Following the ASPO conference in Denver, the State University of New York - College of Environmental Science and Forestry will host the 2nd annual conference on Biophysical Economics. Joseph Tainter is this year's plenary speaker, and will discuss biophysical economics and the collapse of complex societies. Other speakers include Gail the Actuary and David Murphy from The Oil Drum, as well as the host, Dr. Charles Hall. The link to the Biophysical Economics website can be accessed here, where additional information, including the itinerary, can be found.

This is a guest post by Lester R. Brown, founder and President of the Earth Policy Institute. His principal research areas include food, population, water, climate change, and renewable energy; see his list of publications by clicking here.

Today we are an oil-based civilization, one that is totally dependent on a resource whose production will soon be falling. Since 1981, the quantity of oil extracted has exceeded new discoveries by an ever-widening margin. In 2008, the world pumped 31 billion barrels of oil but discovered fewer than 9 billion barrels of new oil. World reserves of conventional oil are in a free fall, dropping every year.

 

Discoveries of conventional oil total roughly 2 trillion barrels, of which 1 trillion have been extracted so far, with another trillion barrels to go. By themselves, however, these numbers miss a central point. As security analyst Michael Klare notes, the first trillion barrels was easy oil, “oil that’s found on shore or near to shore; oil close to the surface and concentrated in large reservoirs; oil produced in friendly, safe, and welcoming places.” The other half, Klare notes, is tough oil, “oil that’s buried far offshore or deep underground; oil scattered in small, hard-to-find reservoirs; oil that must be obtained from unfriendly, politically dangerous, or hazardous places.”

This prospect of peaking oil production has direct consequences for world food security, as modern agriculture depends heavily on the use of fossil fuels. Most tractors use gasoline or diesel fuel. Irrigation pumps use diesel fuel, natural gas, or coal-fired electricity. Fertilizer production is also energy-intensive. Natural gas is used to synthesize the basic ammonia building block in nitrogen fertilizers. The mining, manufacture, and international transport of phosphates and potash all depend on oil.

This is a guest post by Philip Henshaw, known on The Oil Drum as pfhenshaw. Phil has a BS in physics and an MFA in architecture. He has been studying the physics of how natural systems change form for 40 years, first interested in the subject by college physics experiments in how all experiments misbehave. Phil's website is www.synapse9.com.

Economic theory is based on the observed regularities of the past. Some are considered as general principles, or “natural laws” that are expected to never change. From a systems view, though, such laws are emergent properties of the complex system they are regularities of, and prone to change as the system changes form.

Growth systems, for example, invariably change form when they climax, but the present laws of economics describe a complex system that has perpetual growth that never changes form. The question is partly how to tell when such changes might be appearing. Complex systems may vary a great deal without indicating a change in the form of the whole system. What would raise the question is finding events of kinds that are not supposed to occur at all. Present evidence points to depletion of necessary resources as the possible cause of the combined food and fuel price spiral of the past decade.

An example of one such economic law is that scarcities are temporary. In theory, self-interest drives people to either find substitutes, added supplies, or to reduce demand as prices rise, and in those ways scarcity is expected to resolve smoothly.

When none of those three things occurs, though, the economy experiences a continuing price spiral with no substitutes or added supplies being found for an extended period. It’s a primary indication that the physical system is at a point of inelasticity, and changing design in some way. Then the old “laws” become misinformation about regularities that no longer exist. This is a brief research note on one example, to raise questions.

Two weeks ago I posted a review of an article with an optimistic view on the future availability of oil. Written by R. Aguilera, R. Eggert, C. Gustavo Lagos and J. Tilton and published in the Energy Journal of the International Association of Energy Economists. After a short correspondence Dr. Aguilera and his team have been kind enough to respond to the five points of disagreement I raised in my review. Their response is shown below. I hope our readers can react respectfully as to create a meaningful discussion.

Abstract of Aguilera et al. (2009)
"This study assesses the threat that depletion poses to the availability of petroleum resources. It does so by estimating cumulative availability curves for conventional petroleum (oil, gas, and natural gas liquids) and for three unconventional sources of liquids (heavy oil, oil sands, and oil shale). The analysis extends the important study conducted by the U.S. Geological Survey (2000) on this topic by taking account of (1) conventional petroleum resources from provinces not assessed by the Survey or other organizations, (2) future reserve growth, (3) unconventional sources of liquids, and (4) production costs. The results indicate that large quantities of conventional and unconventional petroleum resources are available and can be produced at costs substantially below current market prices of around US$120 per barrel. These findings suggest that petroleum resources are likely to last far longer than many are now predicting and that depletion need not drive market prices above the relatively high levels prevailing over the past several years.(Aguilera et al. 2009, page 141)"