Peak Oil: The Repercussions

Over the past seven years, The New Franklin Register has offered articles that attempted to help our readers to understand the relationship between energy supplies and the economy. In our issue in Spring of this year (NFR #22, Spring 2014), I laid out a brief history of energy use and tried to describe how fossil fuel energy became essential to our modern way of life. In this article, I’d like to bring the story up to date, with our present predicament.

We all know that we use a lot of energy, most of it derived from fossil fuels. Until now, it has been so abundant and easily available that we take it entirely for granted. We walk into a room and switch on the lights. That’s using electricity, much of which is generated by burning coal or methane gas. All our transportation of goods and people, all mining of resources, manufacturing of machinery and consumer products depend on diesel and other liquid fuels. Our workplaces are powered by fossil fuels; our vacations and amusements are powered by fossil fuels.

You see where I’m going with this: there is virtually no getting away from fossil fuel energy in our very energy-intensive lives – unless perhaps we go fishing. And even then, the fishing line is nylon (oil), the hooks are steel (coal), and the fishing tackle came to market in a truck (oil again). The fact that we cannot turn around without seeing or touching something that arrived courtesy of fossil fuels might explain most people’s reluctance to contemplate a life with ever less oil and other fossil fuels. It seems natural to think that things will continue as they have all our lives.

I have often written that the depletion of fossil fuels is not a matter of belief or technology but a question of geology. If you keep using something that comes out of the earth, eventually you use it up.
There’s another problem, however, and that has to do not with shortages of supply but with debt. In our system, money is not created by the government but rather loaned into existence by banks. The bank does not have the money it lends you; it creates that money out of thin air when you sign an agreement to pay it back – with interest. You, the borrower, create the real value of that money by going out and earning it at some productive task. The bank just collects the money you give them each month and pays bonuses to their executives.

In order for this system of money creation to function, there must be continual growth in the economy to produce the new wealth that the new money represents. But without growing our supply of energy, there can be no growth. Faced with the need to keep this precarious system functioning, everyone – producers, consumers, bankers, workers, governments – has resorted to ever increasing levels of debt, rolling over old loans into new loans. Lending standards are relaxed in order to allow the borrowing to continue as the real economy slows. Eventually the debt burden becomes so great that interest payments take up all the productive capacity of a society. When that happens, the bubble bursts, for no one will either lend or borrow. Government debt, corporate debt, student debt, credit card debt, underwater mortgages: we’re close to that point already.

How does the debt crisis affect energy availability? Leaving aside the urgent questions of climate change and environmental damage caused by fossil fuel extraction and use, let’s just pretend for a moment that using fossil fuels is not irreparably damaging our life support systems, so we can just drill, baby, drill. With the cheap and easily extracted fuels already gone, what remains is deep under the sea or trapped in deep rock formations that must be shattered at great cost by fracking to release the fuels. Deep-sea drilling rigs cost between one and three billion dollars each to build and as much as $500,000 a day to operate. That’s real money and must be financed.

At the same time, we’re trying to build so-called renewable energy systems. That means new infrastructure, new machines like wind turbines and solar panels. Factories must be built, ores mined and refined, equipment installed. All of that requires large amounts of energy and, equally, large amounts of financing.

Whether we’re talking about drill, baby, drill or so-called renewable energy, the debt burden is just too great. We can see the evidence in the world around us. The oil majors are all cutting back on exploration and new projects because the returns are not good enough to justify the investment. At the same time, the financial system is seizing up as it chokes on more debt than can be serviced. That leaves energy descent and contraction as our certain future, whether we choose to embrace it and try to learn to live simpler, less energy-intensive lives––or simply wait for collapse to arrive like a tsunami.