Peak oil - keep your eye on the donut and not the hole

When I was a boy, I was fascinated by Australia's new Chadstone shopping centre. It was the very first modern shopping centre in the southern hemisphere. Better than the escalators; better than everything else, was the Downyflake Donut shop.

The donut machine stood in the window. Embryonic donuts danced and grew in the hot oil as they meandered through the stainless steel maze. That little food processor amused me for hours. It promised a future of limitless possibilities ... a future that I couldn't wait to grow up in and be a part of.

On the wall near the machine a laconic jester stood with donut in hand and these prophetic words:

As you ramble on through life, brother,
Whatever be your goal,
Keep your eye upon the donut,
And not upon the hole.

And there the jester stood for years, until time rubbed him out.

Two thousand years ago, another jester had stated the bleeding obvious. He had some wise things to say about greed, love and anger management. He also seemed to be saying something about the danger of exchanging life's necessities for tokens, then becoming bedazzled by the tokens themselves. Well he was rubbed out too, of course!

Fast forward to 1974, when respected geologist M. K. Hubbert predicted the world's oil supplies would peak around the year 2000 and thereafter decline. By this time the world was flooded with tokens, so no one paid much attention to him. There was no shortage of tokens to go around, so why the fuss? Hubbert was regarded as a jester by the people who played Tiddlywinks all day long with the tokens.

No mystery here. Hubbert was simply keeping his eye upon the donut.

You see, to find and exploit an oil deposit, we need to expend quite a lot of oil energy. Oil is the supreme example of compact energy, so we have all enjoyed the abundance of "spare" energy left over. As the easy stuff is used up, we arrive at the point where we must finally expend a whole barrel of oil to produce a barrel of oil. Approaching this point, rising oil prices simply express the diminishing proportion of "spare" energy left over for distribution.

Once the net energy return is zero, it's over ... no matter how much oil is tantalisingly "still down there". For the same reasons, less accessible or poor quality oil deposits can be very short-lived. At the finish, the price of oil is immaterial. One cent or one million dollars a barrel - it's over.

Yet in these twilight days of easy oil we have economists who are saying to themselves, "If we use one $40 barrel of oil today to produce half a $160 barrel tomorrow, we will have doubled our money - gee, that's good business!"

That simple example shows the gulf that can exist between economic dogma and physical reality. It is not only ridiculous, but adds a dangerous twist to the simple notion that rising oil prices will regulate consumption. Add the holy commandments of corporate profit and we have globalised self-delusion. Figure it out; the fingerprints of Texan oilmen are all over the corpse of Iraq.

Easy oil delivers such a wealth of net (excess) energy and goods, that we are free to indulge in all sorts of charades in order to satisfy our personal ambitions. Cheap transport has permitted us to bury local food production under a sea of suburbs. Our agricultural system is totally dependent on oil and natural gas, not only for mechanisation but also for fertiliser and the pesticides so necessary for large-scale monoculture.

Want a litre of milk? No problem. Just jump in the old jalopy and potter on down to the local for a carton of nature's finest.

How far away is the shop? Does it matter?

How did the milk get there? Who cares! That's what we pay the captains of industry for. It's their problem, not ours.

Suppose, just suppose, that the (global) depletion of oil and gas is with us here and now. Let's say it's no longer a poisoned apple to be left for the grandkids, but something we must face right now. For example, we know that UK North Sea oil and gas production peaked in 1999. We know that thanks to Thatcher's free-market policies, the deposit was plundered hastily and sold cheaply. Didn't they know there is not enough energy in a $1,000 note to boil a cup of tea? The UK will soon have to go cap-in-hand to other countries in the hope of sourcing natural gas.

We know that US natural gas is critically depleted and that they depend on it for electricity, fertiliser and a host of other processes. We know that they are drawing down the Canadian reserves using the free trade agreement. We know that the US administration is meddling in the affairs of Venezuela and other neighbours because the fear is that the gas and oil (and profits) found there might be wasted on the indigenous populations.

We know our Prime Minister has offered the warm cloak of Australian and Timorese gas to the shoulders of Governor Arnold Schwarzenegger in California. It must be a comfort to know that US troops are based near the Darwin gas terminal.

Sniff, sniff - er, does anyone smell gas?

Retired geologist Colin Campbell (Texaco, BP, Amoco) cautioned:

Throughout history, people have had difficulty in distinguishing reality from illusion. Reality is what happens, whereas illusion is what we would like to happen. Wishful thinking is a well-worn expression. Momentum is still another element: we tend to assume that things keep moving in the same direction.

The world now faces a discontinuity of historic proportions, as nature shows her hand by imposing a new energy reality. There are vested interests on all sides hoping somehow to evade the iron grip of oil depletion, or at least to put it off until after the next election or until they can develop some strategy for their personal or corporate survival. As the moment of truth approaches, so does the heat, the deceptions, the half-truth and the flat out lies.

Prophetic, if not apocalyptic words from Campbell, dovetailing very nicely into the crappy script that our leaders are presently reading from. It is hard to credit the torrent of oil energy that has been flowing silently throughout our entire lives. I am reminded of the great London sewerage system, the operation of which goes largely unnoticed by the industrious yet ignorant ants’ nest above.

In the (alas, too few) years to come, we will see great argument over the proper allocation of dwindling oil reserves. It will be realised that other sources of energy cannot deliver sufficient surpluses to replace the potent portable energy we know as gasoline and diesel. It is not generally understood that poorer quality energy sources can be critically dependant on oil for their extraction, processing and distribution. In other words, oil is the precursor for other sources of energy; gas, coal, nuclear, solar, hydro, because these require oil fuel to create and maintain infrastructure. It also gives them the illusion of being profitable.

Corporate profit, the free market and monetary wealth have become our fundamental religion over the past three decades. It is deemed not only good but right that market forces will somehow deliver the best outcomes in an energy-depleted world. Our government's energy policies will probably prioritise the development of alternative energy sources in order of profitability. What a mistake that might be. The mind that understands the abstract chicanery of money is a poor tool for chiselling out a daily existence in some sort of co-operative way. This is well understood in the mining industry, which somehow still manages to provide us with necessities despite the efforts of many company accountants.

Would you think me a jester if I said that the one true currency is energy? It always was and always will be. Economics is the game of Tiddlywinks that we can afford to play only in the midst of easy, abundant energy. Energy is the donut, economics is the hole.

Have no doubt that the race for the last of the easy energy has begun. First out of the stalls was the US military-industrial complex, which in 2000 installed the loser in a presidential election. So began operation "war on terror", launched under a smokescreen - a fusillade of explosions provided by men of Middle-Eastern appearance. While it is up to the Islamists to provide some semblance of a threat, it is up to us Westerners to imagine the terror.

The Coalition of the Willing leaders have offered their services as cheerleaders of the terrified and I understand that the American incumbent has some prior experience in this regard. In the rush to be fashionably terrified, it is hoped that we will not notice how the last reserves of sweet oil are being encircled and plundered.

Of course it can be argued that the US military-industrial complex has the greatest need of the greatest share of oil. Their warfare would be utterly impossible without it - imagine that! Sometimes in my wildest waking dreams I imagine those Pentagon brass hats having to pedal a 65 tonne Abrams tank to work. Oh yes!

But then, I am only a bit of a jester.