14.1. From a new oil crisis (peak oil) and the resulting energy crisis

Let us analyze a topical subject: the evolution of the crises and the prices of energy and raw materials. When asking the question What do you mean by crisis?, many think of the risks of shortages and consequently of rising supply prices that will destabilize economies and therefore living conditions.

However, the fate of a raw material is linked to that of energy: indeed, a raw material is a raw product of natural origin that must be transformed in order to be used. This transformation consumes energy; so, there is no raw material without energy. That being said, we can address the problem by asking the other question Is there really an energy crisis?

14.1.1. At present, what do we mean by energy crisis?

Figure 14.1 shows the change in oil production in the world. By 2030, its level will be at the same levels as in 1980, but the consumer population would be twice as high. Consequently, depending on the law of supply and demand, as well as on economic and political uncertainties, the cost of this energy can only increase.

Thus, it reaches a peak called Hubbert’s Peak, named after Dr. Marion King Hubbert, a geologist with Shell who predicted with good accuracy in 1956 that this peak would appear in 1970 and reach a new threshold in 1995 (see Figure 14.1).

At that time, it was mistakenly thought that such development would encourage people to use road transport less and to save energy, which happened not to be the case and the peak oil date slipped to an even later one. To simplify the study, since we are mostly concerned with basic mechanisms, we will only deal with a few energy-related transport and food problems.

Faced with the risk of shortages, some strategists strongly suggested using agriculture, i.e. biofuels. According to geologist Dale Allen Pfeiffer [PFE 06], agriculture can only be a transient and an extra solution¹.

It is easy to forget that it takes about 10 calories of fossil oil to produce 1 calorie of food, especially in developed countries. Pesticides are also of petrochemical origin. Fertilizers also require natural gas, and our current technologies and equipment require oil to be developed and used. We know that it takes 1.5 euros of fossil energy to produce 1 euro of green energy. As things stand at present, the balance sheet therefore remains negative.

Concerning food, we do not hesitate to transport food across thousands of kilometers from distant continents to satisfy our desires; we preserve them and process them with household tools made with a lot of oil (plastics), which also consume energy! Moreover, within the next 50 years, the demand for agricultural products will have doubled! Similarly, the harsh winters in the West contribute to price instability by increasing the pressure of demand on a product and therefore on a corresponding energy source that is becoming… very much in demand.

Within the same framework and according to information from the Pentagon dating back to 2007, oil consumption is constantly and geometrically increasing per soldier combatant. During World War II, it was 1 gallon per soldier per day; during the Persian Gulf conflict, in 1991, it was 4 gallons per soldier per day; and in 2006, during the Iraq and Afghanistan operations, it was 16 gallons. These growing fossil energy needs, over time, for the same unit of added value, call for an active focus on alternative energies.

The above examples can be multiplied ad libitum. All our activity and our environment are linked to our energy: the number of consumers is growing steadily with the continued rise of, for example, China and India, and we consume more energy per unit of work or consumption.

To illustrate this, by addressing the notion of interactions:

• – Energy consumption rates are still high, and therefore very significant multiplier effects are emerging. Whether it is for the production of raw materials, production or the provision of services, everything requires a lot of energy and, in the context of current trends, supply prices can only increase (especially with the current high growth rates of countries such as China or India).
• – The production of these new product volumes, the storage of these diversified products under specific conditions and the energy needs in the value-added chain are elements that interact with each other, which affect demand – sometimes more and sometimes less. After integration with the previous facts, they lead to looped systems that can evolve in a chaotic way, i.e. in an unpredictable way and with the consequences we know.

14.2. The future: limit of price increases? Implications of the shortage

All economic sectors are affected by these phenomena: agriculture and transport, of course, as well as the dismantling or even recycling of products, and therefore the sustainable environment itself. Although the current crisis is not directly linked to the depletion of one or more resources, the easy times are now over and the prices of traditional energies and raw materials continue and will therefore continue to rise. Two questions are worth asking:

When will the increase stop? At what price level?

According to a conventional approach, the answer is simple: everything is a matter of balance, and the movement will be stopped one day or the other (“trees cannot grow forever”!). But according to a dynamic approach, we will use more or less this language: in our economic systems, there are not only positive interactions (with amplification loops) but also negative interactions that stabilize them. As we have seen, for example, a better use of a financial plan and a good investment orientation can lead to lower material or energy prices. Similarly, a well-adapted tax policy leads to a change in behavior and therefore a reduction in the consumption of critical resources. At the same time, research on more efficient and less energy- and material-intensive devices (e.g. positive-energy buildings) can reverse certain consumption trends. On another level, recycling, which already reaches an average world rate of 40% of products withdrawn from the market, corresponds to a negative interaction, not only in terms of prices but also in terms of material and energy consumption.

Everything happens as in a dominoes game (i.e. an avalanche phenomenon): because of the interactions and sequences that exist in our society, one event is leading to another and so on. Moreover, as the mini stock market crash of July 2007 showed, the increase in property prices and the subsequent crisis at some banks had an impact on stock market indices and (why not) on… bar attendance and crime rates! As a result, fundamentalism, emergency laws, the fight against terrorism, etc., are on the rise. What policy can still ignore these loops in social, economic, industrial, banking, legal, research and development, education, diplomacy, policies and affairs, etc., which it promotes through local governments and governments in general? Targeted government actions, such as the support from central banks during the 2007 US housing loan crisis, represent a negative interaction and therefore a possibility for rebalancing.

We have come far from simple economic models trying to predict the impact of, for example, a small oil shortage on transport prices. Current models must take into account qualitative, quantitative and highly diversified data: technical, financial, economic, social, political and societal. However, this remains materially impossible and can only lead to complex systems that cannot be predicted – the world cannot be explored in width and depth simultaneously!

While the study of major developments cannot be conducted on the basis of global and general models, it is still possible to develop partial and simple models (which may themselves be complex) to analyze the impact of trends on only a few factors. It will be up to humans to integrate the data from several models and summarize them using common sense.

Contrary to what is commonly accepted, it is reasonable to assume, for example, that the war in Iraq was carefully considered and that decisions were taken voluntarily on the basis of a few “simple” models by choosing one or two strategic points. In this case, the problem of oil and energy supply, where highly strategic issues (clearly specified in May 2001 by the President of the United States) point to a few points only to be reasonably taken into account – perhaps the control of oil supply sources? Or the perpetuation of the dominant position of a few oil companies? Or else? Still considering that the evolution of many other points could not be considered and that they would together converge towards attractive balances!

It is therefore a pragmatic approach based on the fact that we deal with one problem at a time, that we practice waiting-and-seeing but that, on the other hand, we are able to explore in depth a point on a rather distant horizon. Since 2004, we have come to know that, to control demand, the price of a barrel of oil must reach 200 dollars and that transactions were already planned at 100 dollars a barrel in 2007. It should therefore come as no surprise that, as early as October 2007, the price of oil had just reached $90 per barrel.

One problem, admittedly, is that the energy crisis cannot proceed as planned, due to interactions between agents and market players, as well as unpredictable developments in situations. In the past, we have undergone progressive and evolutionary economic and industrial changes, and, even sometimes, possessive wars on the ground or, at other times, economic and financial ones.

The new fact, in today’s world, is that the number of elements taken into account in interactions is much greater than in the past: it is no longer possible to take them all into account in foresight studies because the models could no longer be meaningful. However, regardless of the method used, current systems have often become uncontrollable (in the modeling sense). We must therefore expect disasters (disruptions) and revolutions in the literal and figurative sense. We can therefore only go to the essentials and limit the scope of the study to specific points such as the “oil war” or “economic survival”, knowing that there will inevitably be positive or negative impacts on certain lower priority sectors and which will be the subject, at the appropriate time, of separate appropriate treatment.

In terms of methodology, it is advisable to proceed as the mountaineer does in a difficult terrain: for safety reasons, he or she must advance as quickly as possible along the least risky route possible. The tactic is to avoid overhangs and cracks and bypass them, be wary of shortcuts and avalanches, stay away from storms, etc. In short, he or she practices the technique of what we called risk avoidance at IBM. Thus, when the price of oil has become unbearable for the economy and society, naturally, a new energy source will replace the old one.

In our case, oil will certainly be replaced by hydrogen (still requiring a positive and/or more profitable energy balance than the previous one). Then, oil consumption, and consequently price, will fall again. However, no one can predict what the alternative energies and resources will be or when these changes will occur. As we have shown above with regard to the limitations associated with risk models, the future is unpredictable. Just as we do not know most of the innovations that will change the world in 10 years’ time, we do not know the impacts of the risks to which we will be exposed in an indefinable future. We are therefore forced to operate over a very short period of time and remain as flexible and adaptive as possible to react to disruptions. In addition, we must trust the self-organization capacity of our complex systems [MAS 06], which will lead to the emergence of new orders.

14.3. Modeling the problem correctly

In summary and to simplify, the problem to be addressed is therefore more related to the problem of rising prices, the control of nervous stock market systems and adequate decision-making than to an announced shortage. In order to analyze such situations, the standard models have yet to be completed because they do not sufficiently highlight the presence of positive interactions that contribute to price increases and the appearance of disruptions with certainty, nor negative interactions that will rebalance the system and stabilize it towards other attractors.

We have developed a model to represent the dynamics of the problem being studied. The following diagram (Figure 14.2) is assuredly incomplete, yet it is intended to illustrate a form of complexity which we cannot understand in a global way. Indeed, this model represents components and their interactions according to Forrester’s technique [FOR 77]:

• – rectangles indicate levels (stocks, energy, etc.);
• – ovals represent decision-making centers;
• – information flows are represented by dotted arrows;
• – product/service flows are represented by solid line arrows;
• – faucets are shut off allowing product or information flows to pass through or be blocked. The graph therefore shows positive and negative feedback loops. For example, copper production will lead to high oil consumption. Similarly, the choice of an alternative solution to energy demand will rebalance the levels of available stocks, etc. In such a context, we can only observe an evolution, over time, of different levels, which can follow an evolution of a deterministic chaos type. What lessons can we learn from this?

On the other hand, as already mentioned, many components are ignored, which is detrimental to the predictability of future models and events. In this context, the analysis of low noise is an essential approach that can, in some cases, detect the appearance of a phenomenon but not its amplitude. Indeed, at the root of any evolution is an insignificant event whose effects are reflected and amplified to the point of creating a disruption. There are many examples around us that show this. What is important is to identify the presence and type of disruption we will face. To the extent that a model does not allow prediction, it at least highlights possible trends and identifies the presence or absence of disasters.

Sensitivity to Initial Condition (SIC) is a key element in any model. As seen in the example discussed here on the problem of energy supply, amplification factors are numerous and present in positive feedback loops.

It is normal for such unpredictable systems to converge on strange attractors, whose visual representation shows unexpected evolutions in finite multidimensional envelopes. Thus, any ecological or financial system functions in this particular way, depending on the action of the people or society that created it and implemented it. We can try to minimize its effects (bypass, destroy, forget the problem) because the closed system we have always ends up stabilizing.

As CNRS anthropologist Marie-Claude Dupré points out in [HER 06], recent and frequent debates have focused on the risk that insurance companies seek to have their contributors accept. For example, COGEMA to French electricity users: the beef sector to minced steak eaters flavored with UK-origin brains and entrails between 1988 and 1996, or leaders about the expected energy shortage. These examples show that these are often non-measurable risks and that the notion of financial speculation can be present in the decisions taken.

These systemic models then fall into the category of contradictory tools by showing possible “real” limits in a limited universe, allowing questions to be asked, showing how a very simple system can diverge and thus already solve a problem by 50%.

The systems described here are universal, applying as much to ecology with, for example, problems of changing energy reserves or limiting pollution by CO₂, as to life sciences, the behavior of populations, the economy or the internal functioning of an industrial-type plant. From the simplified model we have introduced as an example, we can see the importance of the interdependencies between the various components that surround us, whether they are technical, technological, human, scientific, social, cultural or political. We are therefore plunged into a world with systemic dimension.

Here again, we will return to what was said earlier in the book: there is often too much reference to insignificant models or complicated theories that are difficult to implement. We forget to step back, to use common sense, intuition and emotion. Since we have just mentioned, with CO₂, the risks related to pollution, we will specify some data based on concrete facts:

• – Changes in culture and habit are always difficult. It is sometimes easier to change paradigm (and therefore shift the problem) by changing technologies or tools.
• – The French had called for an environmental round table⁴: do we know it wanted to “constrain” economy to reduce CO₂ emissions by one million tons per year? The approach was useful and lofty; but while some agents are “tightening their belts”, India is building fossil fuel power plants at the rate of one per week. However, a coal-fired power plant consumes 8 million tons per year.
• – In Germany and for reasons of strategic decisions taken at the company level, associations and government, nuclear power was opposed. However, to satisfy the growing demand from the various sectors of activity, 40 coal-fired power plants are under construction!

14.4. Crisis or heuristic tactics? Large-scale oil shock?

To illustrate the fact that the perception of a crisis depends above all on how it is anticipated and placed in a more global context, we can recall some of Jean-Marie Chevalier’s facts [CHE 05]. According to him, no one is in a position to say when peak oil will appear, nor how the decrease will occur.

As seen in the previous model (simplified reality model), there are many factors including investments in research and deposit appraisal. For 40 years, the time limit for the exploitation of oil fields has been postponed and remains around 45 years. Technological progress is continually pushing the boundaries of these possibilities. The same is true of Moore’s law in computer science: every 18 months, the density (power) of computer chips doubles.

These laws of geometric or arithmetic progression are universal and can be found in many fields. However, only one factor is involved to limit its scope:

• – in the context of oil, for example, it is political disruptions and instabilities that will limit the enthusiasm for financing investors;
• – in the case of computers, it is investments related to the continuous renewal of tools and competitive pressure that are obstacles to evolution;
• – within the framework of IT networks and the Internet, for example, it is organizational and cultural disruptions that will regulate change.

Through these examples, we can see that so-called crisis situations are not really representative of a crisis. It is possible to anticipate them easily, and this is where the so-called weak signal analyses come into play. They are so important in our environment and make it possible to anticipate a crisis or, at the very least, to perceive it and put in place protective measures in time.

Similarly, once a crisis occurs, the most important thing is not to react systematically against it. A crisis does not come up against your initial will but meets it. So, what should be done? Of course, and the American subprime crisis in the summer of 2007 showed it, it is essential to put out the fire. However, it remains even more important to:

• – improve the efficiency and performance of existing systems. For example, in the context of petroleum energy, what is being done and how can we design better tools for freight transport? How can we improve the efficiency of energy sources?
• – diversify energy sources, also including alternative resources, so as to make us less dependent on a single source.

In the case of oil and contrary to some alarmist statements, many companies are working on this subject without making a sound, and we can say today with confidence that the post-oil era is already in the laboratories: it will not wait until the oil runs out! Let us recall, in the application for all cases, these two cardinal attitudes:

1. 1) Reducing the risk problem to a reliability problem. This is a very common approach in industry: at IBM, for example, the generic RAS service (Reliability, Availability, Serviceability) was designed to anticipate and mitigate future disruptions… just in case! And more particularly, in its development laboratories.
2. 2) Raising responsiveness to the highest level of importance at the operational level. Also urgent, because, as we showed in [MAS 06], it is highly important to make a quick decision – even if it seems sub-optimal – in order to issue an action as unexpected as the disruption so that it can “break” the disrupted dynamics of the system. Several famous cases happened in the food industry (e.g. the case of contaminated Perrier in 1990).

14.5. A few conclusive remarks

1. 1) We cannot conclude this chapter without talking about shale oil. Two of the three largest operators of the Eagle Ford and Bakken deposits completed the operation of their best-in-class category. They are now becoming profitable: this disturbs the strategies and global market shares and equilibria.

   Nevertheless, the Permian Basin, the largest US shale deposit, sees the gas/oil ratio increase which indicates that the underground pockets are emptying of oil. Moreover, to make matters worse, the oil industry cannot market this gas because of lack of transportation: They must burn it on the spot. Thus, new innovative solutions, whatever their sustainability level, have a shorter and shorter product lifecycle. This implies that economic crisis is increasingly subject to amplified and transient disturbances.

2. 2) Before introducing a paradigm change, it is necessary to find the best equilibrium between the satisfaction of our needs and the cost of energy end raw materials that are continuously growing. Moreover, this adaptation requires us now to take into account the constraints related to the global sustainability and climate change. Consequently, ecosystem complexity is highly increased by the antagonistic considerations.
3. 3) With regard to physics principles, there are phase transition problems that are to be solved. For instance, the most difficult one does not consist only of increasing either the price or taxes of energy and matter, as is the case for several decades now.

   Indeed, when a singularity appears, the question consists of finding the alternative or disruptive decisions and investing in solutions that will be implemented later in several decade times.

4. 4) Currently, what are the sustainable and reliable substitutes? Japan already has some global proposals, but in western countries, such as in France, there are a lot of partial and local studies issued by pseudo-scientific organizations, often funded governments. This non-holistic approach raises many troubles and disorders rather than a strong and robust vision.

Indeed, for social and societal reasons, it is necessary not to compromise economic growth, while the energy consumption, the need of rough and raw strategic materials are in control and pollution is decreasing.

Improvements are already in progress. For instance, aircraft engines are continuously reengineered. Their energy consumption has been divided by a factor of 5 in the few last decades. Also, the quantity of kerosene is less, about one gallon per person and per 100 km. In the car industry, many advances have been introduced. Engines have also evolved and with very low consumption level, less polluting and more economical diesel engines compared to gasoline.

As observed, we are in a continuous improvement process and not in a breakthrough disruption mode issued by a singularity. At any rate, while this is possible, it requires a full generation of time to be satisfactorily implemented and to avoid any economic collapse.