Friday, November 21, 2008

Nine Percent

Our neighbor, Carl, fired up his new sauna last night. At 25°F outdoors here, it was needed. We are just back from speaking at the Crystal Mountain ski resort in Michigan and it was snowing big flakes there for three days solid. The weather matched the economy, freezing up, and the heat of the sauna was a welcome break.

In Michigan the buzz was all about the Big Three car companies going down hard, but coming from a State where car-making jobs are 31% of all manufacturing, I was unsympathetic. We are closing universities here to meet the governor’s tough new budget. The Vols don’t have a coach next year, but the bigger question is whether they will even have a team. Flying around the country to play football is going to start looking like the Detroit Three CEOs taking private jets to Washington to beg for money.

In a magnanimous spirit of “we told you so,” here is what we wrote in The Post-Petroleum Survival Guide four years ago:
“[E]ven as commonsensical as hybrid-electrics are, as recently as 2003 the big three Detroit automakers had concluded that these vehicles were too costly to be worth producing in volume and instead continued designing ever-more powerful and unsafe light trucks disguised as cars. They seemed determined to build cars that would halve the 1 percent of the gasoline performing purposeful work. By the beginning of 2005 it was apparent that Japanese automakers had eaten Detroit’s lunch. The Dinosaur Three, those same carmakers that put the squeeze on the Clinton government to soft-pedal global warming, are now either in, or teetering on, bankruptcy, unable to sell their gas-guzzling behemoths, while Honda, Nissan, and Toyota are sprouting new factories like daffodils in the spring to keep pace with skyrocketing demand for their steadily improving and greenhouse-gas–conscious hybrids.”
It now seems that everyone in the country suddenly gets this, even the dim bulbs in Congress, who are starting to weary of dispensing so many trillions in bailouts, as if money could just be printed indefinitely. So, despite the 3 million car industry jobs hanging in the balance, they went home for Thanksgiving, pass the gravy please.

A ski resort is an oddly appropriate place for a petrocollapse meeting, and in Michigan, in to response to an audience question, we gave a short rap on what the exponential function looks when it is inverted. You get off the chair lift and point yourself downhill.

We know from studies of the world’s major oil fields, whose production rates are known, and from a recent IEA report, that the downslope after peak oil is likely to be steeper than the 2% average annual rise in production over the past century. The reasons for this are simple: governments and industry did not believe in peak oil, preferring to listen to classical economists who chant the mantra that demand creates supply; they pushed the fields well beyond normal production limits, using secondary and tertiary recovery techniques to scour the formations; when the end came, production less resembled the smooth curves of West Texas history and more the plunge of a natural gas gusher. Decline rates are shaping up to be 9 percent, although some, like Mexico’s, will be even steeper.

So what does 9 percent decline feel like? Well, on a growth curve, a 7 percent rise means a doubling every 10 years, each decade using more than all that has been used in history. On the descent, 7 percent means halving every 10 years: half the heating oil, half the tax revenues, half the fertilizer, half the semi-trucks, half the road and bridge repairs, half the school budgets, and so on. Nine percent would be slightly faster, or halving roughly every 8 years.

Gross Domestic Product in the developed world has always been a 1:1 ratio with fossil fuel consumption. Our economy and our oil use are essentially identical. If we start at 100% in 2008, and decline at 9% per year, we can see that we are at 47% of our present economic activity in 2016, and a little over 10 percent in 2032.

2008 100.0
2009 91.0
2010 82.8
2011 75.4
1012 68.6
2013 62.4
2014 56.8
2015 51.7
2016 47.0
2017 42.8
2018 38.9
2019 35.4
2020 32.2
2021 29.3
2022 26.7
2023 24.3
2024 22.1
2025 20.1
2026 18.3
2027 16.7
2028 15.2
2029 13.8
2030 12.6
2031 11.4
2032 10.4

Here is how that looks on a chart.

Of course, we did not embark on a global 9% production decline in 2008, but that does not mean we won’t be on that trajectory by 2010 or 2012. The 2008 Finance Up-ending Collapse Karma of Unbelievable Proportions, triggered by the USA’s sub-prime meltdown, which punctured its real estate bubble and mortgage backed securities, forced the hedge funds to shred their credit default swaps, and exposed the quadrillion in funny money derivatives that were fractional reserve banking’s dark secret — all of that — now may send the dollar-dependent global economy “over the cliff” into Deflationary Hell, and, ironically, postpone the global oil peak.

The stone age was not ended by a lack of stones, as they say.

Which is nice, we thought, as Carl sprayed some water on the fist-sized creek stones heating atop the sauna stove. We will always have stones.
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