The End of Suburbia

Back in 2004, we had the opportunity to watch a documentary titled “The End of Suburbia”. ( http://www.endofsuburbia.com ). I must admit that it scared the heck out of us. Working in the oil and gas industry, I had already thought about the finite nature of oil and gas reserves. Amos Nur (Geophysics professor from Stanford) had even introduced me to the concept of Hubbert’s curve back in 1988. Nevertheless, I had not thought about the effects that oil shortages would have on North American lifestyles. This movie, more than any other single factor, started our shift away from our complacent lifestyle in Crossfield. And while I hate to admit it, the primary motivation was fear.

For the next couple of years we started gathering key components of farming equipment, working toward some level of self-sufficiency. Then we slowly realized that we were not in a very good area - or in a suitable house - for an energy-deprived future. We finally started to panic, thinking about the impact that major shortages could have on a significant city like Calgary.

In 2007, and in the midst of this increasingly depressing line of thought, we found that the documentary team had released a sequel called “Escape from Suburbia” ( http://escapefromsuburbia.com ). This movie followed a wide range of people who were taking a proactive approach to the - then far distant - potential fallout from peak oil. These people were filled with hope and they were not content to sit around while this unpleasant future unfolded. It was in this film that we first learned of O.U.R. ecovillage near Victoria BC. This was one of our primary reasons for moving to Vancouver Island.

Now, there is no way to prove that this current economic collapse was caused by peak oil. In fact, you may argue that the economy was supporting oil prices of over $100/barrel for several months and it was the unfolding of the sub-prime mortgage mess that caused this recession. Current oil prices of $40/barrel certainly don’t look like an oil shortage.

However, there may be a fundamental connection in this entire crisis and it could go something like this;

Oil prices were undergoing a steady and significant rise from 2001 onwards. Normally increases in oil prices would result in increases in the cost of everything from agriculture and manufacturing to transportation and home heating. In turn, these cost increases should spur demand for higher wages resulting in an inflationary cycle. Amazingly, wages in North America - and official inflation statistics - stayed relatively flat during this period.

Closer examination of the figures show that the inflation index excluded “volatile” items like food and energy. These prices certainly increased faster than the background inflation rate and everyone had to buy these things on a static salary. Where did the money come from?

The answer seems to be that the government policy of lowering interest rates stimulated steady increases in housing prices. For example, if a family could afford a $100,000 mortgage at an interest rate of 10%, then they could just as easily afford a $200,000 mortgage at 5%. The process extended to families who owned their home. In their case, they could refinance their home at a lower interest rate, keeping payments the same and freeing up equity as cash to meet their expenses. Each increase in house prices provided more equity (on paper) and another easy way to free up extra income.

The easy access to mortgage funds at low interest rates kept the housing sector booming, in spite of the looming crisis with oil prices. Unfortunately, when prices spiked to more than 100 dollars a barrel, entire sectors of the economy began to fail. The first being the North American auto sector - which was building SUVs that no one could afford to drive. Then came the release of information stating that banks were over-extended on poorly secured mortgages. Housing prices fell as people were laid-off and could no longer afford to pay their mortgages. Soon houses were worth less than the mortgage owing on them.

Finally the whole house of cards came tumbling down.

Solitary Confinement

The last few months have been full of intense experiences and it takes time to process everything. It is also clear that while Jan, KJ, Krista and I have all been at the same physical locations, we have not experienced the same things or understood them in the same way. Perhaps this is one of the biggest problems facing the human family. I know that it certainly affects our own. Perhaps I might use some experiences from our time at Koinonia Farms as an example.

Virtually everyone who came to support Koinonia embraced a common set of values and ideals. These shared beliefs are expressed in Koinonia’s mission statement : “We are Christians called to live together in intentional community sharing a life of prayer, work, study, service and fellowship. We seek to embody peacemaking, sustainability, and radical sharing. While honoring people of all backgrounds and faiths, we strive to demonstrate the way of Jesus as an alternative to materialism, militarism and racism.”

You might think that a mutual and sincere commitment to this clear statement of belief would allow people to work together in a constructive way - and for the most part, you would be right. Unfortunately, there were also some big exceptions. Long-time community members were alienated by the rest of the group and big differences of opinion would flare up over the meaning of sustainable agriculture or fair labour practices. Even the trip to Missouri to receive the Peace Prize led to conflict among community members.

When these problems occurred, I pondered why people couldn’t understand the source of the problems and come to a reasonable compromise. Eventually it became clear to me that we are all living in our own reality. We are trapped in our own life experiences and prisoners of our own perceptions. Sometimes it seems like we are in solitary confinement and we ache to share our reality with someone else. Words are the only tools we have to break down the walls of our individual realities and find common ground with another human being. Unfortunately, Words are only symbols and their very meaning is shaped by our own individual experience.

How do you explain a sunset to a blind man? What does “Love” mean to an abused child? What is “Justice” to a someone who can’t find a job because of the color of their skin?

I pondered these questions in my final lunch-time devotion at Koinonia. I had been studying Hebrew and noticed some fascinating things. First I need to explain that the Hebrew language doesn’t generally use the verb “to be”. For example, when we say “a tree is big” a Hebrew speaker simply says “tree big” or “the tree is big” is translated as “the tree the big”. However, God’s name, rendered I AM THAT I AM in English translations, comes from a Hebrew verb HYH - which means “to Be”. First person of the verb is EHYH - I AM - or perhaps something like “I AM Eternally Becoming” or “I AM Ultimate Existence”. Third person of the verb is YHYH or YHVH (Jehovah) or “HE IS”.

Most of us are familiar with Descartes’ famous words “Cogito ergo sum” - “I think therefore I am”. Unfortunately, this thinking is the product of an existence that is severely limited in both time and space. We can’t even focus our attention on more than one thing at a time. Perhaps this is more like “i think therefore i exist”. Compared to God, we exist in a very narrow place.

In an earlier entry, I wrote about the name of Jesus - Hebrew YESHUA - and how that name can be interpreted as He-Saves. I further detailed how the word “Saves” comes from another Hebrew words meaning to “deliver from a narrow place to a wide open place of safety”. From this I inferred that Jesus takes us from our narrow individual reality, which is bounded by birth and death / place and perspective, and leads us to the wider Reality. Recently, while attending synagogue, I learned that the Hebrew word for Egypt “Mitzreem” also carries the connotation of being “The narrow place”. This further connects us to the idea that God told Moses to lead us from slavery (to our limited perceptions) in the “narrow place” of individual existence to a life of responsibility in the promised land of unlimited existence. All of this is interesting to someone like me - who has a fascination with obscure details. Does it have any practical value in the “real” or “day to day” world?

The Torah relates the story of the Tower of Babel. It starts with the words “At one time, all the people of the world spoke the same language and used the same words.” According to Jewish midrash, Nimrod used this amazing language to unite the people and use their efforts to build a tower that promised to make them independent of God. The biblical narrative continues that God observed “The people are united, and they all speak the same language. After this, nothing they set out to do will be impossible for them.” So God confused the languages. People could no longer understand each other, construction efforts ended, and the people scattered.

Personally, I believe this story is meant to be interpreted in a mythical sense. Certainly I see that communication failures threaten one human endeavor after another. It was true at Koinonia and it even happens in our small family.

Given these incredible obstacles, how can it be possible to bring the human family together before we devastate the world through environmental destruction, resource depletion, over-consumption and armed conflict?

And the photo - It's the moon setting over Koinonia at the same time the sun was rising.

God created Heaven and Earth - Hell is up to us.

I love reading Torah (the first 5 books of the Bible) in the original language. Hebrew is incredibly concise. From the beginning of creation to the end of the first day requires about 80 english words. Hebrew does it in 50. The Hebrew language has an ambiguous quality. The same word or phrase can have a wide range of meaning depending on how it is read. Heaven (Sham’yim) has an obvious connection to Water (m’yim) and Sea (yim). Water is simply From-Sea. The Hebrew expression Ha-Eretz can be the entire planet earth, any dry land, or even the land of Israel. Ruach can be Spirit, wind or breath and yom is a period of time - anything from a day to a geologic epoch. In Hebrew, the entire creation process from a formless, empty void to a revolving planet with continents and oceans is done in a series of 3 divisions (B-D-L) - between light and darkness, earth and sky, land and sea. According to the Torah, the entire creation process ended on the seventh or Sabbath day. Sabbath (SBT) having a direct connection to seven (SB’H) and to “rest-from-work” (SBT). In Hebrew, the number seven also signifies completion, wholeness or fullness.

Last December I was asked to teach an introductory Bible course at the Koinonia home school. This gave me a much-needed excuse to refresh my Hebrew language skills, which I had learned more than 20 years earlier, and devote some time to the Torah. I read the first chapter of Genesis (B’RoSHeeT) in preparation for the first class and I was struck by verse 31.

It goes something like this; “And God saw Everything that was made - IT was Very Good”.

The next day, Bud and I were unloading pecans from a wagon into the sizing shack. It was cold, noisy and cramped. There were almost as many sticks as nuts which made the work slow and tedious. It was a terrible waste of time.

I thought, “You couldn’t pay me enough to do this job”.

At that very moment, I realized that I was blissfully happy!

We had witnessed a beautiful sunrise. The air was fresh. The sky was blue and clear. Birds were chirping in the trees. I was working with Bud. He is a wonderful man and a good friend.

I couldn’t think of anywhere I would rather be.

What happened?

Then it hit me. God created Heaven and Earth. As for Hell, we create our own.

The other day, we were driving down the highway to Mill Bay and our youngest daughter spoke up from the back seat. “At least there was one good thing about Georgia. I’m no longer afraid of death because I’ve already been through Hell.”

It certainly didn’t matter what the rest of us thought - and I guess that’s the point.


PS: That's sunrise over the Koinonia chapel.

Part 7: Oil Prices - what really happened?

I’m offering one explanation for the recent variation in oil prices and the current economic collapse. It is certainly not the only theory. As for oil prices, it has been suggested that speculators drove up oil prices and then couldn’t maintain the momentum. Sub-prime mortgages and their impact on the banking and financial sectors are most often blamed for the economic melt-down. Perhaps there is no way to absolutely determine the underlying causes for these events.

Nevertheless, the Energy Information Administration of the US Department of Energy has compiled some very intriguing data. The attached chart shows world-wide consumption and production of oil over the period from 2003 to 2010. The data was derived from the EIA World Oil Balance spreadsheet found here:

http://www.eia.doe.gov/oil_gas/petroleum/info_glance/petroleum.html

The chart clearly shows that oil production exceeded consumption for 2004 and 2005. During this period, oil prices ranged from $30 to $60 per barrel. In 2006 demand continued to increase but production could not keep pace. Demand continued to exceed supply for all of 2007 and most of 2008. During this time the strategic reserves were depleted, and just like all good economists would predict, the price of oil skyrocketed from about $50/bbl in Sept. 2006 to almost $150/bbl in July 2008.

We might make a few more observations from this chart. First, in spite of record oil prices over a 3 year period, world-wide production rates never exceeded 86 million barrels per day while consumption reached nearly 87 million. Second, the major collapse in oil price occurred when demand plunged from about 86.5 million barrels/day in Q1 2008 to less than 85 million barrels/day in Q3. Most of this drastic decline occurred in the US. (It is interesting to note that China’s consumption actually increased in the same period!)

Once supply (production) exceeded demand (consumption) the price plummeted.

And we all know how this collapse in consumption has been reflected in the stock market.

One last observation can be made - and it is probably the most important. The EIA forecasts indicate that demand for oil will increase steadily from Q2 2008 until 2010. This prediction is based on an assumption that the recession will end and the economy will begin to grow. Oil production is expected to drop in 2009, and this should stabilize oil prices in the near term. However, the most interesting part is that oil production is somehow expected to reach almost 87 million barrels/day to accommodate the anticipated growth in consumption that comes with the end of the recession.

Where will this additional production come from?

Most of the remaining reserves are from ultra deep water fields, remote areas, or from non-conventional sources (like the tar sands). These projects are being shelved in the current price environment.

If the economy continues to grow, along with it’s associated increase in oil consumption, what will prevent another spike in the price of oil when this expected production increase doesn’t occur?

Part 6: Oil Prices - the Big Crash

Surprizingly, in my presentation to the CSEG I felt the urge to remind everyone - including myself - that there was no guarantee that oil prices would not decrease in the near future. While most of the evidence suggests that it will be very difficult to increase world-wide production levels very far beyond 86 million barrels/day, it is certainly possible to drastically decrease consumption. This is exactly what happened in September 2008.

Every sector of the economy consumes energy to create and transport goods. The transportation sector alone accounts for something near 70% of US oil consumption and 55% on a world-wide basis. When the price of oil became too high, people responded by selling SUVs and buying hybrids, driving less, taking public transit or car pooling. More drastic effects occurred when new car sales plummeted, which resulted in factory closures which resulted in massive lay-offs which resulted in a huge reduction in commuter miles because those factory workers were no longer driving to work. Then truckers were laid off because parts were no longer being hauled to the factories and new cars were no longer being shipped to a nation-wide dealer network. Laid-off workers bought fewer goods and services and this resulted in bigger reductions in the freight hauling industry. All of these actions decreased demand and freed-up capacity in the energy supply chain.

All of us had a front row seat to these events. It certainly had a big impact for our family. In August, as we made our way to Georgia we had to pay over $4.00/gallon for diesel fuel. You can bet that got expensive pulling our trailer! By mid-September we were actually seeing fuel shortages in SouthEast Georgia and several gas stations could not obtain fuel.

Then things shifted in a big way. News of factory closures and layoffs were an everyday occurrence. The price of oil started to slide - then plummet - as illustrated so well in this graph from wiki. If you have the time, the related article is certainly worth a read:

http://en.wikipedia.org/wiki/Oil_price_increases_of_2004-2006

Diesel was about $2.40/gallon as we made our trip back to Canada in December.

Part 5: Oil Prices - the Big Climb

Oil prices had reached an historic high when I made my last presentation to the CSEG in June, 2008. I wanted to include a slide that would illustrate this incredible rise in the price of a barrel of oil and the best example I could find only went up to March of 2008.

As you can see, the June price of $135/barrel was already well beyond the axis of the graph. Several forecasters projected that the price would be between $150/bbl and $250/bbl within the coming year. Anything seemed possible as the price continued to climb towards a peak of $147.27 on July 11.

This was clearly the result of an ever-growing demand for a limited resource.

So - what happened after that?

Part 4: Economy vs. Reality

Economies are expected to grow on an annual basis. Economic growth is required because the world’s population continues to increase and every new person needs food, housing, transportation, health care, education, transportation, entertainment, consumer goods and an occupation. Lack of economic growth results in unemployment, disease, poverty and despair. At least this is what the economists and politicians tell us. For now, let’s assume that it’s true.

We have already seen how energy consumption is directly correlated with economic growth. This relationship exists because manufacturing, agriculture, transportation, resource extraction and even service industries all consume energy for their operation. If the amount of energy consumed for a given product - let’s take a new house for example - is constant, then increasing the number of houses constructed in a given year by 10% will increase the associated energy expenditure by the same percentage.

Let’s summarize:
Economies need to grow. Economic growth is powered through increasing energy consumption. In our industrialized societies, continually increasing energy consumption requires an virtually unlimited supply of fossil fuels.

What happens to economic growth when the available fossil fuel supply can no longer meet the increasing demands?

This same question was asked in graphical form by the people at TheOilDrum.com. Their attached graph shows the historic increase in world-wide oil consumption from 1983 to 2005. Several forecasts are provided for daily oil production rates from 2005 to 2030. The first projection, shown in purple, reflects the view of the US International Energy Administration. They based this forecast on a known relationship between economic growth and oil consumption. Economists had predicted that the world economy will continue to grow in a linear fashion. Oil consumption must therefore increase in the same linear manner. If oil consumption increases then oil production rates will inevitably increase at the same rate to meet the demand. Nothing difficult about this - Except.....

The other forecasts of predicted oil production rates were created by a thorough analysis of geology, reserve estimates and known rates of production decline in various basins. While there is some variation in the assumptions and some uncertainty in the data, it is clear that these three independent forecasts predict that oil production will peak somewhere between 2005 and 2011. Once peak production is achieved, production rates will decline.

What does this mean for economic growth?

Current economic projections for the year 2015 will require daily oil production rates of 100 million barrels of oil per day. Realistic forecasts estimate that actual production rates will be somewhere between 65 and 80 million barrels/day. These production rates are significantly lower than the 85 million barrels produced in 2005.

How can the world-wide economy - at least as measured with current metrics - possibly continue to grow?

I suspect that our choices look like this:

a) We will see a massive reduction in food supply, employment, housing, and manufacturing.
b) We will get a lot more efficient in the way we use energy to power our standard of living.
c) All of the above.

One thing is for sure. The status quo is not an option.

Part 3: Peak Oil

M. King Hubbert (1903 - 1989) was a geoscientist who worked for Shell Oil in the Houston research lab - as well as the United States Geological Survey, Stanford University and UC Berkeley. During his career Hubbert made many notable contributions to the fields of petroleum geology, geophysics and engineering. Notwithstanding these accomplishments, King Hubbert is most widely known for his 1956 paper entitled “Nuclear Energy and Fossil Fuels”. In this ground-breaking paper, Hubbert predicted that oil production in the continental United States would peak (achieve a maximum rate) between the late 1960s and early 1970s. After peak production was achieved, daily production rates would slowly decline roughly following a bell-shaped curve. His prediction was widely criticized - until the domestic US production peaked in 1971 at a rate of 10.2 million barrels per day. Domestic US production rates have been in gradual decline ever since. In 1974, Hubbert predicted that world-wide production rates would peak somewhere around 1995.

Hubbert based his predictions on the observation that the amount of oil in any geographic region - ranging from a single field to the entire planet - is finite. He further reasoned that the rate of field discovery would initially increase quickly and then decline as all the possible accumulations were found. Oil extraction would logically follow the same trend as the discoveries, with a time lag. In the domestic US this lag was about 35 yrs. Once production starts in a region the production rate increases exponentially, as more efficient facilities are installed, until the peak production rate is achieved and then the production rate begins to decline.

Hubbert’s predictions are clearly confirmed when we examine historic production rates on a world-wide basis. From 1900 to 1960 we can see the exponential growth of US oil production that fueled America’s industrialization. As US production rates began to peak, other basins were discovered and brought onto production. One by one, each of these basins have seen the pattern of exponential production increase, peaking and decline. Production peaks have now occurred in the US (1971), Canada (74), Malaysia (97), Ecuador (99), UK (99), Australia (2000) and Norway (01). As we can see the exponential growth in production rates for all of these countries combined (and more), ended somewhere around 1995. Peak production rate appears to be somewhere in the region of 36 million of barrels/day.

It is important to note that these production figures exclude OPEC and the Former Soviet Union. OPEC - especially Saudi Arabia - controls most of the world’s oil anyway. Therefore, it would be negligent not to mention that OPEC production rates hit a maximum of about 35 million barrels/day in 2005 - and in spite of record prices - began a slow decline through 06 and 07. Current projections for OPEC from 2008 to 2010 are 35.75, 35.04 and 36.61 Mbbls/day. FSU projections for the same period are 12.53, 12.57 and 12.78 Mbbls/day. This gives world-wide projections for the coming years of 85.46 (2008), 84.93 (2009) and 86.59 (2010).

Please note: These estimates were made before the announcement of several project cancellations due to the recent crash in oil prices.

Part 2: Energy Consumption as a Function of Economic Growth

The direct link between economic growth and energy consumption is nicely illustrated on this 2005 graph created by the Energy Information Administration of the US Department of Energy. From 1980 to 2005 the graph shows a single line which represents the historic increase in energy consumption over this time period. From 2005 to 2030, three different projections are provided. The reference scenario assumes that the global economy will continue to grow at roughly the same rate as it has for the past 25 years. If the economy were to grow more rapidly, the forecast indicates that this would correspond a more rapid growth in energy consumption. Lower economic growth would result in a slower increase in energy demand.

This strong correlation between economic growth and energy consumption isn’t unexpected. Economic growth is commonly defined as the increase in the amount of goods and services produced by an economy over time. In our industrialized world, the creation, transportation and consumption of these “goods and services” are completely dependent on a unrestricted source of cheap and available energy.

It might be helpful to give an example. Let’s look at automobiles. There is a chain of events that occurs for every car that is produced and every step in that chain consumes a certain amount of energy. These steps range from the mining, extraction and refining of iron ore, manufacturing steel, transporting materials to factories, forging parts, molding the plastic components, powering the factory assembly lines, transporting workers from their homes to the factories and transporting the finished cars to the dealerships. Each car that is produced represents an accumulated expenditure of energy. The more cars that are produced, the larger the energy expenditure. This same type of illustration can be made for the resource extraction, agriculture, construction, transportation, housing, communication and tech sector.

Oil Supply and the Economy (Part 1 - Demand Forecasts)

In June 2008, I made a presentation to the Canadian Society of Exploration Geophysicists in Calgary. If you want to hear the talk - it is available on the link shown below.

(Warning - Perhaps this is something best considered for a night when you are having trouble falling asleep!)

The most important part of the talk is near the end, and it goes something like this:

World-wide energy demand has increased steadily every year since the beginning of the industrial age and forecasts indicate that this growth in energy demand will continue at the nearly same rate until at least 2030. This projected increase in energy consumption is based on economist’s assumptions of steady growth in the world-wide economy.

(Link to presentation for those brave souls who might be interested: http://cseg.ca/events/luncheons/2008/06jun/20080616-Hirsche.cfm )