Deep Impact: Why The Deepwater Disaster Spells Serious Trouble

Deep Impact: Why The Deepwater Disaster Spells Serious Trouble

Wednesday, June 9, 2010

Executive Summary

• We can say with absolute certainty that future oil exploration and development costs are going to rise.
• Our date with an oil supply shock now seems probable for the 2011 to 2012 timeframe.
• A new paradigm is emerging, in which downsizing trumps growth.
• A permanent energy crunch will lead to higher prices for all things connected to energy.
• It would not be too strong to suggest that our federal commitment to energy efficiency is a farce. 
• In terms of personal planning, do not take anything for granted.
• While I am not sure how this will play out yet, I am quite comfortable stating that the age of abundance is drawing to a close.

While we are all still in some stage of shock over the BP gulf disaster – myself over the impacts on fragile marine ecosystems; others over the prospect that we might not be saved by technology after all – it’s worthwhile to begin assessing the impact that this disaster will have on future oil supplies and prices. 

My view is that the economy, a complex system, owes its rich complexity to the very same thing as all complex systems: the constant throughput of energy. 

Actually, because we have a debt-based economy that is predicated on and thoroughly reliant upon exponential growth, I can amend this to say that our economy owes its rich complexity to constantly increasing inputs of energy.  And it’s not the total amount of energy that’s important here; it’s the total amount of net energy that matters.  So I can amend the statement further to say that our economy owes its rich complexity to constantly increasing inputs of net energy.

If you understand this, you understand the heart of my analytical framework.  I attribute much of my success in predicting the economic pain that we’ve been going through to the rigorous application of this line of thinking to the question, “Are we doing anything serious or credible in the way of rapidly increasing our energy efficiency?”  Sadly, the answer to that question is a resounding, “No!”

Deep Impact

Deepwater (collectively referring hereafter to both deepwater and ultra-deepwater) oil represents fully 9% of total world oil production already, and nearly every major find of the past decade has been a deepwater find.  That’s where all the remaining extractable oil is, apparently.  Geologists estimate that 100 Gb (billion barrels) of crude exist in deepwaters, representing fully 10% of all remaining oil.