So what’s likely to happen? The fundamental issue is that several projections I’ve read claim that our capacity to produce more oil is very close to it’s peak or plateau. Even if there’s quite a bit more to be discovered, production of the good 15 to 1 return ratio petroleum can only reach about 90 million barrels per day, perhaps a bit higher. New discoveries take years to bring into production and are unlikely to offset the anticipated decline in the production of the enormous fields in Saudi Arabia and elsewhere. And most of the new production will be much more expensive than what we’re producing now.
It seems likely that as the world economy rebounds, consumption will intersect production again soon. Presumably prices will spike again. That in itself will inhibit economic activity, at least in the economies like the U.S. that are very dependent on large amounts of cheap transportation energy. As I’ve illustrated in my article (Oil–the end of infinity), there could be multiple cycles of recession and partial rebound. In the longer term, once oil production truly starts to decline, if we don’t have an equivalent transportation energy and raw materials source, economies must shrink. Jobs based on direct human labor to produce food, fuels, materials, and physical products will become more important, albeit probably at lower pay rates than now. The knowledge and service sector jobs will simply disappear in many cases. New industries, like local manufacturing and food production, will develop, but lots of people will lose their livelihoods as the existing structures deteriorate.
The deterioration will reflect at least 3 aspects of oil production decline:
- Mechanized agriculture and mining, for example, both depend on big machines that burn petroleum fuels. As the fuels get more expensive and hard to obtain, operations that use those fuels will become unsustainable.
- As goods and services become more expensive and people have less money to spend, they will spend it on necessities. Industries that don’t directly contribute to those necessities will wither. Tourism and recreation will be hit hard on multiple levels; expensive transportation and decisions not to travel if it’s not a necessity.
- A fundamental component of all modern commerce is credit and finance. Most enterprises depend on lines of credit for daily operation. Promises of value (money) are signed over to the enterprise’s possession on the promise that it can pay that back with future earnings. Those promises are based on expectations that the enterprise can generate enough revenue to repay the credit (loans). In short term recessions and depressions, the loaners already tend to sit on their money and wait, hence the recent credit crisis. What will happen when there is a general realization that economies and revenues will contract for the majority of businesses and industries? One article (Tipping Point) I encountered recently projects that credit will stop and our civilization will stop working for awhile.
Since people are smart and adaptable, I doubt we will perish as a species. That assumes we don’t fight over dwindling resources using nuclear weapons on a global or even regional scale. Some scientists think that a large scale nuclear exchange by the U.S. and Russia would render the world largely uninhabitable. However, recent models of a regional exchange (Pakistan and India) project that the smoke and dust would be sufficient to cripple food production worldwide. But a shrinking economy will likely cause serious enough hardship that world population shrinks to a level that is more sustainable with diminished energy resources. It’s happened many times before on smaller scales to civilizations of the past. How that unfolds, how rapidly, and with what dislocation and suffering is a life and death question for everyone.