My apologies for the unseemly length of this posting, but I genuinely feel that this is probably the most critical discussion to be had today, and I am only slowly getting to grips with the enormity of it.

Further focus to my 'feeling' may well be provided by my ' Day Job' which involves negotiating energy contracts for UK companies. One of our larger clients is facing a 45% increase in energy costs since their last contract 2 years ago. This is going to wipe in excess of £1m straight off their profit line.

There is a growing sense around that the current increases are not just down "The Iraq Situation" but to more fundamental factors.   Maybe it is time to look again at Hubbert's prediction that the start of the decline of carbon fuel supply would also precipitate the end of our current financial and energy based systems.    This is a hard one to swallow.


This is a recent "Editors Comment"   from 'Oil and Gas Investor'

Has anyone pointed out to you recently (after proper adjustments for the true discovery date of reserves) that the world oil industry is now producing approximately three times the volume of crude it is finding each year? That the peak global oil discovery rate was in the mid-1960s and that we have been in an inexorable descent since then? That in the late 1980s, new discoveries fell below the level of current production, and are still falling, despite the application of many powerful technological tools in the 1990s? And that 70% of the oil you are consuming today was found 25 years ago or more?

These are points that oil companies (and governments) find awkward to discuss. One reason is that there are so many conflicting views of "experts." Who is one to believe? Another is that while the Hubbert Curve cannot be "proven" to work in any exact time sequence, widespread debate about it would certainly raise warning flags for some elements in society, and environmental passions in others. Should sleeping dogs be wakened in this case? Lastly, recognition of the effects of Hubbert's math could imply an end to volumetric growth for most oil companies in the intermediate term—not an eagerly awaited event.

However, we are at a point now where these issues need airing. Effective energy policies for the U.S. are part of an ongoing national debate, and investors are asking where the flow of funds into the energy sector should be concentrated to bring the best results. The shadow of Hubbert looms large over these discussions. Suddenly, we are troubled by issues on a world scale that he was dealing with on a national scale back in the 1950s. And the resolution of them is just as elusive today as it must have been back then, only now we have no new world of exploration to turn to as an alternative to our depletion of an old one.

Hubbert had his own theories on what "Having no new world of exploration to turn to as alternative could mean"   This is what lead him to his forecast the end of our current financial system. This forecast is taken up in more detail in the following article:

Article

We have to form our own opinions of Hubbert's work and writings: and I don't particularly agree with some of Hickerson's conclusions in the article, however the following of these conclusions, made five years ago look to be proving not far wide of the mark.   This has enormous implications for all of us.


1.        We will never again be able to get sufficient growth of the economy to eliminate or even markedly reduce unemployment.

2.        All attempts to reduce the deficit, balance the budget or pay off the national debt are futile. The deficit and the national debt represent the subsidy the government has paid in its attempt to keep growth and unemployment at the level of social tolerance.

3.        The steady state economy into which we are being inexorably forced implies an interest rate of zero.

4.        An interest rate of zero (as Hubbert explains) means the end of the money system. We are being forced to completely rethink our cultural ideas about how to organize our economy and distribute purchasing power.

I particularly note the last sentence.


In the artice, Hubbert is reported as saying:

``I was in New York in the 30's. I had a box seat at the depression, I can assure you it was a very educational experience. We shut the country down because of monetary reasons. We had manpower and abundant raw materials. Yet we shut the country down. We're doing the same kind of thing now but with a different material outlook. We are not in the position we were in 1929-30 with regard to the future. Then the physical system was ready to roll. This time it's not. We are in a crisis in the evolution of human society. It's unique to both human and geologic history. It has never happened before and it can't possibly happen again. You can only use oil once. You can only use metals once. Soon all the oil is going to be burned and all the metals mined and scattered.''

``We are not starting from zero,'' he emphasizes. ``We have an enormous amount of existing technical knowledge. It's just a matter of putting it all together. We still have great flexibility but our maneuverability will diminish with time.''


Hickerson comments:

That is obviously a scenario of catastrophe, a possibility Hubbert concedes. But it is not one he forecast. The man known to many as a pessimist is, in this case, quite hopeful. In fact, he could be the ultimate utopian. We have, he says, the necessary technology. All we have to do is completely overhaul our culture and find an alternative to money.   (Really that's all ? Well that's certainly going to be a doddle!)

A non-catastrophic solution is impossible, Hubbert feels, unless society is made stable. This means abandoning two axioms of our culture . . . the work ethic and the idea that growth is the normal state of affairs. Hubbert challenges the latter mathematically and concludes the exponential growth of the last two centuries is the opposite of the normal situation.


The implication of all this for me is that our current financial systems will begin to implode as the gap between oil production and oil demand increases. It looks to me that this gap is now opening up. We do not have to wait until the oil actually runs out. No wonder then that, Oil and Gas Investor feels that "These are points that oil companies (and governments) find awkward to discuss."   The further I look into this the more I come to the opinion that the crisis nearer than many would like to admit.


Footnote:

Another unrelated article on this subject recently suggested that the US would pull out of NATO in order to re-deploy troops to secure oil US supplies from around the world.    I dismissed this as being 'far fetched'…….Then Bush made his defence re-deployment announcement.    Another of Hickerson conclusions that I was inclined to reject is that "Increasingly desperate means will be used by those who think we can continue to have business as usual."

Other commentators (Common Dreams) note:
The map of the 'war against terrorism' corresponds with such uncanny accuracy to the geography of oil fields and proposed pipelines. From Kazakhstan to Ecuador, American combat boots are sticky with oil.
To cite two recent, almost random examples: First, the Malaysian foreign minister warned in late May that Washington was exaggerating the threat of terrorist piracy in the Straits of Malacca in order to justify the deployment of forces there -- right at the chokepoint of East Asia's oil supply.
Second, T. Christian Miller, reporting in the Los Angeles Times, revealed that U.S. Special Forces, as well as the CIA and private American security contractors, are integrally involved in an ongoing reign of terror in Columbia's Arauca province. The aim of "Operation Red Moon" is to annihilate the leftwing ELN guerrillas threatening the oilfields and pipelines operated by LA-based Occidental Petroleum. The result, Miller reports, has been a slow-motion massacre.

If this is true, then I feel very uneasy indeed.   


Today it was announced that one of the UK's major suppliers is putting up prices a further 10% from September 3. The third increase in six months.

It's about time people started asking more fundamental questions, and started kicking those sleeping dogs….hard.

Bill