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Some reflections on the Twilight of the Oil Age (Part II)

Guest Post by Louis Arnoux
(Part I here)
(Part III here)
Part 2 – Enquiring into the appropriateness of the question

Let’s acknowledge it, the situation we are in, as depicted summarily in Part 1, is complex. As many commentators like to state, there is still plenty of oil, coal, and gas left "in the ground". Since 2014, debates have been raging, concerning the assumed “oil glut”, concerning how low oil prices may go down, how high prices may rebound as demand possibly picks up and the “glut” vanishes, and, in the face of all this, what may or may not happen regarding “renewables”. However, in my view, the situation is not impossible to analyse rigorously, away from what may appear as common sense but that may not withstand scrutiny. For example, Part 1 data have indicated,that most of what’s left in terms of fossil fuels is likely to stay where it is, underground, without this requiring the implementation of difficult to agree upon resource management policies, simply because this is what thermodynamics dictates.

We can now venture a little bit further if we keep firmly in mind that the globalised industrial world (GIW), and by extension all of us, do not “live” on fossil resources but on net energy delivered by the global energy system; and if we also keep in mind that, in this matter, oil-derived transport fuels are the key since, without them, none of the other fossil and nuclear resources can be mobilised and the GIW itself can’t function.

In my experience, most often, when faced with such a broad spectrum of conflicting views, especially involving matters pertaining to physics and the social sciences, the lack of agreement is indicative that the core questions are not well formulated. Physicist David Bohm liked to stress: “In scientific enquiries, a crucial step is to ask the right question. Indeed each question contains presuppositions, largely implicit. If these presuppositions are wrong or confused, the question itself is wrong, in the sense that to try to answer it has no meaning. One has thus to enquire into the appropriateness of the question.”

Here it is important, in terms of system analysis, to differentiate between the global energy industry (say, GEI) and the GIW. The GEI bears the brunt of thermodynamics directly, and within the GEI, the oil industry (OI) is key since, as seen in Part 1, it is the first to reach the thermodynamics limit of resource extraction and, since it conditions the viability of the GEI’s other components – in their present state and within the remaining timeframe, they can’t survive the OI’s eventual collapse. On the other hand, the GIW is impacted by thermodynamic decline with a lag, in the main because it is buffered by debt – so that by the time the impact of the thermodynamic collapse of the OI becomes undeniable it’s too late to do much about it.

At the micro level, debt can be "good" - e.g. a company borrows to expand and then reimburses its debt, etc… At the macro level, it can be, and has now become, lethal, as the global debt can no longer be reimbursed (I estimate the energy equivalent of current global debt, from states, businesses, and households to be in the order of some 10,700EJ, while current world energy use is in the order of 554EJ; it is no longer doable to “mind the gap”).

Crude oil prices are dropping to the floor

Figure 4 - The radar signal for an Oil Pearl Harbor

In brief, the GIW has been living on ever growing total debt since around the time net energy from oil per head peaked in the early 1970s. The 2007-08 crisis was a warning shot. Since 2012, we have entered the last stage of this sad saga – when the OI began to use more energy (one should talk in fact of exergy) within its own productions chains than what it delivers to the GIW. From this point onwards retrieving the present financial fiat system is no longer doable.

This 2012 point marked a radical shift in price drivers.[1] Figure 4 combines the analyses of TGH (The Hills Group) and mine. In late 2014 I saw the beginning of the oil price crash as a signal of a radar screen. Being well aware that EROIs for oil and gas combined had already passed below the minimum threshold of 10:1, I understood that this crash was different from previous ones: prices were on their way right down to the floor. I then realised what TGH had anticipated this trend months earlier, that their analysis was robust and was being corroborated by the market there and then.

Until 2012, the determining price driver was the total energy cost incurred by the OI. Until then the GIW could more or less happily sustain the translation of these costs into high oil prices, around or above $100/bbl. This is no longer the case. Since 2012, the determining oil price driver is what the GIW can afford to pay in order to still be able to generate residual GDP growth (on borrowed time) under the sway of a Red Queen that is running out of thermodynamic “breath”. I call the process we are in an “Oil Pearl Harbour", taking place in a kind of eerie slow motion. This is no longer retrievable. Within roughly ten years the oil industry as we know it will have disintegrated. The GIW is presently defenceless in the face of this threat.

The Oil Fizzle Dragon-King

Figure 5 – The “Energy Hand”

To illustrate how the GEI works I often compare its energy flows to the five fingers of the one hand: all are necessary and all are linked (Figure 5). Under the Red Queen, the GEI is progressively loosing its “knuckles” one by one like a kind of unseen leprosy - unseen yet because of the debt “veil” that hides the progressive losses and more fundamentally because of what I refer to at the bottom of Figure 5, namely were are in what I call Oil Fizzle Dragon-King.

A Dragon-King (DK) is a statistical concept developed by Didier Sornette of the Swiss Federal Institute of Technology, Zurich, and a few others to differentiate high probability and high impact processes and events from Black Swans, i.e. events that are of low probability and high impact. I call it the Oil Fizzle because what is triggering it is the very rapid fizzling out of net energy per barrel. It is a DK, i.e. a high probability, high impact unexpected process, purely because almost none of the decision-making elites is familiar with the thermodynamics of complex systems operating far from equilibrium; nor are they familiar with the actual social workings of the societies they live in. Researchers have been warning about the high likelihood of something like this at least since the works of the Meadows in the early 1970s.[2]

The Oil Fizzle DK is the result of the interaction between this net energy fizzling out, climate change, debt and the full spectrum of ecological and social issues that have been mounting since the early 1970s – as I noted on Figure 1, the Oil Fizzle DK is in the process of whipping up a “Perfect Storm” strong enough to bring the GIW to its knees. The Oil Pearl Harbour marks the Oil Fizzle DK getting into full swing.

To explain this further, with reference to Figure 5, oil represents some 33% of global primary energy use (BP data). Fossil fuels represented some 86% of total primary energy in 2014. However, coal, oil, and gas are not like three boxes neatly set side by side from which energy is supplied magically, as most economists would have it.

In the real world (i.e. outside the world economists live in), energy supply chains form networks, rather complex ones. For example, it takes electricity to produce many products derived from oil, coal, and gas, while electricity is generated substantially from coal and gas, and so on. More to the point, as noted earlier, because 94% of all transport is oil-based, oil stands at the root of the entire, complex, globalised set of energy networks. Coal mining, transport, processing, and use depend substantially on oil-derived transport fuels; ditto for gas.[3] The same applies to nuclear plants. So the thermodynamic collapse of the oil industry, that is now underway, not only is likely to be completed within some 10 years but is also in the process of triggering a falling domino effect (aka an avalanche, or in systemic terms, a self-organising criticality, a SOC).

Presently, and for the foreseeable future, we do not have substitutes for oil derived transport fuels that can be deployed within the required time frame and that would be affordable to the GIW. In other words, the GIW is falling into a thermodynamic trap, right now. As B. W. Hill recently noted, “The world is now spending $2.3 trillion per year more to produce oil than what is received when it is sold. The world is now losing a great deal of money to maintain its dependence on oil.”

The Tooth Fairy Syndrome

To come back to David Bohm’s “question about the question”, in my view, we are in this situation fundamentally because of what I call the “Tooth Fairy Syndrome”, after a pointed remark by B.W. Hill in an Internet debate early last year: “It is interesting that not one analyst has yet come to the very obvious conclusion that it requires oil to produce oil. Perhaps they think it is delivered by the Tooth Fairy?” This remark vividly characterised for me the prevalence of a fair amount of magical thinking at the heart of decision-making within both the GEI and the GIW, aka economics as a perpetual motion machine fantasy. Unquestioned delusional beliefs lead to wrong conclusions.

This is not new. Here are a few words of explanation. In 1981, I met US anthropologist Laura Nader at the Australia New Zealand Association of the Advancement of Science (ANZAAS) Congress held that year at University of Queensland in Brisbane. We were both guest speakers at seminars focusing on Energy and Equity, and in particular on how societies actually deal with energy matters, energy crises and decide about courses of action. The title of her paper was “Energy and Equity, Magic, Science, and Religion Revisited”.

In recent years, Nader had become part of US bodies overseeing responses to the first and second oil shocks and the US nuclear energy industry (she was a member of the National Academy of Science's Committee on Nuclear and Alternative Energy Systems, CONAES). As an anthropologist, she was initially taken aback by what she observed and proceeded to apply her anthropological skills to try and understand the weird “tribes” she had landed into. The title of her paper was a wink at Malinowski’s famous work on the Trobriands in 1925.

Malinowski had pointed out that: “There are no people, however primitive without religion or magic. Nor are there… any savage races [sic] lacking either in the scientific attitude or in science though this lack has been frequently attributed to them.”

Nader had observed that prevailing decision-making in the industrialised world she was living in was also the outcome of a weird mix of “Magic, Science, and Religion” with magical and mythical, quasi religious, thinking predominating among people who were viewed and who viewed themselves as rational and making scientifically grounded decisions. At the time I was engaged in very similar research, had observed exactly the same kind of phenomena in my own Australasian fieldwork and had reached similar conclusions.

In my observations, since the 1970s the prevalence of this syndrome has considerably worsened. This is what I seek to encapsulate as the Tooth Fairy Syndrome. With the Oil Peal harbour, the unquestioned sway of the Tooth Fairy is coming to an end. However, the imprint of Tooth Fairy thinking remains so strong that most discussions and analyses remain highly confused, even within scientific circles still taking economic notions for granted.

In the longer run, the end effect of the Oil Fizzle DK is likely to be an abrupt decline of GHG emissions. However, the danger I see is that meanwhile the GEI, and most notably the OI, is not going to just “curl up and die”. I think we are in a “die hard” situation. Since 2012, we are already seeing what I call a Big Mad Scramble (BMS) by a wide range of GEI actors that try to keep going while they still can, flying blind into the ground. The eventual outcome is hard to avoid with a GEI operating with only about 12% energy efficiency, i.e. some 88% wasteful current primary energy use. The GIW’s agony is likely to result in a big burst of GHG emissions while net energy fizzles out. The high danger is that the old quip will eventuate on a planetary scale: “the operation was successful but the patient died”… Hence my call for “enquiring into the appropriateness of the question” and for systemic thinking. We are in deep trouble. We can’t afford to get this wrong.

Next: Part 3 – Standing slightly past the edge of the cliff

Bio: Dr Louis Arnoux is a scientist, engineer, and entrepreneur committed to the development of sustainable ways of living and doing business. His profile is available on Google+ at:

[1] As THG have conclusively clarified, see
[2] The Meadows’ original work has been amply corroborated over the ensuing decades. See for example, Donella Meadows, Jorgen Randers, and Dennis Meadows, 2004, A Synopsis: Limits to Growth: The 30-Year Update, The Donella Meadows Institute; Turner, Graham, 2008, A Comparison of the Limits to Growth with Thirty Years of Reality, Socio-Economics and the Environment in Discussion, CSIRO Working Paper Series 2008-09; Hall, Charles A. S. and Day, John W, Jr, 2009, “Revisiting the Limits to Growth After Peak Oil” in American Scientist, May-June; Vuuren, D.P. van and Faber, Albert, 2009, Growing within Limits, A Report to the Global Assembly 2009 of the Club of Rome, Netherlands Environmental Assessment Agency; and Turner, Graham, M., 2014, Is Global Collapse Imminent? An Updated Comparison of The Limits to Growth with Historical Data, MSSI Research Paper No. 4, Melbourne Sustainable Society Institute, The University of Melbourne.
[3] Although there is a drive to use more and more liquefied natural gas for gas tankers and ordinary ship fuel bunkering.