News article filed by BNP news team
Today in our series of articles concerning Peak Oil we examine the financial and economic implications resulting from the end of cheap oil.
It is an indisputable fact that the world’s oil fields are being depleted at a faster rate than new fields are being discovered. Globally 31.5 billion barrels of oil were consumed in 2006 whereas world discoveries amounted to just 4 billion.
The days of cheap oil are coming to an end with the price of crude currently sitting at about $64 a barrel (http://www.wtrg.com/oil_graphs/oilprice1947.gif)
Nearly all the work done in the world economy — all the manufacturing, construction, and transportation — is done with energy derived from fuel. The actual work done by human muscle power is miniscule by comparison. And, the lion’s share of that fuel comes from oil and natural gas, the primary sources of the world’s wealth.The oil industry measures the quantities of oil production and distribution in terms of barrels. One barrel is 42 US gallons. The http://www.lmoga.com/misc.htm locked up in one barrel of oil is 5,800,000 BTUs. This is equivalent to 23,200 Hours of Human Work Output(that’s over two and a half years continuous work!)
t is therefore little wonder that so many advances in technology, engineering, transport and manufacturing have been achieved since the 1950s when the potential of cheap oil was first realized on a global scale.
Many economists accept that banks create capital by lending more than they had on deposit, being confident that tomorrow’s expansion, fuelled by cheap oil-based energy, is adequate collateral for today’s debt. The decline of oil, the principal driver of economic growth, undermines the validity of that collateral which in turn erodes the valuation of most entities quoted on Stock Exchanges. The investment community however faces a dilemma. It desires to protect its own fortunes and those of its privileged clients while at the same time is reluctant to take action that might itself trigger the meltdown. It is a closely knit community so that it is hard for one to move without the others becoming aware of his actions.
In this situation, interest shifts to commodities and to short term trading to benefit from daily or hourly fluctuations in price, implying that there are few valid genuine long-term investments left.
Pessimists suggest that the scene is set for the second Great Depression, engulfing Europe and America principally but the conservatism and outdated mindset of institutional investors, together with the momentum of the massive flows of institutional money they are required to place, may help to diminish the sense of panic that a vision of reality might impose. On the other hand, the very momentum of the flow may cause a greater deluge when the foundations of the dam finally crumble. It is a situation without precedent.
A widely held myth proclaims that technology will deliver more, when its main impact has been to hold production higher for longer, accelerating depletion. The observed growth in reserves has been an artefact of reporting, not technology, save in special cases.
Survival strategies
But there are survival strategies. Governments may be persuaded to sign the Depletion Protocol whereby imports are cut to match world depletion rate, such that world prices fall into reasonable relationship with cost, and profiteering from shortage avoided; the current monumental waste of energy may be reduced; renewable energies from wave, tide, wind, solar, hydro and geothermal sources may be brought in; and the nuclear option re-evaluated.
The survivors, whose numbers may not greatly exceed those of the pre-oil age, may find silver linings as they rediscover rural living, regionalism, diversity and local markets, coming to live in better harmony with themselves, each other, and the environment in which Nature has ordained them to live. But the transition will be a time of great tension, including international tension as consumers vie for access to dwindling supplies, and as city life becomes unsustainable.
The above was based on a talk given by Colin J. Campbell the Edinburgh Conference May 2005 which was attended by a BNP delegation including Chairman Nick Griffin.
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