written 29 October 2023
published 5 November 2023
All logic is based on assumptions, and the validity of any logical conclusion is affected by the validity of the foundational assumptions.
For example, Trump is mentally unstable, and assumes he is never a "loser", so he concluded the 2020 election must have been stolen from him. Despite the absurdity of the fundamental assumption, the entire Republican party has followed him down that rabbit hole, even to the point of trying to overthrow the government.
Capitalism has an assumption just as suspect: constant growth is possible on a finite planet.
In the last 75 years, human population has increased from 2 billion to 8 billion, a factor of 4, and fossil fuel consumption has increased by a factor of 7. By the mid 60's, virtually all of the planet had been surveyed, and discovery of new oil reserves had peaked. In 1956, Shell geologist Marion King Hubbert, understanding that fossil fuels are a finite resource, predicted that the US oil production would peak in the early 70's, due to depletion of reserves. He was ridiculed at the time, but 1972 was indeed a peak for US conventional oil production.
At that point, the US lost control of the price of oil, and OPEC took over. Gasoline prices tripled in a decade as the US was punished for its support of Israel, US interest and inflation rates rose, and the savings and loan industry crashed. Eventually a deal was made with the Saudis, and relative stability returned.
However, Hubbert had also predicted that global oil production would peak in the early 21st century, but nobody really paid attention. When Hubbert was alive, oil was generally pumped from land-based reserves. As oil production expanded, this conventional resource became contrasted with deep ocean oil, fracking of tight oil, and tar sands.
In 2005, global conventional oil production peaked. Demand was filled by increased deep water extraction, and an explosion of fracking, which made the US a world leader in production again. But deep water is very expensive to produce, and fracking exploits very small reserves, which deplete rapidly. Oil was available, but extraction costs went up significantly.
At the turn of the century, the financial industry had created a house of cards in the housing industry, and mortgage fraud increased 1400 percent in the seven years leading up to 2005. Rising oil prices, particularly diesel, which impacted shipping costs, helped pop the housing bubble in 2008, leading to a global economic crash. The resulting recession reduced oil demand and prices, and the economic crisis distracted attention from issue of limited affordable oil production.
By 2016, the global economy was beginning to recover. However, a decade of fracking had demonstrated it was a financial loser, demanding higher prices to be affordable, which made the resulting fuel relatively unaffordable to the customer. Billions were lost as the reality of limited oil conflicted with the industry advertising hype. Fracking reserve estimates were optimistic, and the few areas that were actually profitable were quickly developed and depleted. In 2018, global oil production from any source peaked. The COVID pandemic beginning in 2019 depressed the global economy again, reducing oil demand and prices again, distracting from the limited oil economy again.
We are now recovering from the COVID pandemic, and the price of oil is volatile, shifting between $80-$100 per barrel. Our local gasoline prices are over $5 per gallon, and diesel is even higher. The wars in Ukraine and Israel have added to volatility, as has the increasing shift away from fossil fuels all together. Russia and Saudi Arabia have the largest remaining conventional reserves, and there is question about their ability to produce. Russia needs as much money as they can squeeze out of the market to fund their war, and the Saudi's are beginning to withhold product from the global market to insure sufficient domestic supplies.
Despite Republican rhetoric, Biden had not limited new domestic production, but has encouraged shifting to renewables. However, big oil is not really interested in investing in new production. Their stockholders are tired of losing money, and prefer stock buybacks. Serious questions about when peak oil demand will occur, due to the global shift to renewables, make any long-term production investment risky. Some oil majors have abandoned the field entirely.
We are experiencing the end of affordable fossil fuels, without even considering the fact that we are killing the planet with the resulting climate change.
