Wednesday, June 15, 2011

Community forum background information

Our little transition group is going to run a community forum to try and get as many key people in our district to have an understanding of the implications of peak oil for our local economy. Below is the draft of a background document I want to have available for participants. Does anyone have criticisms or suggestions? I'm a bit concerned that the references for economics are a bit thin. If any of you have any good links you think I can use, send them along!

Peak Oil & Finance Briefing Paper for panelists and participants at the Corner Inlet Fuel & Finance Forum, 13th June 2011
Prepared by Lloyd Morcom
Transition Corner Inlet District Inc
Partly adapted from “Peak Oil Briefing Paper” by Kate Leslie of Transition Hobsons Bay
which can be found at

Executive Summary
The problem of Peak Oil and credit-based finance
Oil is a non-renewable resource with geological limits to its supply. In the past 150 years, we humans have used around one half of all oil. We are now using four times as much as we are finding.

It is increasingly believed by a range of experts that the peak of extraction may have already occurred between 2006 and 2008. This means that as each year goes by, there will be less oil available. Oil in the cheapest, most accessible reserves was extracted first. The reserves left are more difficult and expensive to access and extract.

Peak oil presents a real challenge to us as a society – oil has become such an integral part of our life that the end of abundant and cheap supply is bound to create serious disruption around the world and not least in South Gippsland. Oil is used in almost all facets of production. As well being a fuel it is the main feedstock for plastics manufacture. Its role in agriculture is crucial. In fact it underpins the stability of our economy.

What is hidden from most of us by the complexity of the world we live in is how our economy has developed into one dependent on an endless supply of cheap energy and oil in particular for its continued existence. Our economy is credit-based and uses fiat money: that is, it uses arbitrary symbols legislated into existence for use in trade and exchange. Most of what we call money has been lent into existence by banks and governments and exists as only as symbols on paper or computer screens. Because it must be repaid with interest, the supply of money continually expands and so must the economy it supports, in order to pay back both principal and interest.

If economic growth is curtailed by a shortage of energy, particularly oil, our economic system could collapse, as credit lent will be impossible to repay with interest and so banks would be unable to lend. This is what is currently happening more or less in slow motion to the world economy. The crises in Europe (Greece, Ireland, Portugal and Spain are all teetering on the edge of defaulting on their debts) and in the USA (with its enormous unfunded budget deficit to cover social security, health care and the military) are caused by an ongoing rapid increase in debt which is becoming increasingly clear will never be repaid. Currently governments have been coerced into using taxpayer funds to give financial backing to banks but this creates a political crisis which will blow up at some stage.

Australia seems to be a long way from these kinds of problems at the moment but our seeming invulnerability is an illusion and we could find ourselves dragged into them should these international crises affect our trade, which would rapidly reveal the fragility of our own finance and banking system.

Resources for understanding the problem: Peak Oil
There are two key concepts to grasp with Peak Oil. One is the “Hubbert curve”, the bell-shaped graph that shows how a resource of any kind is exploited, with a rising level of production to a peak and then an (often symmetrical) decline. The other concept is the idea of EROEI: “energy returned on energy invested”. This shows how expensive — in energy terms — an energy resource is to exploit. For example, the first oil wells in the nineteenth century produced more than one hundred times the energy value than it took to drill and develop them. Recent offshore oil fields on the other hand have a ratio of energy returned on energy invested of nearer to ten-to-one.

ABC Catalyst video on the problem of Peak Oil

A good primer by Gail Tverberg who writes at The Oil Drum

One in video format by another Oil Drum commentator, André Angelantoni

Australia’s CSIRO has put out a study called the Future Fuels Forum

An explanation of EROEI at Wikipedia

An explanation the the Hubbert curve also at Wikipedia

A longer discussion of EROEI at The Oil Drum

Raw figures on the world situation from the Energy Export Databrowser

Another useful subsidiary concept is the “Export Land Model” based on work by geologist Jeffrey Brown. To quote from the Wikipedia article on it, “It models the decline in oil exports that result when an exporting nation experiences both a peak in oil production and an increase in domestic oil consumption. In such cases, exports decline at a far faster rate than the decline in oil production alone.”

The Wikipedia article can be found at

A discussion of how it affects Australia can be found here

A longer technical exploration of the Export Land Model is here

Resources for understanding the problem: the economy
It is more difficult to find an objective, all-encompassing explanation of the economic situation. There are many commentators who can give valuable insights but most have a limited view or are fixated what they believe to be the particular cause. But anyway, here are some links.

Chris Martenson has a comprehensive though necessarily US based view of the economy. His Crash Course is well worth a look for an explanation of the causes of the current big downturn: click on “Watch the Crash Course” on the top left of the web page.

An amusing stick-figure explanation of the crisis, again US based

Steve Keen is an Australian economist and the author of “Debunking Economics”. He has been shouting “The emperor has no clothes” at those economists who see a return to business-as-usual soon. He is best at explaining the housing bubble, which is so important as a cause of the huge increase in debt which has driven demand in Australia. When the bubble pops, as it’s starting to do now, demand (= spending) will fall precipitously. Couple that with the grim outlook for local manufacturing and the erosion of retail sales because of online purchases, both caused by the high Australian dollar, and we have a very nasty outlook for the economy especially if our exports falter. This is a video presentation by Steve Keen with Powerpoint slides.

Government initiatives - Local
What are governments doing about it? Not much apart from a Federal Senate committee investigation in 2007, although there has been some action at the local government level. Maribyrnong City Council addressed the subject with its Peak Oil Contingency Plan (June 2009)

Darebin City Council has an Adaption Plan (November 2009)

In March 2007, Brisbane City Council’s Climate Change and Energy Taskforce released their final report 'A Call For Action'. Brisbane Council adopted some of its recommendations, stating “peak oil is a more recent consideration”.

Coffs Harbour City Council (NSW) adopted a 'Peak Oil Report and Action Plan' in November 2008.

Sunshine Coast Council adopted the Sunshine Coast Climate Change and Peak Oil Strategy 2010-2020 in June 2010

Government initiatives - Federal
The Federal Department of Resources, Energy and Tourism, on behalf of the National Oil Supplies Emergency Committee (NOSEC) examined Australia’s current level of liquid fuel vulnerability and significant trends which may affect this up until 2020.

A Federal Government Senate Committee in 2007 published 'Inquiry into Australia’s Future Oil Supply and Alternative Transport Fuels'. It found Australia should be planning now for the enormous changes that will be needed to move to a less oil dependent future. The final report is here:

International reports

The UK Secretary for Energy and Climate Change committed in 2011 to establish an “Oil Shock Response Plan”. Reputedly it will address how to protect the economy “if we knew that the oil price would soar to $250 in 2014.” An article on it is here:

The US Military issued a report in 2010 warning that “by 2012, surplus oil production capacity could entirely disappear, and as early as 2015, the shortfall in output could reach nearly 10 million barrels per day.” The report may be accessed here:

The German Military think tank tasked with fixing a direction for the German military analysed the implications of peak oil in 2010. The report was leaked. It reportedly warns of “shifts in the global balance of power, of the formation of new relationships based on interdependency, of a decline in importance of the western industrial nations, of the "total collapse of the markets" and of serious political and economic crises.” The Spiegel Online report is here:,1518,715138,00.html

Academic studies of social vulnerability
For a limited assessment of local impacts, two academics (Dodson and Sipe) have written a number of papers referencing maps of their “Vulnerability Assessment for Mortgage, Petrol and Inflation Risks and Expenses” (VAMPIRE). I draw your attention to the statement in their 2009 report that there are "increasingly pessimistic assessments emerging about the future security of conventional oil supplies."

2009 publication by implication. Quotes oil prices in mid 2008. No census date referenced. No Melbourne map

2008 publication. Has Melbourne map on p7. Based on 2001 Census data

2006 publication. Based on 2001 Census data.