishing returns from efforts to expand. One writer is quite clear, empires collapse for four reasons; 1. Environmental degradation, 2. Economic meltdown, 3. Military overstretch, 4. Domestic dissent and upheaval by citizens. Expansion always precedes collapse. Another writer counts the causes of collapse being 1. Environmental damage, 2. Climate change, 3. Hostile neighbours, 4. Loss of support from friendly neighbours, 5. Inadequate response to problems. Like most accidents, many causes interact leading to the calamity.

POPULATION EXPLOSIONS.

In ecology, it is observed that there is a process of going from pioneer species, through ecological progression, to an eventual climax stage. Sometimes exotic species can invade and colonise. A species which is too successful and lacking enough negative feedback can reach a peak, overshoot and then collapse and die-off. In 1944 29 reindeer were put on St Matthew Island in the Bering Sea. The plentiful lichen enabled them to expand exponentially to 6000 by 1963, but by 1966 the population had overshot and collapsed to 42 miserable specimens. Let this be a warning to us. Dr Malthus in 1798 pointed out that population could increase beyond the point where food production could keep up.

FACTORS OF PRODUCTION.

Our society has a significant feature in having highly organised economic entities operating independently. Another important feature is our technology which has continued to advance our mobilisation of energy in these economic structures. In economic language we have mobilised energy as a "factor of production". It is a strange thing that basic economic teaching completely overlooks this. Most economic textbooks do not mention energy at all!

ENERGY FOR INDUSTRY.

The energy applied by oxen and horses enabled the agricultural revolution to expand the production of food and allow our ancestors to make permanent settlements. The energy derived from water mills and windmills powered the production of flour from grain. Windmills were used for the drainage of wet-land for farming. Wind power enabled ships to trade surpluses. The production of iron depended of the use of charcoal in furnaces as both an energy source and a reducing agent. As forests were decimated, coal came into play replacing charcoal and the industrial age commenced. Steam power ran factories and then generated electricity which was a more convenient way to distribute energy. Just as coal started becoming more difficult to extract, petroleum entered the economy and allowed further industrial progress. The production of liquid fuels from petroleum provides the energy medium for motor cars, shipping, and jet flight. Energy in its various forms is fundamental to our wonderful way of life.

ENERGY MAKES RICH NATIONS.

While economists have been pre-occupied with the role of land and labour in the growth of national wealth, you would think that they would notice the importance of energy in economic development. Statistics show that the stronger, more wealthy nations, exploit energy at higher rates than the weak nations. The great significance of capital in economics occurs because a high proportion of this capital is needed to exploit energy in production methods.

ECONOMIC CYCLES.

Economic theorists represent economic activity as a perpetual cycle of households providing labour to the economic units (firms, businesses) and they in turn providing goods (and services) in return while a counter-current cycle of wages and payments for products flows in the reverse direction. It seems to be a perpetual motion machine with no end. These ideas of economics have developed in the "Western" world which has been influenced by Christianity. This contains the idea that humans have the right to exploit the environment by domination over it. We were encouraged to command nature and exploit it.

ECOLOGICAL ECONOMIC CYCLE.

The ecological view of the economic cycle shows a transfer of resources from the environment to the business activities and the dumping of waste into the environment. We extract mineral resources from the environment, producing waste in the extraction process. When the objects made with the minerals are disposed of, there is the possibility for some of the mineral resources being recovered. The use of soils for the growing of food seems on the surface to be an endless process, but depending on the type of agriculture, the soil can be degraded over time. The extraction of fossil fuels, however, has no degree of recycling possible. Once the fuel is used, there is no possibility of recovery of any value from the resource. It is a process of consuming a capital asset. You would think economists could realise that their perpetual cycle is not the full story, and the economy includes the consumption of environmental capital.

GROWTH INFATUATION.

Economists have an infatuation with growth. Their influence over politicians had led to growth being the objective of government. Without making observations of real human behaviour, they assert that people are always so grasping that they always prefer more to less. "The wants that can be satisfied by consuming goods and services may be regarded, for all practical purposes in today's world as insatiable." says R G Lipsey in An Introduction to Positive Economics. With the development of the system of national accounts, the growth infatuation was transferred to increasing GNP as the mission for economics in spite of the denials of the developers of GNP and GDP accounts. What economists do not tell us about growth, is that it is inflationary. Simple economics include the incentive to always use the cheapest or easiest resource first. As growth occurs, more expensive resources remain for utilisation, thus causing inflation. The reason why growth inflation has been invisible up to now, is that business has used its capital to utilise more and more energy in the form of both electricity and petroleum products to produce a contra-inflationary trend of cheaper mass production. But eventually the energy provided by fossil fuels will run out.

GENUINE PROGRESS.

The growth that is foremost in the minds of economists is more of a measure of business turnover, not the economic benefit reaching the public. GNP makes no distinction between activities that benefit people and activities that represent dis-benefits. Indexes such as the GPI (genuine progress indicator) have been designed to more closely measure human benefit, main most economists refuse to pay attention to these alternative measures. Economists must be unwilling to admit that increasing growth provides diminishing returns of real benefits (such as measured by the GPI) even though GNP growth in some places show a negative GPI movement.

CLUB OF ROME.

The problem for society in consuming resources and accumulating waste has been canvassed before, however it got to a threshold of recognition a generation ago with the publishing of the "Limits to Growth" in 1972. This was done under the auspices of the "Club of Rome", a group of scientists and business people. It used new ideas of computer simulation to model the interaction of numerous features of our economy. This modelling did not restrict its study to the traditional economic perpetual motion cycle but included the effect of both accumulating pollution, and the running down of resources. They said that if the current trends continued, the limits to growth on this planet will be reached sometime within the next hundred years. They thought that the most probable result will be a rather sudden and uncontrollable decline in both population and industrial capacity. The research was extended with the publication of "Mankind at the Turning Point"in 1974. This second book revealed the importance of petroleum as the driving force of industry. The message was quite clear; they said that the resources we were consuming exponentially would not last, we risked an overshoot, and we should revise our consuming way of life. This was a great challenge to economists. It was like Galileo Galilei's discoveries undermining the dogma of the Catholic Church. The response by economists was similar. After all the economists bluster over the implications of the Club of Rome's study is eliminated, the economist's objections reduce to only two complaints.

SUBSTITUTION FALLACY.

First, economists complained that the modelling done by the Club of Rome did not take sufficient account of substitutes being able to replace resources which rise in price. The rise in price, of course, is due to supply not satisfying the demand at lower prices. This naturally assumes that there does exist a substitute. Petroleum oil and gas are the substitutes for coal and coal is the substitute for charcoal. The only remaining significant source of energy which can be a substitute for fossil fuels is solar radiation which has a very high cost relative to current petroleum costs. Charcoal is good example of energy derived from solar insolation. Substitution for oil and natural gas means going back to old times. Second, they claimed that technology would continue to advance the prospects for exploiting resources more efficiently. They succeeded in burying the basic message of the implications of limits to growth because of the concerted attack they mounted. It is clear that the fear of Dr Malthus's message made them assert that growth was the best future for economics.

TECHNOLOGY LIMITATIONS

The advances of technology are truly impressive, but they come at a cost. Every technology seems to bring problems in its wake and require some response. Some are foreseeable and are ignored while other consequences are more subtle and take longer to become apparent. Technology advances cost ever more to achieve. Just as the cheapest resources are used before the more expensive, so are the simplest technologies developed first. Later technologic developments follow the economists law of diminishing returns, taking longer, costing more money, and requiring more technologists to come to fruition. As an example, the development of penicillin is said to have cost tens of thousands of pounds to develop. Nowadays, to produce an advance in antibiotics costs many millions of pounds and takes much longer to achieve.

MALTHUSIAN FAMINES.

It seems that Malthus is economist's Satan. He pointed out that the exponential growth of population would overtake the capacity of the environment to satisfy nutritional needs with the result that famines would decimate populations. Even if Malthus's linear expansion of agriculture is really polynomial, it would still be overtaken by exponential growth of population. Economists do not follow scientific methods of depending on observations, rather than on prior dogma, so they have managed to overlook the many famines of history. The focus of the media on military matters during WW II meant that two famines in 1943 in Bengal and China, both costing the lives of about 5 millions went un-noticed. Once the population in a region is reduced to supportable levels, the remaining population continues its exponential climb again. Even the recurring famines in various places in Africa do not seem to register with economists. They enter a state of denial which allows them to ignore Malthus's fundamental point.

REALITY CHECK.

There must be a reason while people get into a state of denial about what is reality. Perhaps there is a disease which can be called DAS (denial addiction syndrome) where once denial is achieved, it becomes habitual. Is there a disease which could be called ELD (experiential learning disability); type 1: failure to learn from ones own experience; type 2: failure to learn from others experience? Some people suffer from OCAD (obsessive compulsive acquisition disorder) and continue to buy things they don't need without consideration of their debt levels. Another psychological syndrome has been called the "firehouse effect" where a group can reach a common but ludicrous opinion. Because firemen spend a lot of time together, waiting and talking, repeating the same discussions, they succumb to mild group pressure and by resisting a questioning attitude, come to an agreement of a "common wisdom" that is faulty. Psychologists do accept the existence of "cognitive dissonance" whereby people manage to resolve in their own mind's contradictions in beliefs they hold in the face of contra-realities. Science applied, has been important in technological advances improving our life style to the wonderful state we have today. Science is based on scepticism of authority and a dependance on what can be observed of reality.

TECHNOLOGY LIMITATION.

The advances of technology are truly impressive, but they come at cost. Every technology seems to bring problems in its wake. Some are foreseeable and are ignored, while other consequences are more subtle and take longer to become apparent. Technology advances are subject to diminishing returns and each advance costs more and take more time to perfect. Just as the cheapest resources are used before the more expensive, so are the simplest technologies developed first thus following the law of diminishing returns. The development of penicillin is said to have cost tens of thousands of pounds to develop, but now to produce an advance in antibiotics tens of millions of dollars are needed.

SCIENTIFIC DISCIPLINE.

Economists consider that their discipline is a science. The essence of science is the practise of making accurate observations of real world phenomenon, not just the occurrence of a particular phenomenon, but also observing where there is an absence. A sign of "junk science" is the use of anecdotal and here-say observations. Another feature of junk science is the use of observations which are at the limit of measurability or require the overturning well established scientific knowledge.

PEER SCRUTINY.

Scientific practice now demands peer scrutiny of the work, publishing in open media and the presentation of sufficient information for the work to be reproduced. "Junk science" does not go through rigorous processes of verification, rather there is a direct appeal to the popular media for presentation, bypassing scientific institutions.

JUNKS SCIENCE MAKES NEWS.

The media tend to support "junk science" because of its dramatic news value. This is also true of the legal profession who find "junk science" quite useful in introducing some doubt into a court case by the undermining genuine science. Public relations people and politicians love to use statements like: "There is no evidence that X does any harm." in an effort to infer that: "There is evidence that X is harmless."

THEORY FALSIFICATION.

A refugee during WW II, Karl Popper, during his lectureship at Canterbury University College in NZ added to science a further degree of scrutiny. He proposed that "scientific" theories require experiments which are capable of refuting the theory. There is the well known observation made by Sir Arthur Eddington during the eclipse of Mercury. He showed that Newton's theories were deficient, thereby giving more credence to Einstein's theories. Many further experiments have been devised to fault Einstein's theories, so far with no success. Thus scientists accept Einstein's theories until something comes up to fault the theory.

MATHEMATICS.

The use of mathematic analysis on measurable observations is important in science and has advanced considerably over the years. Relationship of data elements in observations depend on applied mathematics. Scientific laws are often expressed as mathematical relationships. Thus chemistry has replaced alchemy, and astronomy has replaced astrology. Phrenology has been replaced by several disciplines such as neuro-biology. The use of mathematics by economists has gone beyond producing any insights. They make unjustified assumptions and use un-observable variables to come up with relationships that have no credibility of foundation in reality. The use of mathematics by economists has gone beyond any meaning. They make unjustified assumptions and use un-observable variables to construct relationships that have no credibility or foundation in reality.

JUNK SCIENCE.

A very common feature of "junk science" is the dependance on claims of a long history and the existence of authorities. Freudian pseudo psychology depends on the authority of Freud in preference to the observations which have been made and reproduced after his dogma was published. Marxists are practising "junk science" and "junk economics" when they depend only on what Karl Marx foretold. The existence of beliefs in reincarnation and continued existence in heaven, because of the dogmatic pronouncements of ancient writers are examples of "junk science". Our current knowledge of the function of our brain's neurological structure in determining our memories and our ability to process sensory information and the evidence of decomposition of our bodies on death reveal that death is the end of us, even though this is not what many people want to believe.

SCHOLASTICISM.

"Junk science" is exploited by politicians, fundamentalists and absolutists because they abhor scrutiny of their pronouncements. This is also true of economists who cannot accept criticism of their dogma because so much of economics is junk as it does not rely on observations of real life. Economics is not scientific, although it adopts some of the trappings of science; it is an example of scholasticism. In that respect, economics can be considered a religion with a well established dogma.

AUTHORITIES.

Religion depends on the authority of its ancient books and clergy. Explanations of natural phenomena are built up over long periods of time and become incontestable because that would undermine their authority. Economists depend on the authority of what amounts to their clergy of authorities. Politicians depend on the authority of their choice for a dogmatic philosophy. Thus the church, economists, and politicians run into problems with reality from time to time. Religion exerts a powerful influence over many people, particularly when they promise an avoidance of purgatory and some form of everlasting life or re-incarnation. In the past, and occasionally in modern times, kings and emperors claim, or are given "god" like attributes to strengthen their authority over their subjects. Management has similar tendencies, listening to authorities and applying various fad theories to the way they manage their business. They, too, can overlook reality and depend on the latest formula for business operations. They are always on the lookout for a new fad.

ECONOMICS ASSUMES.

So much of economics is based on assumptions. It is not possible to find economic textbooks that do not use the word "assumes" liberally. Via their scholastic methods they reach certain conclusions which can be remote from reality. In their analysis of production they have come to the conclusion that increasing factors of production result in a point of diminishing returns being reached. It is the effect of labour which brings them to this conclusion, not the application of more raw materials, more capital equipment, or more energy. Many textbooks ignore the cost of raw materials in their examples of production costing. They have failed to observe the effect of diminishing returns can be applied to scientific and technological advances. Analysis of the output of scientists and technology would clearly show that there are diminishing returns from time, money and scientists doing research and development. Economists are making a big mistake in assuming (as they do) that technology will overcome the problem of resource depletion and that there are no limits to growth. They rely on faith-based technical solutions. However, they continue to deny that a fixed resource is an economic problem. This refutes their optimism for technical solutions for the expansion of cheap energy.

HOTELLING EFFICIENCY RULE.

Resource depletion being a problem has actually been canvassed by an economist back in 1931. Harold Hotelling established that efficient pricing of a depleting resource such as petroleum, natural gas, and coal, is accomplished by the price of the resource increasing at the same rate as the normal commercial return on investment. The price ought to be increased by taxation if necessary to produce the required price rise. Therefore governments are quite entitled to apply taxation to the consumers price of petrol and diesel to effectively manage the depletion. The Hotelling Efficiency Rule seems to be overlooked by the economists of today. Increasing taxes on energy will avoid the need to apply "windfall profits" taxes.

NO SUBSTITUTE.

The faith of economists in substitutes magically appearing when the price is right is misplaced. An example of the substitution fallacy is the fact that there is no substitute for helium. It is extracted from natural gas especially in Texas and Canada which of course will run down. Helium is a light, chemically inert gas which is essential for achieving the lowest of temperatures. There is no other substance to replace helium; there is no substitute. Petroleum is the substitute for coal, not the other way around. Hydrogen is being promoted as a substitute. It is sure to fail in this regard. See appendix 1.

PEAK OIL.

To keep our comfortable and material way of life working so well, we are dependant on a continuing supply of petroleum products. The continuance of supply of petroleum products is now facing a peak of extraction. The work of petroleum geologist M. King Hubbert produced the first analysis of the peaking problem. He identified the fact that wells peak in extraction at about halfway through the resource and this contributes to a field of wells peaking similarly. He successfully predicted the peak in US extraction. Discovery follows exploration which also demonstrates a peaking characteristic. The extraction of petroleum follows a peak, lagging the peak of discovery by about a dozen years. Hence the term "peak oil" for the problem of the extraction rate of petroleum reaching a maximum and being followed by a terminal decline.

SUPPLY SHORTFALL.

The peak of petroleum extraction will come sooner or later, but the peak will only be recognised well after the event. What is just as important is the shortfall that can occur when demand overtakes supply even while both are increasing. See appendix 2. Economic progress of undeveloped nations is expected and they will have increasing needs for petroleum products. When large nations such as China and India develop at high rates they will come to dominate the rate of demand increase. The rate of supply increase is already failing to match demand increase. This is due to two factors, first discovery of new resources is falling and is about a quarter of the rate of consumption. No new large fields have been found for some time. Secondly, the development of infrastructure is stagnant. Drilling rigs, refineries, tankers, and experience personnel are all limiting factors for supply increase. A shortfall in supply must inevitably follow is the rate of demand increase is greater than the supply increase rate.

FINDING PETROLEUM.

A very complex economic process underpins the delivery of petroleum products to us. It starts with prospecting for suitable sites where oil might be found. Geologists using advanced sensors which give them an insight into underground strata find possible features where oil might have become trapped. If a site is found, then a rig has to be brought in and a well drilled. The core samples can indicate to expert geologists any prospects for oil. Currently, oil rigs are in short supply and there is a long waiting list to obtain a lease. This is compounded by the problem of an aging work force that is declining in numbers.

WELL EVALUATION.

If there are signs of petroleum, a 24 hour test is made to see what the capacity of the well might be. If that indicates an economic well, then the infrastructure for extraction has to be built. This involves considerable investment which requires a considerable amount of money to be raised. At the current moment, there seems to be very little of this type of investment. Oil companies are only expanding by buying up small oil companies. New drilling rigs, especially the ocean going drilling platforms are not being built. In addition, the workers in this field are aging, going into retirement, and not being replaced. Processing of raw petroleum into liquid fuels and products such as plastics and fertilizers require large refineries. Except for China, there does not seem to be any new investment for these plants. Pipelines are being built to exploit the fields already in the process of being put into production. The distribution of oil products requires a considerable tanker fleet, yet there does not seem to be any investment here in spite of the fact that tanker shortages are putting up the lease rates considerably. Single hulled tankers are to be phased out.

LOW DEMAND ELASTICITY.

Basic economic theory suggests that shortages will raise prices, producing the incentive for further investment and ultimately more supply. However, there is another argument here which suggests that oil companies are quite happy with supply shortening. Petroleum products, particularly liquid fuels for transport, are described as having low demand "elasticity". This means that the percentage change in demand is very much less than any percentage increase in price. Calculations based on the 1973 politically inspired supply limitations suggest that this elasticity figure is unusually low. Even as low as 0.0125. With low demand elasticity, shortages increase prices to the degree that excess profits can be made. This is born out by recent oil company results. With an elasticity of 0.0125 a 5% supply gap will produce a 4-fold increase in price and a 3.8 times increase in revenue. Supplying countries certainly gained from this effect when OPEC limited supply. Saudi Arabia received an embarrassing amount of extra income which they had trouble in managing. Provided no other company breaks ranks, they will all refrain from risky investments in supply expansion and all will increase their revenues.

NO ENERGY RECOVERY.

Economists continue to think that pricing will sort out the problem of energy supply. That implies that only the wealthy will be able to continue with their current consumption levels. But wealth itself cannot be converted back to energy. If the wealth is accumulated as gold, it cannot be converted back to the energy which was consumed in extracting it. There is no reverse alchemy to convert gold back to energy. If the wealth is represented as capital plant and equipment, the energy embodied in the capital cannot be recovered. The wealth in energy-short times is energy itself, not other representations of wealth.

ENERGY RETURN ON ENERGY INVESTED IN PRODUCTION.

Our future will be energy limited, so what is most important, is to make clear the importance of energy efficiency by identifying the efficiency ratios. For example: EROEIP is the energy return on energy invested in production. It is the quantity of energy produced divided by the energy embodied in the variable production inputs. This is a dimensionless ratio which takes into account the energy consumed in a energy conversion process. To consider the value of say bio-fuels we must measure the total energy used in the farming and harvesting process for use in the denominator. A ratio of 1.0 means that all the energy extracted is needed to perform the extraction. It seems that as yet the US efforts to produce ethanol as a petrol booster via corn fails to reach an EROEIP of 1.0. It is the energy equivalent of variable costs.

ENERGY RETURN ON ENERGY INVESTED IN CAPITAL.

Consideration of the energy used in the building a plant is taken into the EROEIC, the energy return on energy invested in capital. The rated energy capacity of a plant is divided by the total energy consumed in the manufacture and construction of the plant. This ratio is not dimension-less but is a rate or percent per time. For example the energy used in constructing a nuclear power plant might be 5% pa. The annual energy output of the power plant is 5% of the total embodied energy used in all the activities utilised in the building of the plant. In the case of nuclear power plants, the energy required for decommissioning should be included in the energy capital. The energy embodied in the preparation of the uranium fuel cells is accounted for in the plant's EROEIP. The inverse of the EROEIC is the energy payback period, 20 years in this 5% example. (Not allowing for EROEIP) It is the energy equivalent of fixed costs.

ENERGY PAYBACK.

To calculate a true energy payback period for a power plant, account needs to be taken of the energy consumed in the production process as well as the energy used in the building of the plant. Energy payback times for nuclear power plants have a further factor in that at the end of the life of the plant, further energy will be consumed in the dismantling of the plant and sequestering all the radio-active materials produced. The Dounreay fast breeder reactor took a couple of years to build and was used for twenty years. Decommissioning started in 1977 and is expected to continue until 2047.

ENERGY LOSS ON TRANSPORT.

The efficiency of energy distribution systems are identified with the ELOT, energy loss on transport. It is the energy consumption per distance transported, in a ratio or percent, per 1000km. An example is a calculation done which showed that the energy cost of transporting coal by diesel train works out to something like 3% per thousand kilometres. This would enable a comparison to be made of transporting coal to a power plant (should the sequestration of carbon dioxide be practical) where the electricity is used, versus an 'on site plant' with electricity transport over transmission lines. Another "back of the envelope" calculation suggests that the transport of hydrogen by a hydrogen powered truck would produce an ELOT of approximately 100% per 1000km. Electricity distribution ELOT is decreased by going to ever higher transmission voltages.

HYDROGEN CONVERSION LOSSES.

To achieve energy efficiency, it is important to reduce the number of stages of energy conversion as the second law of thermodynamics shows that conversion losses are unavoidable. For example, to electrolyse water at 70% efficiency to obtain hydrogen and then convert this to electricity again in fuel cells at 70% efficiency means that half the energy is lost even without considering the EROEIC to allow for the loss of energy in the building of the plants required. It is an unfortunate consequence of the second law of thermodynamics that energy conversions always produce energy losses. Where ever the energy appears in the form of heat, either as a sink or a source, the wastage of energy is large.

PETROLEUM RESOURCE IS FIXED.

The amount of petroleum is geologically fixed. For use as energy, rather than as a feedstock for chemical production, the EROEIP of petroleum extraction must be more than unity. Using some rough statistics (see appendix 3) the URR (ultimate recoverable resource) is 2.2 trillion barrels with a standard deviation of 200 billion. This means that there is a 10% chance of there being up to 1.95 trillion barrels. The work of M K Hubbert has shown that both discovery and extraction tend to follow a Gaussian curve. This theory is supported by the central limit theorem of statistics. It is clear that the discovery has passed the peak and that the extraction peak is imminent. Rough statistics (see appendix 3) suggests that the expected date of the peak is in 2015 with a standard deviation of five years. This gives us a 10% chance of the peak occurring at or before 2007. There is the economic imperative which causes the best sources to be used first so the oil yet to be extracted is going to be of lower quality. The rate of discovery is now a small fraction of the rate of consumption. With a total petroleum bequest of 2.2 trillion barrels (with some reserves still to be found) and current consumption rising at 7%, the reserves could not last beyond 2023.

CONTINGENCY PLAN.

As time goes by, oil wells put into production will have a lower EROEIP although improved technology will have a compensating influence that extends the amount recovered. However, technology can not get more out than the existing fixed quantity. The possibility of immediate supply shortage means that, not only is a long term plan required, but a contingency plan is necessary to cope with a supply shortage in the period when it is too late to construct any new infra-structure. A rationing scheme could be prepared giving a set amount of liquid fuel to each citizen on the electoral roll and allow trading in the ration for the occasion where there is a rapid and large supply shortfall.

EXTRACTION PEAK.

There are many indicators which suggest the peak of extraction is imminent. The peak of discovery seems well past. 70% of daily petroleum supply comes from oilfields "on production" for 30 years or more. 20% of global supply comes from 14 giant fields whose average age is over 50 years. The number of key production regions past their peak of extraction is increasing. Where new technology has been applied, the field reaches a higher decline rate of extraction but the total quantity extractible is expected to be less.

SUPPLY DECLINE.

Eventually, our supply of petroleum products will be lower than current levels by 5%. Later it will be under by 10%, then by 20%, etc. The increase in price will be determined by the demand elasticity, but higher prices cannot increase the amount of petroleum laid down millions of years ago. There will be corresponding large price increases for all the products of petroleum and this includes plastics and nitrogen fertilisers. This thought underlines the necessity of a reversal of our consumptive expansionism. The imperative behind the globalized free market hypothesis propagated by economists is to advance poor countries up to our levels, implying very large increases in the third world consumption of petroleum and a shortening of the time taken to reach the supply shortfall. A coordinated response is required and that needs to be in the gambit of government.

SUSTAINABLE DEVELOPMENT CONTRADICTION.

It is unfortunate that our leaders are supported by government departments which are heavily influenced by economists. The term "sustainable development" must have been thought up by an economist because it is completely contradictory. Where energy is concerned, development is the opposite of sustainability. The economics textbook "Natural Resource & Environmental Economics" by Perman, Ma, & McGilvray supplies six definitions of "sustainability" from the literature. The significant words from the definitions are: "undiminished", "non-declining", "maintaining services & quality", "without compromising the ability of future generations to meet their own needs", "preserving opportunities", "reverse depletion", and "not decline through time". The definition used by government economists is not in tune with the existing usage which has been well established. The idea of sustainable development is factitious.

MARKET FAILURES.

Another feature of government documents which investigate energy issues, is the assertion that there is no place for central planning but there should be a dependence on market solutions with some state regulation and planning. The fact that free markets regularly show "market failures" (really market theory failures) does not faze economists. Like theologians, they are perfectly capable of ignoring flaws in their theological dogma. If reliance is made on the "free market" then the preconditions for economically efficient markets, including the requirement for complete information and the complete internalisation of costs, must be adhered to. This means that the claim for commercial secrecy has to be ignored and the pollution costs (such as carbon dioxide emissions) must be put onto the industry. Business opposes government regulations as a matter of course. Nevertheless, regulations get imposed because of the failure of markets to act responsibly and internalise the costs of their business.

INNOVATION.

"Innovation" is another solution suggested in government documents. Whether something is new or not is surely irrelevant; it is whether the solution is worthwhile or not. Old solutions can be just as good as new ones. Useful innovation is hard to come by, as technological advances are subject to diminishing returns. The rate of patent application per scientist has been steadily declining for some considerable time. The expectation of new solutions has been encouraged by the existence of a continuous stream of fantastical ideas which turn out to be worthless when the energy productivity is calculated out.

ALTERNATIVES.

The idea that alternatives can substitute for the decline in petroleum extraction is very common. There are basically two options, 1) to revert to the fossil fuel coal and step back into something like the early stages of the industrial age, 2) utilise the renewable energy provided by solar insolation. Both options have their limitations so it would be a mistake to assume that we do not need to prepare for a lower level of energy use. The alternative of using coal will be in conflict with the commitment to reduce greenhouse gases and merely postpone the end of fossil fuels.

COAL.

There are large resources of coal which it is claimed should keep us going for some time. However, it must be remembered that the easiest coal has already been extracted. Large scale open-cast coal is the option most likely to be economic, yet its extraction depends on the use of liquid fuels for removing the overburden, extracting the coal and the transporting it. The energy efficiency of this process must be the paramount consideration with EROEIC, EROEIP, and ELOT all being necessary. Coal fired trains and steamships are well established technologies, but coal fired aircraft seem impossible. Solid coal requires much material handling which is costly and requires much maintenance. There are worthwhile methods of gasifying it to produce fuel gases. The process of converting it with steam and heat will produce water gas consisting of a mixture of hydrogen and poisonous carbon monoxide. More recent multistage conversions enable the production of either methane or hydrogen with separation of carbon dioxide. Being multi-stage it will involve higher thermodynamic losses. These will require large capital investments if they are to progress beyond the pilot plant stage. The EROEIC must be carefully considered in this approach. This will of course, cause an eventual "peak coal" issue. However, the reversion to coal can only accelerate the increasing climate change problem.

SOLAR ENERGY.

Apart from geothermal energy and tidal energy which do not seem to be able to amount to much additional supply, renewable energy will come from solar sources. There is a considerable quantity of radiant energy arriving on our lands, but it is somewhat diffuse compared to current methods of energy utilisation. This will mean a shift from large highly centralised systems to localised small methods of capturing useful energy. The radiant energy can be used directly in photovoltaic cells, and in solar water heating, or indirectly through using plants as solar collectors and by windmills. Direct use depends on capital items that take time to return a net energy result. The capture of energy by plants is slow and even more diffuse than the normal insolation. However the biomass produced acts as a store that is not so available with direct use. Provided we do not destroy the climate, we can depend on solar energy for some considerable time as the ultimate long term energy source. It has also the potential for being non-polluting.

BIOMASS ENERGY.

The production of biomass by plant photosynthesis is not very efficient in energy capture and requires a lot of land for collection. There are some plants that stand out as relatively efficient energy collectors. However there is not the need for capital investment required as there is for technical solutions such as solar panels and windmills. Biomass does provide a potential for producing liquid fuels. The extraction of oils from plants however does require significant energy for extraction, so will provide a low EROEIP. The use of agricultural waste is more economic if the energy input required is justified by the production of food. The growing of corn as a raw material for fermenting and manufacturing ethanol has proved to consume more energy than is made available in the alcohol.

LAND USE.

Experience has shown that to use horses for farm labour has required a significant percentage of the farm land for the feeding of the horses. Any large scale exploitation of land surface to capture energy biologically is going to require a large amount of land. Industrial agriculture only works because energy has been so cheap. Food produced this way has consumed much more energy in the farming process than the energy provided in the food. Food and energy will be competing uses of good land. The food production methods will have to move away from large scale industrial approaches to low energy farming such as natural (or "organic") farming. Land less suitable for food production will have to be the major resource used for energy biomass production. The obvious vehicle here is silviculture. Harvesting trees less often than an annual crop ought to mean a lower ratio of energy extraction inputs per energy harvested. The growing of trees can be done on land unsuitable for growing food crops. If the type of tree is suitable, coppicing reduces the cost of replanting.

FERMENTING AND PYROLYSIS.

Waste from food farming will be suitable for fermenting technology producing bio-gas (methane) especially if the waste has a high water content. Wood will be more suitable for pyrolysis which will produce some combustible gas, resins and other valuable organic liquids, and considerable amounts of charcoal fuel. It may be possible to adapt the latest coal gasification methods to wood. Biomass processed with heat and hydrogen would be used in one stage to produce methane and other organic products. Half the methane would then be reformed with steam in the presence of calcium oxide to produce the hydrogen required for the first stage. In the final stage, the calcium carbonate would be heated to the level required to regenerate the calcium oxide and produce a separate stream of carbon dioxide for sequestering by whatever means remains to be developed. The necessity of several stages results in significant thermodynamic losses.

WINDMILLS.

Windmills have been vastly improved from the days when they were a common sight all over the landscape. They are currently being installed in their thousands, particularly in Europe. Some technical problems remain with gearbox reliability, but these are being solved. There is a significant EROEIC, but the EROEIP is good so they represent a good way of providing sustainable energy provided they can be built to have a long life.

LOOKING AHEAD.

Magazines often show the future as extensions of the past with fantastical technology well to the fore as if there was no limit to scientific advances. However fossil energy must run out. Any rational person will not ignore the issue of declining energy and will prepare some responses. An analysis of disastrous decision making observes a series of failures; failure to anticipate a problem, a failure to perceive the existence of a problem, a failure to attempt to solve a problem after perception, and a failure to apply sufficient effort to succeed in attempts to solve the problem. The consequences of a failure to solve the problem of declining energy availability is too serious to not apply the greatest concerted effort possible.

PRUDENCE.

The hubris inherent in the idea that we can continue as before, leads to crisis and tragedy. The Greeks had a word for the remedy, it is prudence. As oil expert Matthew Simmons has repeated "When you are in a hole Stop Digging!". We must consider options in a rational way. This can be done by considering this matrix of consequences:

BEST FUTURE.

The best possible future is where we act upon the presumption that peak oil is upon us and we turn out to be wrong. Acting in advance of the problem gives the best result. We lost the chance 30 years ago to start acting in advance with the publication of the book "Limits to Growth", but unfortunately people listened to economists. We have to act now. The same technique can be applied to the problem of what to do about climate change (see appendix 4.).

WORST FUTURE.

If we ignore the approaching peak of petroleum production on the basis that it is some way off, and we turn out to be wrong, then we will experience the worst possible future. We will be completely unprepared for a downturn in the availability in the liquid fuels that supports our transport intensive way of life. We will have moved to make our society to be even more dependant on liquid fuels than ever before.

TRANSPORT DECLINE.

The long term prospect can only be one where the energy consumption per person will be much less. This has implications for urban planning and land use, since much of current planning is based on universal car ownership. The first predicament will occur with the reduction of liquid fuels and its rise in price. This will mean a marked drop in international transport. Import and export trade and tourist visitors will reduce, causing a great shift in people's livelihoods. We will have to accept a new mantra of de-globalize, localise, and de-industrialise which is directly opposite to current intentions. There will be some frivolous and parasitic jobs which will have to be given up. Many high energy using industries will have to be sacrificed as they cannot remain economic with increasing energy costs.

THE FUTURE WILL NOT BE LIKE THE PAST.

Economics has developed theories which are based on a presumption that the future will be like the past. However, the realisation that energy supply will soon be limited require us to re-think every idea which is based on the future being a continuance of the past. The so-called laws of economics will need updating. Scientific laws are more reliable than economic laws and they break down at extremes. Hooke's Law which gives a proportional extension in materials such as metals, with application of physical stress forces, breaks down when the limiting strength of the material is reached. You can stretch a steel cable, but it breaks down when the limit is reached. Increasing the angle of attack of an aerofoil increases the lift, up until the point of stalling is reached. The first effect of the petroleum supply gap will a shortage of liquid fuels for transport. Travel of goods and people will become limited, not expanding as before. The economist's demand for endless growth will be seen as the ideology of the cancer cell and insane. Our wonderful way of life cannot continue.

POLICY REVERSALS.

The future needs to be planned for with the understanding that liquid fuels will decline in availability (and increase in price) and all other energy supplies will follow in decline. The by-products of petroleum such as fertilizers and plastics will follow, and become limited in supply. Mineral extraction and smelting are also energy intensive, consequentially there will be other materials that will have dramatic cost increases. This means that just about every economic activity and policy being applied will need reversing.

NO ONE ANSWER.

Accidents and Empire collapses almost always derive from multiple causes. There is no one answer to the problem of declining energy availability. All worthwhile solution options must be pursued. Energy must not be wasted; more efficient methods for energy use need to be implemented. Some energy uses will just have to be dispensed with.

BEST USE.

Energy comes from several sources and is converted to a number of mediums such as diesel and electricity. To avoid inefficient applications, the principle of best use should apply. Liquid fuels have a best use in transport because of the high energy density and the ease of throttling the engine. Electricity is a medium, not a source of energy, which has a best use for illumination, electric motors (static motors), and electronics. Using electricity for heating is not a best use. Solar water heating is a best use because it can be used where the heat is required and is able to heat to the relative modest temperature required for domestic use. It would also be a best use in domestic space heating because of the modest temperature increment required. Gas, such as natural gas has a best use in industrial heating because of the high calorific value and the ease of control, and is also a best use in cooking. Gas is not a good use for producing electricity (along with coal) because most of the energy available is thermodynamically wasted. Hydrogen has a best use in chemical processing but not in transport or as a storage medium. (See appendix 1). Electricity is a doubtful medium for use in transport except where the source of electricity does not need to be carried, for example where overhead lines are used. While electric motors give good power and control of motion, storage on board of electricity has a high weight penalty. Electricity is not a good medium for energy storage, but because so much electricity is generated from hydro sources, it can function for some limited storage of photo-voltaic and wind electricity by backing up water in dams. Coal is a difficult case because, as a solid it has material handling difficulties, and produces pollution both in the form of carbon dioxide, and in noxious ash. Once gasified, it does provide the heat content advantages of gas. The technology of coal in transport for shipping and for rail has been very energy inefficient in the past, but may be needed as a short term transition. Biomass has a best use for food of course. The waste has a best use for organic products since the decline in petroleum as a source will create a shortage. Wood has a best use as a construction material and a secondary use of the waste for organic chemicals. The tertiary products of biomass will be combustible gas which has its own best use.

THINKING THE UNTHINKABLE.

When an analysis of the land required to produce anything like the energy requirements of a low impact human society is made, it seems that there will not be enough land to support the six billion people which live now, let alone the expected increase due to the proportion of fertile young people. This suggests that there will be a dire situation presenting itself when petroleum extraction drops by a significant proportion as it must. This means that some countries will experience various degrees of famine. If we take the view that we cannot be responsible for their mistakes, we can consider what seems to be an unthinkable alternative. We should consider the lifeboat scenario.

LIFEBOAT RULES.

Essential in the lifeboat approach is the necessity to be prepared to exclude people when there is a risk to the freeboard required for safety. This means the exclusion of refugees and immigrants. There can be no classes in lifeboats, everyone must be on the same level sharing in a rationed food and water supply. All the people in the lifeboat have to do their share of the effort required for survival. There must be a pooling of all resources and no waste of any potentially useful resource. Lifeboat rules include rationing of scarce resources. It seems a severe approach, but is one step ahead of the ultimate descent below civilisation and that is the cannibalism that has featured in collapsing empires.

WE HAVE TO DEAL WITH REALITY, OR REALITY WILL DEAL WITH US.

APPENDIX 1.

THE HYDROGEN PROMISE

The hope that the Hydrogen economy will provide a solution is misplaced. It is a faith-based answer which is not supportable by current scientific knowledge. Hydrogen is a medium (not a source) for energy delivery which has many disadvantages over the medium of electricity.

While hydrogen has a high energy content on a weight basis, it is very low in density which makes its storage, transport and delivery very problematic. It is very difficult to store and transport. Because of hydrogen's low molecular weight, it is very good at finding the slightest of leaks and is inclined to make metals brittle. If it is liquified, then it is going to evaporate a proportion constantly.

The current method of making hydrogen from methane at about 72% efficient, is costly in energy usage, so that if hydrogen is derived from methane and used in cars, it will produce more pollution in the form of carbon dioxide and nitrogen oxides than if the methane was used directly as CNG. No matter what the pressure and temperature, methane contains more hydrogen and more energy than pure hydrogen itself.

Production of hydrogen from large photo voltaic panel arrays is proposed as a way of capturing the peaks of solar energy for storage. This is not necessary as in NZ, it would be more energy efficient to use such electricity in the grid and save the energy as water held back in hydroelectric dams.

The extraction of hydrogen from coal would be problematic because this process will produce even more carbon dioxide than the methane process. We have yet to see how much energy will be required to sequester carbon dioxide underground in serpentine rocks if this becomes feasible.

Producing hydrogen by electrolysis is going to waste energy. The second law of thermodynamics is the reason behind the fact that conversion of an energy source to the intermediate medium of hydrogen is uncontrovertibly a wasteful step. Using electricity to produce hydrogen is about 70% efficient. This is about the same thermodynamic efficiency of hydrogen fuel cell production of electricity. That allows half the original energy to be wasted. If the hydrogen was used in internal combustion engines, the waste will be even greater.

Hydrogen is promoted heavily, and has even captured significant financing of state funding. There is a belief that in the future motor cars will be driven by hydrogen powered fuel cells, however the fuels cells remain very expensive and have yet to be produced with a long enough life. This is a very doubtful technology.

The promises for the arrival of a production Ballard fuel-cell motor car has not been met, in spite of well funded research. They turn out to be large, heavy and expensive. A mass transition to a Ballard cell would send us off to worry about a peak platinum consideration.

Hydrogen is not generally a suitable medium for transportation. It is used in Iceland because they have plenty of hydroelectricity for their small population. They can afford to generate hydrogen and use it in buses because the buses do not need a long range and can be replenished somewhere on their route and they have enough available electricity supply.

The usual route for hydrogen manufacture is from methane (natural gas) and this wastes a significant proportion of the energy content. This hydrogen will not be pure enough for fuel cells. Hydrogen has a higher heat of combustion (120 KJ/ gram) compared with methane (50 KJ/gram) on a weight basis, but when we take into account storage, methane has much greater heat of combustion (803 KJ/mole) than hydrogen ( 243 KJ/mole). Note that the molar volume is the same for all gasses.

Hydrogen can be liquified to reduce storage requirements but the storage liquid hydrogen (density 70.9 g/litre) requires compared with liquid methane (density 415 g/litre) remains a disadvantage. The temperature (-258 degrees) at which hydrogen liquefies is much lower than methane (-161 degrees. The latent heat to be extracted in condensation is greater (904 joule/g) than for methane (510 joule/g) adding to hydrogen's disadvantage.

In addition, because of its low molecular weight, hydrogen storage requires a much higher standard on seals to prevent hydrogen leakage. Hydrogen also has a tendency to make metals brittle which makes hydrogen pipelines much more expensive. To compress hydrogen to 700 atmospheres, a multistage process is required, consuming about 15% of the energy content. Liquefaction would require something like 30% of the energy content. The pumping cost for hydrogen pipelines can be expected to be lower than for methane pipelines, because hydrogen has a low viscosity although we have no estimates for any advantage here.

To transport hydrogen by road tanker will require expensive cannister trucks that would weigh some 40,000 kg and carry only 400 kg of hydrogen; enough to fill 60 cars, while the same size truck carrying petrol could fill about 800 cars. The ELOT for this form of transport would approach 100% per 1000 km. The transfer of liquid hydrogen to cars will require a complex fuelling system that would require specialised equipment and operatives.

Hydrogen gas has a low ignition temperature which makes handling more risky than petrol. It is thought that a cell phone could ignite a hydrogen leak and produce a dangerous invisible flame.

APPENDIX 2.

With growing economies and growing population, we can approximate the demand for petroleum products as:

D = D₀ e^at Where D₀ is demand at the start.

a is the rate of demand increase.

t is time.

Assume that supply has an excess capacity and the supply is also growing. Technology improvements will have a part in this growth. We can write:

S = (D₀ + X₀) e ^bt Where X₀ is the excess capacity.

b is the rate of supply increase.

The "crossover" occurs when these become equal. Then:

D₀ e^at = D₀ e^bt + X₀ e^bt

Now we take into account the difference in growth rates: x

D₀ e^(b+x)t = D₀ e^bt + X₀ e^bt

D₀ e^bt e^xt = D₀ e^bt + X₀ e^bt

e^xt = 1 + X₀/D₀

For example: say the excess supply starts at 1/10 of demand.

e^xt = 1.1

xt = 0.0953

Say the difference in growth rates (x) is 2% pa.

t = 0.0953/0.02

Then the time taken to reach supply and demand equality is 4.8 years. The demand can outstrip supply while the supply is still growing.

APPENDIX 3.

Time estimates from expert sources can be evaluated statistically. Estimates should resolve into a normal Gaussian bell shape. The following method allows for skewness in estimation by using the properties of a "beta" distribution.

a = the optimistic time estimate.

m = the most likely time estimate.

b = the pessimistic time estimate.

M = mid range (a + b)/2

t = expected time.

V = variance in the expected time.

From the characteristics of the Beta distribution, the final approximations to the expected time and its variance we have:

t = (2*m + M)/3

= (2*m + (a + b)/2)/3

= (a + 4*m +b)/6

V = ((b-a)/6)²

The standard deviation is the square root of the variance.

sd = (b-a)/6

(Acknowledgement to the Harvard Business Review)

For the time to the peak, we have a pessimistic 0, optimistic 30, and most common 7 years. This results in a estimate of 10 years (to 2015) with a standard deviation of 5 years. The variance in this figure suggests a high risk in the estimate.

From various sources we have found the most pessimistic total extractable petroleum (URR) is 1.8 trillion barrels. The most optimistic volume is 3 trillion barrels, and the most common estimate is 2.1 trillion barrels. This gives the result that the estimate from the range of estimates calculates out to 2.2 with a standard deviation of 0.2 trillion barrels.

APPENDIX 4.

Applying the matrix of consequences to the issue of global climate change, we arrive at a similar tableau of problems. Again the best result is obtained by immediate action and being wrong about the threat.