Sunday, August 27, 2006

On Vacation

I will be on vacation until late September and expect to post again on September 24. Meanwhile, I hope you will visit these excellent sites:

Energy Bulletin

Global Public Media

Peak Oil News & Message Boards

The Oil Drum


Peak Energy (Australia)

Life After the Oil Crash News

Sunday, August 20, 2006

The Democratization of Envy

Man's desires are infinite.

The amount of household wealth which suffices for a good life is not unlimited.

Envy is an emotion which seems to make no special claim on a particular epoch. Humans everywhere and in every time have experienced it or at least admit to knowing someone who is filled with it. But, longing for the fame, abilities or possessions of others is only useful in the long run if a person has the means to attain them or, at least, believes he or she may someday come by those means.

This explains why for most of history envy has simply taken its place alongside the list of perennial sins that have occupied human beings from the dawn of the species. For most of history most humans either had little to be envious of (as in hunting and gathering societies) or little prospect of obtaining that which they envied (as in feudal societies with their low social mobility).

But, all of that changed with the emergence of industrial society and the concomitant discovery of large quantities of fossil fuels, particularly oil and natural gas. These seemingly endless stores of concentrated power allowed humankind to create previously unimaginable wealth and social mobility. And, with these developments came a society whose central emotion is envy.

Competitive enterprise is at the heart of industrial capitalism. The presumed motive for success is profit. And, the presumed benefit of profit is the ability to afford more goods and services. There is, of course, a benefit to material comfort. But beyond a certain point wealth goes into displays of social status. At the height of ancient Rome, we are told by Thorstein Veblen in his classic, The Theory of the Leisure Class, powerful and well-to-do Romans exhibited their status through displays of vicarious leisure. They hired attendants or kept slaves who did nothing but follow them around. The size of a retinue was a measure of a man's influence and resources. Anyone who could hire others to do nothing, that is to enjoy their master's leisure vicariously, surely must be a person of some station.

In today's mass society status is now routinely communicated through the display of possessions, the sight of which can reach so many more people. (Veblen coined the popular term for this kind of behavior: conspicuous consumption.) How many times have you passed lavish homes of wealthy heirs or successful entrepreneurs whose names you know, but whom you've never met? Cars, boats, even entire islands can serve the same purpose of display.

With the advent of worldwide telecommunications the whole pageant can now be put on television and beamed to every hamlet which has a solar panel and a TV set. This development more than any other has democratized envy, a particular type of envy that is very closely tied to modern consumerism and thus to the energy-intensive infrastructure which makes that consumerism possible.

Of course, the poor inhabitants of the earth only want what we who live in industrialized countries take for granted: easy travel; large, well-furnished living spaces with central heating and air-conditioning; diets high in animal products; modern medical care; labor saving devices; consumer gadgets of all kinds and the vast array of urban distractions which we call entertainment.

But the point of television-induced consumerist envy is that it can never be satisfied. The newest fashions in housewares, automobiles, electronic wonders, vacation destinations, and megahomes are designed to stimulate ever greater competitiveness among the envious masses (and thus drive up consumption). And, it is the role of modern advertising to encourage that competitiveness.

This is what drives economic growth in industrialized countries, and it will soon be the basis for growth in the so-called developing world. Certainly, there are advancements in medicine, diet and educational opportunity which are important to the well-being of the world's many poor. But, once they pass beyond the stage of want, they move directly into the whirlwind of ever-expanding, unquenchable consumer desire born of envy.

The rich, of course, continue to pursue their larger yachts, grander homes and expensive galas. But, the rich have always done this because it has always been within their means. And, so the wealthy live under the perpetual sway of envy. But, now the world's masses seek to put envy at the center of their lives as their new-found wealth--courtesy of the ongoing fossil-fueled transformation of the planet--makes it possible.

The gap between rich and poor, far from being the curse of modern industrial society, is its very engine. The resulting endless striving which capitalism's defenders say is its cardinal virtue has become the road to ecological overshoot.

The question then for a future with ecological limits becomes: What shall we do with this powerful force of envy which has been awakened across the globe? How will people, both the rich and those aspiring to greater wealth, come to grips with limits which will undermine the consumer society within which that envy flourishes?

At a conference on peak oil and the environment that I attended not too long along, one of the organizers explained that he used to work as a broker on Wall Street servicing wealthy individuals, many worth $50 million or more. By the time he moved on to his next job, the bull market had made most of them much richer. But, he observed, they seemed no happier.

Ultimately, he left Wall Street altogether to begin work on a doctorate in ecological economics. He explained it this way: He said he knows his "relative fitness drives" (which lurk behind the culture of envy) can't be extinguished. Such drives are a part of every human. But he has decided to redirect those drives toward making his mark as someone who helps human societies become more sustainable.

When it comes to redirecting the culture of competitiveness and envy, his path seems like a good place start.

Sunday, August 13, 2006

Is just-in-time nearly out of time?

Civilization, that is, the congregation of people in large settlements we call cities, is thought to owe its origins in part to the invention of agriculture. By growing surpluses of food crops farmers enabled the creation of an urban non-farming class who engaged in all manner of cultural, governmental, and commercial activities. These activities now preoccupy the vast majority of people in advanced economies.

From year to year the new settlements of ancient civilizations ensured their continuity through one very important measure: the storage of surplus food crops, especially grain. This enabled them to withstand a bad harvest or even two or three without facing collapse.

What a supreme irony then that the sine qua non of civilization--maintaining a store of essential materials--should in our time be considered a source of inefficiency and waste to be avoided at all costs. The long tradition of saving for a rainy day (or as we will see, in our case, a drought-stricken decade) has now been rejected in favor of the so-called just-in-time revolution. For those who didn't get the memo, just-in-time inventory management means that everything needed for the manufacture of any good is delivered to the factory just as it is needed or nearly so. Inventory levels are kept at minimal levels which frees up cash for other purposes.

Just-in-time methods have become synonymous with lean, well-managed international corporations. And, they are now the Achilles heel of a global trading system at risk on several fronts.

It is no accident that just-in-time methods came of age in the 1990s and were adopted by nearly every organization big enough to benefit from them. The relative tranquillity of the '90s made fears of any widespread disruption of supply lines fade from memory. With the collapse of the Soviet Union, there were no more superpower confrontations. The ambitions of Saddam Hussein to control a vast portion of the world's oil supply were contained. The sea-lanes were secured by the dominance of the U. S. fleet. Cheap energy meant cheap transportation which encouraged the expansion of trade. And, this allowed the wholesale removal of industries from places of high cost to places where labor and resources were the cheapest. In addition, the bear market in raw materials continued. This lulled purchasing managers into believing that needed materials would be cheaper tomorrow and the day after that and the day after that. So, why keep anything but minimal inventories?

These conditions created fertile ground for just-in-time ideas in almost every corner of the globe and in almost every organization including government and nonprofits. And, under such conditions it was inarguably better to keep inventories lean. As a result spartan inventories soon became a necessity as company after company sought competitive advantage through this type of cost-cutting.

Whether just-in-time inventory is an idea for all time or was merely suited to a unique moment in history is now being tested. Commodity prices for many critical industrial commodities have now skyrocketed. At the end of 2001 copper could be had for about 65 cents a pound. Last week it closed at about $3.50 a pound. Nickel hovered near $2 a pound in 2001 and now sells for almost $13 a pound. Oil sold for about $20 a barrel in late 2001 and now sits above $70. And, the list goes on. (Memo to purchasing managers: Things are not getting cheaper anymore!)

The United States military now sits astride one of the greatest known reservoirs of oil in the world, Iraq. But that military appears impotent to increase oil production in the face of continuing chaos and an emerging civil war in the country. Iran and North Korea now ignore demands from the world's only putative superpower whose strength, financial and military, is being sapped every day by its engagement in Iraq.

U. S. friction with China over high Chinese trade surpluses, an undervalued currency, Taiwan, and China's increasingly close relations with Venezuela and Iran which were sought in order to secure precious oil and natural gas does not bode well for the future stability of the world and the free movement of goods.

The willingness of Russia to curtail gas supplies to the Ukraine and ultimately to Europe demonstrate the precariousness of energy supplies. In our own hemisphere, Hurricane Katrina laid bare the vulnerability of both the U.S. and world energy infrastructure to natural disasters. And, the recent pipeline problem at Alaska's Prudhoe Bay oil field showed our vulnerability to mere poor maintenance. The world now appears to have a razor thin cushion of excess oil production capacity.

Rising energy costs are starting to take their toll on the trucking industry, but despite rising fuel costs marine and rail shipments remain relatively affordable even if capacity is being strained.

All of this has been put down to temporary and cyclical factors such as the general bull market in commodities and increased demand from the growing economies of China and India. And, if that's true, then there is little cause for alarm except among those companies that can't obtain the supplies they need at prices that allow them to be competitive.

However, the drop in world grain stocks paints a more ominous picture. Those stocks have declined to about 57 days of supply. The last time grain stocks were this low was in 1972, just before grain prices doubled. And, as more and more grain is converted into fuel rather than food, the situation may worsen. High oil prices encourage such conversion.

Low grain stocks are also partly the result of declining harvests. And, declining harvests are partly due to drought in critical grain growing regions of the world: the U. S. western and Plains states, Canada, southern Africa and much of Europe. If global warming is the culprit, this problem is not going away.

Of more immediate concern is the way just-in-time ideas have filtered into the retail food system. Grocery stores are believed to have no more than a three-day supply of food. That means those who don't grow their own food (which is most of us) will find themselves going hungry within a week of an emergency that shuts down the just-in-time delivery system to stores. What could do that? Try an avian flu pandemic.

And, that brings us to the medical field which has long been applying the minimalist, just-in-time view to its operations. The corporate mentality driving both for-profit and non-profit hospitals has resulted in an attempt to keep capacity to a minimum in order to drive down costs. But, the effect has been to undermine surge capacity, that is, the capacity to treat large numbers of patients from a mass casualty event such as a terrorist attack or a flu pandemic. The issue also applies to vaccines, drugs and medical equipment that might be needed in an emergency.

As for energy supplies, one almost certain near-term crisis will come to North America when its natural gas production begins to decline. That crisis could arrive as early as this winter and it's one reason the U. S. Federal Energy Regulatory Commission is trying to encourage the creation of additional natural gas storage.

When it comes to oil, there is a recognition on the part of nearly every major importing nation that just-in-time inventories are not enough. The United States, the European Union and China all have plans for or already have in place large state-run petroleum inventories, normally referred to as strategic petroleum reserves.

Perhaps the ultimate expression of the just-in-time idea is Wal-Mart's so-called warehouse-on-wheels. Only in a cheap oil environment would the idea of motion be added to the idea of warehouse. Wal-Mart tries to keep much of its inventory on the road in trucks to maintain low costs and flexibility. This is the ultimate in just-in-time delivery. But, those who believe world peak oil production will soon be upon us with its skyrocketing oil prices think that Wal-Mart would quickly crumble under the resulting financial and logistical strain.

When any resource becomes scarce, the natural tendency of people is to hoard it. That has the effect of sending the price higher which makes people think they should hoard it all the more.

In the coming years we may be faced with such a dynamic in many markets. The most devastating and far-reaching effects could come in the energy markets. Will the just-in-time religion which swept the world in the 1990s survive such a dynamic? Will the new fashion be to plan ahead and make sure we have extra supplies of metals, fuel, medicine and food on hand to run our factories and our civilization when disruptions occur?

Such a novel idea, isn't it? Or maybe it's an idea that's as old as civilization itself.

Saturday, August 05, 2006

Apocalypse always: Is the peak oil movement really just another apocalyptic cult?

Whenever the world's scientists release yet one more piece of evidence pointing to ecological catastrophe in climate or resource depletion, some of those who are historically minded like to say it has ever been thus. For instance, peak oil nemesis Daniel Yergin loves to repeat the idea that "[t]his is not he first time the world has 'run out of oil.' It's more like the fifth." When it comes to global warming, the few remaining skeptics are fond of saying that scientists were predicting a new ice age as recently as the 1970s. More recently, the author of an article in Harper's Magazine entitled "Imagine There's No Oil: Scenes from a Liberal Apocalypse," a piece otherwise sympathetic in its coverage of the peak oil movement, drew parallels between those concerned about an imminent peak in world oil production and apocalyptic cults of the past.

Even though the peak oil movement does share a common bond with those cults in its obsession with dates, perhaps the most compelling comparisons are between the dramatic end-of-the-world scenarios of past cults and the dramatic end-of-civilization-as-we-know-it scenarios of some peak oil adherents.

Still, at its core the peak oil movement is decidedly different from an apocalyptic cult. I am often asked if I believe in peak oil as if it were an article of faith rather than a question of evidence. I respond that I take the possibility seriously because the accumulated evidence demonstrates that oil wells, oil fields and oil-producing countries have and continue to peak and decline in their production. I add that there is no compelling evidence that world oil production will not do the same at some point.

In fact, undergirding the peak oil thesis now are both a large body of scientific evidence and a great number of experts, some of them drawn from the oil industry itself. The basis of this movement then cannot be fairly compared to such movements as the Millerites and the Shakers which at their core relied on revelation, not science. By contrast, accepting peak oil theory doesn't require personal revelation or mere belief, only an evaluation of the publicly available evidence. That's why even peak oil's supposed detractors such as Daniel Yergin can acknowledge that oil is finite and that someday its production will cease to rise and ultimately decline.

Perhaps the one thing which is holding back the peak oil idea from wider acceptance is that some of the data needed to create definitive scenarios for peak are simply not available. Much of the world's oil remains controlled by state oil companies that have no obligation to submit to an audit. The other problem is that oil is not easy to measure because it is underground and because its recovery is dependent on myriad factors that include technology, geology, geography and market prices. This contrasts with climate studies in which no government or corporation can hide the atmosphere or the oceans from eager researchers who want to do measurements. This difference may explain why concern about global warming has been embraced by nearly every informed person on the planet, while the concept of peak oil remains relatively obscure and often dismissed even by many in the environmental movement.

Another distinction between the usual run of apocalyptic cults and the peak oil movement is its diversity. It contains not just end-of-civilization doomsayers, but many who believe that a transition to a sustainable and prosperous society is eminently doable (albeit with considerable effort) and some who believe that the transition to alternative fuels will be brought about by the marketplace. And, while the above-mentioned Harper's article styles peak oil as a "liberal apocalypse," two of the peak oil movement's most prominent spokespersons are Congressman Roscoe Bartlett, a self-described "very conservative Republican," and energy investment banker Matthew Simmons, an advisor to the Bush presidential campaign in 2000.

The label "apocalyptic" is most often intended to be derisory. But even if it applies, those who use it this way may miss something very important about some apocalyptic movements. These movements sometimes spawn great creativity that has ongoing benefits for society at large. For example, even though the Shakers in America never numbered more than perhaps 6,000, their contributions to American society are astonishingly broad and enduring. Their art and architecture continue to inspire designers today. Their craftsmanship, particularly in furniture, commands high prices for original pieces and has led to many reproductions that are still being manufactured today. Inventions such as the flat broom, the circular saw, and the idea of printed packaging used in the sale of seeds are attributed to the Shakers. And, Shaker music lives on, perhaps most notably in the song "Simple Gifts," which has been adapted and arranged again and again.

Even if peak oil production turns out to be decades away, the contributions of the peak oil movement are already manifold. The people involved are forcing a re-evaluation not only of the idea of energy and its sources, but of the very way in which we live. They are creating dialogue on basic questions about what constitutes a good life--questions about excessive consumption, unhealthy lifestyles, and pathological social, political and economic arrangements born of fossil-fuel dependence. Above all, they are sounding the alarm about the unsustainability of our current way of life. And, they are offering concrete solutions to move us toward sustainability in a wide range of areas that are inextricably linked to energy including food production, water resources and climate.

Can those who mock the peak oil movement as apocalyptic honestly say that it's too early to start moving toward sustainability? Do they really think we will be better off if we wait and risk being too late?

Tuesday, August 01, 2006

The Coming "War" with Canada

As I returned recently from a vacation in Canada, I took a detour along the Canadian side of the St. Clair River which divides Ontario from Michigan as it flows from Lake Huron into Lake St. Clair. The sunny, placid scene of sailboats, swimmers and the occasional motorboat or barge bore no witness to the fact that this was a border between two countries. As I passed two vast oil refineries I was reminded that I was indeed in Canada, a country so rich in oil and natural gas that the docks next to these refineries were likely used to ship refined products to the United States which is now in perpetual need of them.

From such a vantage point it is hard to imagine that this apparently benign unconcern for where the United States ends and Canada begins might suddenly be transformed into a pitched battle of words and deeds. And yet, that is almost certainly where these two old friends are headed.

Behind this looming turnabout is one very troubling development: Natural gas production in North America has leveled off. Only warm winter weather has so far delivered the continent from a severe crisis. The glib confidence with which Wall Street analysts touted the buildup in gas storage earlier this year betrays their ignorance about how tenuous those supplies really are. Underground gas storage currently stands at 2.8 trillion cubic feet (tcf) and could reach well over 3 tcf if the current hot weather abates and reduces demand for gas used to produce electricity. But those figures amount to a very small buffer when compared to the approximately 26.5 tcf consumed each year across North America. In fact, it is so small that the U. S. Federal Energy Regulatory Commission is taking steps to encourage an expansion of gas storage in order to reduce the volatility in prices.

But you can't store what you don't produce. Even though gas drilling rig counts in the United States have steadily advanced from an average of under 500 in 1999 to 1,376 in June, production remains flat. This has led to high volatility in prices. Since February 2002 prices have risen from a low of a little over $2 per thousand cubic feet (mcf) to nearly $15 per mcf last October. Prices have since come down considerably. Even so they are unlikely to stay there if a hurricane again knocks out gas production infrastructure in the Gulf of Mexico or a truly cold winter descends on North America.

But there is something else even more foreboding about the leveling off of gas production according to Douglas Reynolds, a resource economist at the University of Alaska-Fairbanks who has studied the North American gas situation closely. Reynolds predicts that North American production will begin to fall precipitously sometime after the beginning of 2007. And, unlike the gradual downslope that the declining production numbers for a depleting oil well or an entire oil-producing nation trace on a graph, Reynolds expects the falloff in North American gas production to resemble a cliff. When gas wells begin to decline, they decline swiftly and often with little warning.

Which brings us back to the coming "war" with Canada. There will be no quick fixes for natural gas shortages in North America. None. Eventually, natural gas from Alaska and the MacKenzie Delta in the Northwest Territories will arrive by pipeline. But that could easily be 10 years from now. Imports in the form of liquid natural gas (LNG) could offer some relief, but the timelines for building the necessary special purpose ports and ships could be equally long.

So, what happens in the meantime should Reynolds' prediction turn out to be true? The answer will be puzzling to many Canadians. The North American Free Trade Agreement (NAFTA) obliges Canada to share its oil and gas in the same proportion as it has in the previous 36 months prior to any restrictions placed on output. The specific reference is Article 605. In other words, the United States is supposed to get its share no matter what. In 2005 the U. S. imported almost 3.7 tcf of natural gas from Canada which produced about 6.5 tcf in the same year. That's more than half Canada's production.

(Perhaps even more galling to the Canadian public will be the fact that the other party to NAFTA, Mexico, retained control over its own hydrocarbon resources in the very same chapter of the agreement in which Canadian negotiators gave away Canada's energy sovereignty.)

But what if the Canadian government faced a situation in which its own citizens were freezing in their homes for lack of heat? Would it simply let natural gas flow south because of a trade agreement? And, what if it became apparent that the situation wasn't temporary, but rather a long-term problem?

Any party to NAFTA can withdraw from the agreement with six months' written notice. But the urgency of a mid-winter natural gas crisis wouldn't allow for such an orderly retreat. So, if, say, a weak Canadian minority government such as the one currently in power in Ottawa were faced with the wrath of freezing Canadian voters or a nasty row with the United States, which would it choose?

In the past when it suited the United States, the U. S. government simply ignored rulings made by the body that adjudicates trade disputes under NAFTA. Specifically, a long-running dispute over the export of softwood lumber to the United States from Canada had both parties hot under the collar. (Read here and here.) The dispute has since been settled. If this rather minor dispute had both parties this agitated for this long, how much more will they be agitated by a natural gas crisis.

I seriously doubt that the Canadian government would ever risk an actual military confrontation with the United States over energy, a confrontation that it could not win. But, what would it do short of that? And what would the United States do short of military action when its own people are threatened with freezing?

We can all hope for lovely cooperation. But if the past is any indication, I fear we Americans could be in for what is about as close to a war as we will ever get with Canada.

You might expect that under the circumstances Canada and the United States would be invoking emergency conservation measures for natural gas. But instead both governments fiddle while the continent's remaining and perilously tight natural gas supplies continue to burn. They thereby risk that one day in the not-too-distant future their relationship may turn as icy as the St. Clair River during the depths of a frigid winter.