Whenever I think about oil, and the fact that we are likely already past peak oil production, I am reminded of what oil has done for us as human beings.

For those of you unfamiliar with the Peak Oil concept, it is not so much a belief that we are running out of oil so much as a historically proven description of the behavior of producing oil fields. For a great video primer on the subject, see Chris Martenson’s fine work in Crash Course Video 17a.

Oil is, obviously, stored energy. But what I think many fail to consider, is that it is cheap energy, and it accomplishes a great deal of work that otherwise may have had to been performed by human energy.

Cheap energy has affected everything about our lives as human beings ever since the combustion engine.

I am reminded of how America went from an agricultural society with most of its citizens living and working on farms, to today the work that would take perhaps a few hundred men or more can be accomplished by two guys, and an oil powered tractor.

By ancient standards, every single person in the western world lives a lifestyle of a King. From the wide variety of foods we so conveniently have available to us in our grocery stores, to simple conveniences we have for generations taken for granted. Is this solely because humans are so much more advanced technologically, or does it perhaps have something to do with how cheap energy has been for the last 50 years?

We run lights all day and all night, each light bulb if powered by humans would require a man riding an exercise bike 24 hours a day in your basement. The food in your refrigerator for example is more energy intensive than you may realize. It has been estimated that 1 lb of beef can take up to 8 lbs of grain to produce, and each pound of grain that goes into raising that livestock again goes back to those oil powered tractors. It also took oil powered trucks to bring that beef from the farm to your grocery store shelf, and even more oil to fuel your car or truck taking it from the store to your home. Even something so simple as water takes power to bring to your faucet, and more power if its filtered first either by your favorite bottled water company, the local muni water system, or your private filtration system.

In terms of gold, it also comes back to that labor/energy component. You see, in our view, gold is simply a method of storing energy, as it has been for thousands of years. It could be argued that this ability to store labor is a primary requirement of money.

Another way of looking at it, is that labor produces wealth, as any labor above that needed to accommodate basic needs such as a roof over our heads, food and water, basic transportation and clothing can of course be opted into savings accounts, stock markets and other paper instruments, and for some of our more astute readers, gold and silver.

Gold has performed this role of wealth/energy storage for thousands of years of human history, and indeed has been referred to as the Money of Kings.

So the question might be asked: Why then is gold so good at storing wealth?

It comes back to the labor component. In ancient times, it took the measure of a mans life to extract and refine a single ounce of gold from the earth. There was no internal combustion engine, and no oil burning trucks that could haul literally hundreds of tons of ore.

Can you imagine how many mens labor it would take to move the ore that a single truck like the one below could move?

For a good deal of history, a mans life could be purchased, for his entire life, for an ounce of gold. This of course makes mathematical sense, if it took an entire mans life labor to extract an ounce of gold, of course it would make sense that it would equal a mans lifelong labor.

All through history, right up until the last century, extracting gold from the earth was a labor intensive process. With the adoption of the use of oil powered machinery, the ability to extract huge amounts of gold from the earth became possible.

Thanks to cheap energy (that would have been mens labor), over 80% of the known above ground reserves of gold have been extracted from the earth just in the last 100 years.

So let me bring that into perspective for you across the timeline. For over 5000 years of history, gold has been very difficult to remove from the earth, yet in the last 100 years has become relatively easy in comparison.

In ancient times, one ounce of gold was valued at the the amount of productive capacity of a mans life. This changed because of the energy equation of cheap energy in the form of oil.

If the Peak Oil argument is true, and we have good reason to believe it is, then the energy equation in regards to gold extraction may be reverting back to what it was previous. Energy inputs are one of the most important costs in the production of gold. If it is clear oil production will continue to drop, while demand continues to rise, then the cost of oil must also rise, and therefore the cost of extracting gold from the earth.

How will this impact the value of an ounce of gold?

It has occurred to me that some of the greatest fortunes ever made have been at the front of trends that affect all of mankind. Clearly, energy, or rather is lower availability in the years ahead is something that will change drastically over the next 30 years. This massive shift will affect every aspect of life, just as computers have over the last 20 years.

Interestingly, gold has retained its purchasing power well over time in terms of raw materials if not in paper. I say this because if we wanted to use the mans life labor model, how much does a man in a typical western nation earn in his lifetime in dollars? Certainly far more than the the price per ounce we see reflected in the “paper gold” markets.

Yet even with the advances in how much has been mined by use of cheap energy, the ratio of gold per capita has remained fairly constant.

In terms of the price of oil in the future and the effect it will have on the price of gold, I am of the opinion that it will be somewhere between what it is now, and the amount a man is capable of earning in his lifetime. It may not go so high as that number, but it certainly has in the past, and it will certainly be higher than it is now.

Branson warns that oil crunch is coming within five years

Sir Richard Branson, founder and chairman of the Virgin Group

Sir Richard Branson and fellow leading businessmen will warn ministers this week that the world is running out of oil and faces an oil crunch within five years.

The founder of the Virgin group, whose rail, airline and travel companies are sensitive to energy prices, will say that the ­coming crisis could be even more serious than the credit crunch.

“The next five years will see us face another crunch – the oil crunch. This time, we do have the chance to prepare. The challenge is to use that time well,” Branson will say.

“Our message to government and businesses is clear: act,” he says in a foreword to a new report on the crisis. “Don’t let the oil crunch catch us out in the way that the credit crunch did.”

Other British executives who will support the warning include Ian Marchant, chief executive of Scottish and Southern Energy group, and Brian Souter, chief executive of transport operator Stagecoach.

Their call for urgent government action comes amid a wider debate on the issue and follows allegations by insiders at the International Energy Agency that the organisation had deliberately underplayed the threat of so-called “peak oil” to avoid panic on the stock markets.

Ministers have until now refused to take predictions of oil droughts seriously, preferring to side with oil companies such as BP and ExxonMobil and crude producers such as the Saudis, who insist there is nothing to worry about.

But there are signs this is about to change, according to Jeremy Leggett, founder of the Solarcentury renewable power company and a member of a peak oil taskforce within the business community. “[We are] in regular contact with government; we have reason to believe their risk thinking on peak oil may be evolving away from BP et al’s and we await the results of further consultations with keen interest.”

The issue came up at the recent World Economic Forum in Davos where Thierry Desmarest, chief executive of the Total oil company in France, also broke ranks. The world could struggle to produce more than 95m barrels of oil a day in future, he said – 10% above present levels. “The problem of peak oil remains.”

Chris Skrebowski, an independent oil consultant who prepared parts of the peak oil report for Branson and others, said that only recession is holding back a crisis: “The next major supply constraint, along with spiking oil prices, will not occur until recession-hit demand grows to the point that it removes the current excess oil stocks and the large spare capacity held by Opec. However, once these are removed, possibly as early as 2012-13 and no later than 2014-15, oil prices are likely to spike, imperilling economic growth and causing economic dislocation.”

Skrebowski believes that Britain is particularly vulnerable because it has gone from being a net exporter of oil, gas and coal to being an importer, and is becoming increasingly exposed to competition for supplies.

“This is likely to put pressure on the UK balance of payments and in a world of floating exchange rates is also likely to put downward pressure on the valuation of sterling. In other words, the positive benefits to the valuation of the pound as a petrocurrency are now eroding,” he said.

The question of peak oil came to centre stage last November when a whistleblower told the Guardian the figures provided by the IEA – and used by the UK and US governments for much of their planning scenarios – were inaccurate.

“The IEA in 2005 was predicting that oil supplies could rise as high as 120m barrels a day by 2030, although it was forced to reduce this gradually to 116m and then 105m last year,” said the IEA source. “The 120m figure always was nonsense but even today’s number is much higher than can be justified and the IEA knows this.”

But Saudi Arabia launched a counter-strike at Davos, insisting the issue was overblown. “The concern about peak oil is behind us,” said Khalid al-Falih, chief executive of Saudi Aramco.

Tony Hayward, the BP chief executive, downplayed fears about dwindling supplies in an interview with the Guardian last week.

Original Article

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