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Much of the mainstream media in the US bills shale gas as the next revolution that will push the country towards energy independence but the facts do not support these claims. Furthermore due to the high costs of extracting shale gas it is not economical to produce at current market prices. The effect of these low prices are already being felt from producers as drilling activity has decreased significantly throughout 2012 which has resulted in production levels plateauing.
It is likely that the US will peak in total natural gas production in the coming two years as peak production of conventional gas has already been reached and the high decline rates of shale gas make it very difficult to sustain even existing levels of production for a prolonged period of time due to the high levels of investment required to maintain exponential growth of drilling.
While the European region may have more reserves than the US and ultimately the problems will not be as acute the region is heavily dependent on Russia for its gas and will become increasingly dependent due to increasing consumption and reduced production in the EU region. As a result Europe will need to make some difficult decisions on how it procures its gas either from Russia or the Middle East which is rich in natural gas. Gaining access to the Middle East gas may prove to be difficult however due to the need for large investments in pipelines or LNG terminals. In addition to these financial (and possibly political) barriers there is likely to be strong competition from Asia and most particularly China for these natural gas resources as those economies grow faster than European countries.
Natural gas can come in various forms and this list should offer you a glance of the grades of natural gas available in the market:
|Conventional Gas – Consists primarily of methane but also contains other gases such as ethane, propane, other hydrocarbons, hydrogen sulphide, carbon dioxide and nitrogen.Although natural gas emits less C02 than other fossil fuels when burned it should be noted that methane itself is 72 times more potent than C02 as a greenhouse gas so any natural gas leakages in pipelines/LNG terminals will mean its advertised environmental advantages will be significantly reduced.|
|Condensate – Gases often found in oil wells and some gas wells. The gas found in these “wet” wells contain heavier hydrocarbons (such as pentane) which are found as a gas upon extraction but then condense to form liquids when reaching room temperature hence the term condensate.|
|Coal-bed Methane – Natural gas extracted from coal beds. This form of natural gas lacks hydrogen sulphide and is often called “sweet gas” because of this property. Coal-bed methane also contains less ethane and propane and none of the heavier condensate hydrocarbons.|
|Shale Gas – Natural gas found in shale rock. This form of natural gas has a slightly different composition to standard natural gas which can result in higher processing costs.  |
The importance of a global peak production of natural gas is somewhat less relevant than its peak coal or peak oil counterparts. This is because unlike coal or oil natural gas is not exported in large quantities. This is particularly true for the North American market as the costs of exporting natural gas over the Atlanta and Pacific oceans are excessively high. This makes the market for gas far less open and the closed nature of these markets is reflected in the huge differences in spot prices:
Natural gas prices obtained from BP Statistical Review of World Energy June 2012.
As a result of these closed markets it becomes more relevant to examine the time when natural gas will peak in each region. If we divide the world’s natural gas production into its respective continents we find the top three largest markets are the Europe, America and Asia Pacific.
|North America||Europe + Russia||Asia Pacific||Middle East||South America|
|2011 Total Consumption||863.8 billion cubic metres||1101.1 billion cubic metres||590.6 billion cubic metres||403.1 billion cubic metres||154.5 billion cubic metres|
|2011 Total reserves||10.8 trillion cubic metres||78.7 trillion cubic metres||16.8 trillion cubic metres||80.0 trillion cubic metres||7.6 trillion cubic metres|
|2011 % of world reserves||5.2%||37.8%||8.0%||38.4%||3.6%|
|2011 Production||864.2 billion cubic metres||1036.4 billion cubic metres||479.1 billion cubic metres||526.1 billion cubic metres||167.7 billion cubic metres|
|Year reserves are depleted||2023||2086||2046||2163||2056|
Data obtained from BP Statistical Review of World Energy June 2012.
|PROVEN RESERVES (1P) = Reserves that have a 90% or greater probability of being present, the term is often shortened to 1P.
PROBABLE RESERVES (2P) = Reserves that have a 50% chance of being present. 2P represents proven + probable reserves.
POSSIBLE RESERVES (3P) = Reserves that have only a 10% chance of being present. 3P represents proven + probable + possible reserves.
This figure of an 8% depletion rate equating to a 12.5 year supply is certainly a contentious and alarming point to make. It should be noted that other reputable sources such as the EIA arrive at similar figures claiming the US has a 13.7 year supply if taken on a R/P basis (R/P = Reserves/Production rate). In the case of the EIA it does stress however that discoveries currently exceed production rates. Still, this is quite different to the picture painted out by the media and even Obama who claimed that the US has enough natural gas to meet current needs for 100 years. This discrepancy over how long these reserves will last mainly stem from the fact that Obama included proven, probable, possible, speculative AND coal-bed methane reserves when applying the R/P ratio. It should also be noted that even adding all those reserves the total still only accounts for 95 years (it would appear the papers simply rounded of for the final five years). In the case of BP and EIA the supply time was calculated only using proven reserves.
In any case it is best to breakdown natural gas into its different grades to gain a greater understanding of the overall situation of natural gas production:
Natural Gas Production data obtained from EIA.
Note: Since January 2012 the EIA has only published aggregate totals for natural gas production.
From this graph we see that while natural gas production has risen slowly but steadily peak production of conventional natural gas was reached in December 2006 when 1.56 trillion cubic feet of gas was extracted that month. Since then production of conventional natural gas has declined by 35.5% for the period of December 2006 to December 2011. These declines in conventional gas have been masked by steep increases in shale gas production; in fact these large gains in shale gas have been the main reason why total natural gas extraction has risen in recent years. This large increase in shale gas is reflected in that fact that until 2007 there was negligible amounts of shale gas being produced but as of December 2011 shale gas makes up 33% of total natural gas production.
With conventional gas already reaching a peak it would seem that the US’s future in gas production lies firmly in shale gas production. Unfortunately the cost of producing shale gas is higher than conventional gas as it requires the use of more expensive horizontal drilling not to mention hydraulic fracturing (informally known as fracking) which on average the fracturing operation alone cost $6-7 million per well. This $6-7 million cost may not even cover the entire expenses imposed on society as hydraulic fracturing is a very water intensive activity with each operation requiring the use of 1.2-3.5 million gallons of water. Each well (of which there are currently thousands in operation) requires hydraulic fracturing and in some cases multiple fracturing operations are performed on the same well. Furthermore there is on-going controversy over the fact that the chemicals used in fracturing can result in water contamination on a chemical and even possibly radioactive level. It is also speculated that these drilling activities can result in minor earthquakes.
(10 minute extended trailer it is recommend you watch the entire movie for more information)
Other issues with shale gas come from its composition as shale gas is slightly different to conventional natural gas as it contains higher concentrations of ethane, propane, hexane and even diluents such as C02 and nitrogen;  this view is also supported by Dmitry Orlov. This means that the processing costs as well as drilling costs will be higher than conventional natural gas. To cover such costs it often stated that shale oil has to be priced at least $4 per thousand cubic feet but the figure is more likely to be $6 or even higher. Considering current natural gas prices are $3.19 per thousand cubic feet at the time of writing it means the vast majority of shale gas is being produced at a loss. As a result it should be expected that the number of rigs that drill for gas will be declining and upon inspection of drilling rigs that does appear to be the case:
US Active rigs engaged in oil/gas drilling, according to Baker Hughes.
The period between December 29th 2011 and December 28th 2012 saw the rig count for natural gas decline from 809 to 431 rigs a 46.7% decline in just one year! It is this decline in drilling that has resulted in total production for most of 2012 to stagnate. To make matters even worse is the fact that shale gas plays have high decline rates of around 65%-85%. As a result of these two factors it seems only a matter of time before shale gas and by extension total natural gas production in the US to decline. Indeed many shale gas producing regions such as the Barnett Shale, Haynesville Shale and Fayetteville have seen production rates plateau while The Eagle Ford and Woodford Shale have already began to experience declines. The only shale gas region that still appears to exhibit exponential growth in rates of production is the Marcellus Shale. However even with strong growth in this region it seems highly likely that production will hit a peak within the next two years due to the fact that annual decline rates for the US now totals 32% or 22 billion cubic feet per day and these decline rates will continue to increase even further as a larger percentage of gas wells are devoted to shale gas production.
Europe + Eurasia
While on the surface the European situation may not seem as acute as that of the US it should be noted that European natural gas production is dominated by Russian production with the country producing 58.6% of the gas in the entire region. Furthermore the United Kingdom; which was the third largest producer in the region as recently as 2008, is now experiencing major declines with the latest decline figures for 2011 being 20.8%. This on-going decline means as time goes on the Western European nations can no longer depend on Britain for exports and will become increasingly dependent on exports from further regions, the most obvious being Russian exports but this will also include other former Soviet countries such as Turkmenistan or Azerbaijan.
Natural gas production data obtained from BP Statistical Review of World Energy June 2012.
These issues of dependence will be further compounded if Germany follows through with its plan to phase out nuclear energy as natural gas will be the favoured fossil fuel to replace nuclear energy due to its lower C02 emissions. Indeed this move towards natural gas is a pattern repeated by many European nations as many strive to meet the EU quotas of reducing 20% of their 1990 C02 emissions by 2020. If we look at the energy mix of Europe we find that the amount of energy obtained from natural gas has consistently been increasing in the last 20 years:
Natural gas production data obtained from BP Statistical Review of World Energy June 2012.
It is this increased demand that means Europe will have to look elsewhere for gas to meet internal demand. Another candidate apart from the former Soviet states is the Middle-East most notably Qatar but also possibly Algeria. Qatar has the third largest reserves in the world and has trebled its exporting capacity since 2006 through the installation of numerous Liquefied Natural Gas (LNG) terminals. However such terminals are expensive and to be economically viable require the use of long-term contracts. Moreover Europe will face strong competition from Asia countries who are not only long-term customers to this exported gas but their economies are expected to grow faster than Europe.
Another avenue being pursued is that of shale gas however it is still early days to make any educated judgement on what will transpire here as most EU nations have opted to take a cautious stance to shale gas and wish to seek a rigorous regulatory framework being formed before pursuing this issue further. However the United Kingdom and Poland have been more aggressive in their pursuit of shale gas with both nations giving the green light to drilling. 
Regardless of what happens with shale gas in Europe the situation will not massively change. The simple fact of the matter is if we exclude Russia and other former Soviet nations the main EU block has already peaked in 2004 with a production of 327.5 billion cubic metres and since then production has declined by 15%. Seeing as the current trend is for natural gas consumption to increase then it means Europe must build extra infrastructure to accommodate more natural gas imports from either Russia or the Middle East but each option has its own set of problems. If Europe relies heavily on Russia they will have a monopoly and will gain an increasingly strong foothold on the energy market and the chances of a large scale disruption such as the disputes in 2006 and 2009 in Ukraine is likely to become more common place. This is a particular issue because 80% of all European gas imports from Russia flow via Ukraine pipelines. The probability of such disruptions occurring will only increase if numerous European countries experience recessions and struggle to pay their debt obligations as this was the chief cause for Russia shutting its pipelines to Ukraine.
If on the other hand Europe decides trade with the Middle East then it must invest heavily in either pipelines or LNG terminals to gain access to Middle Eastern gas but even then Europe will likely face the prospect of stiff competition from Asia for this resource and likely higher prices which will harm economic growth.
As we go forward it seems quite likely that supplies of natural gas will become increasingly strained. This will be particularly true in the west as production in Europe has already passed its peak and the growth of Asian economies will mean most of the excess supply from the Middle East and former Soviet bloc will largely be diverted to them. Moreover it is likely that the Asian economies will be able to tolerate higher prices natural gas prices (as is the case with oil) which will stand them in good stead in the future when it is reasonable to assume natural gas prices will rise (this will happen because of demand rising faster than supply).
The reason the Asian economies will be able to tolerate higher gas prices better is because of a concept known as energy leveraging. That is, when an economy faces high prices it will leverage these high energy costs against cheaper energy sources. In the case of Asia they have cheaper sources such as coal and even cheaper labour (which is less the case in Europe). This means any expensive energy sources can be diverted into economic activities that are more productive for example an Asian country will use this natural gas to provide electricity for a corporation which is a more economically productive use of this energy than if it were used to heat a domestic home in a European country. To learn more about energy leveraging please refer to this article. This dynamic will become even more prominent should there be a shortage of coal as suggested in my previous article.
These issues of constrained natural gas supply will be further compounded if the US reaches its own peak in the near future. While we cannot be certain this will be the case I believe this will peak will occur soon because of the high decline rates of shale gas. These high decline rates mean a high level of investment (which must increase on an exponential basis) needs to be sustained for production to continue rising or even to maintain a plateau. However since current market prices are below production costs these investments cannot be supported and as a result drilling activity will decline (this has already happened).
This sudden reduction in investment by itself would not necessarily result in production peaking even with high decline rates. For example if prices were to rise quickly then investments would return to normal levels fairly quickly. However I do not believe this will be the case. This is because due to the on-going recession in the US and the milder winters demand for natural gas has not kept up with supply. As a result the amount of gas held in storage has increased over the last few years:
As we see from the diagram storage capacity is near five year highs, indeed storage capacity has been close to the point of overcapacity. As a result it will take a considerable length time of time before storage levels get low enough for the price of natural gas to rise sufficiently to induce large scale investments. What is more if prices of natural gas rise above $4 per thousand cubic feet then that will mean it will become more economical to mine coal reducing demand for gas even further.
If this period of low gas prices carries on for a considerable length of time then producers will lose even more money and this is likely to make investors more cautious in reinvesting in the future after the shale gas bubble bursts. In the after mass of such an event it is likely any investors still interested in investing will scrutinise the economics more deeply and according to analysis from Arthur E. Berman and Lynn F. Pittinger (warning their detailed analysis is not for the faint of heart!) the shale gas plays are only marginally profitable even under the best of circumstances. This view is further supported by Richard Heinberg who suggests that the EROEI of shale gas can be as low as 6:1. With a ratio this low it is likely that these plays can only be supported if subsidised with higher EROEI energy sources. Therefore as time goes on and there are less cheap energy resources available it is very possible that shale gas production will largely cease as it would no longer prove economical from a financial and energetic basis to drill.
 = BP Statistical Review of World Energy June 2012 (BP as .pdf file)
 = U.S. Crude Oil, Natural Gas, and NG Liquids Proved Reserves (EIA)
 = The Math Behind the 100-Year, Natural-Gas Supply Debate (CNBC)
 = What the Frack? (Slate)
 = Natural Gas Gross Withdrawals and Production (EIA)
 = Landscape with well (The Economist)
 = Unconventional Gas Shales: Development, Technology, and Policy Issues (Congressional Research Service as .pdf file see pg. 11)
 = Shale Gas Measurement And Associated Issues (Pipeline & Gas Journal)
 = Shale Gas: The View from Russia (ClubOrlov)
 = Economics of Shale Gas (energybiz)
 = The murky future of U.S. shale gas (smartplanet – Chris Nelder)
 = Rotary Rig Count (Baker Hughes)
 = U.S. marketed natural gas production levels off in the first half of 2012 (EIA)
 = Barnett Report (Pickering Energy Inc. as doc file see pg. 19)
 = Chesapeake Energy – Haynesville Shale Decline Curve (Haynesville Shale)
 = After The Gold Rush: A Perspective on Future U.S. Natural Gas Supply and Price (The Oil Drum)
 = What is the EU doing about climate change? (European Commission)
 = The Cold Facts About a Hot Commodity: LNG (The Oil Drum)
 = Fracking for shale gas gets green light in UK (the guardian)
 = Poland Moves Ahead With Shale Gas Production (Arkansas Business)
 = Fourth Assessment Report (IPCC as .pdf file see pg. 212)
 = Natural gas storage capacity up 3.3 pct: EIA (REUTERS)
 = Headwinds for Rally in Natural Gas (Wall Street Journal)
= Gas Bubble Leaking, About to Burst (Energy Bulletin)
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The prevailing wisdom is that the US supply of coal is so abundant that the reserves will be able to satisfy current consumption needs for 200 years or more. Similar optimistic predictions are also made on a global level. However this optimism is not supported by facts based upon valid research.
In fact the quality and reliability of the available data makes any predictions highly suspect as much of the data has not been updated in many years often decades and there has been a history of reserves being repeatedly revised downwards. Moreover the quality of remaining coal is not only poorer but often has a higher polluting content due to higher CO2 emissions per capita energy, SO2, mercury and other toxins. In addition to this the poorer grade of coal is often more difficult to extract. It is this combination of factors that mean peak coal is likely occur much sooner than anticipated and this event is likely to occur just as the world – particularly the Far East – is making a transition from oil to coal.
Peak coal unlike its peak oil counterpart is a little trickier to define as maximum coal production can pertain to one of two things: peal coal production can mean the maximum amount of coal mined or it can be defined on its energetic peak. The reason these differences exist is because the heat content of the four major grades of coal are significantly different as described below:
|Anthracite – Has the highest carbon content (86% to 97%) and releases around 33,000 BTUs per kilogram. Rare in the U.S., it comprises only 0.2% of total coal production. All the anthracite mines in the U.S. are located in north-east Pennsylvania.|
|Bituminous coal – Contains the widest range of carbon content (45% to 86%) and releases around 23,100-34,100 BTUs per kilogram. Bituminous coal makes up 45% of U.S. coal production by weight and 54% by energy. West Virginia leads production, followed by Kentucky and Pennsylvania.|
|Sub-bituminous coal – Contains (35% to 45%) carbon content and releases around 18,200-28,600 BTUs per kilogram. Sub-bituminous coal makes up 47% of U.S. coal production by weight and 41% by energy. Wyoming produces the vast majority of sub-bituminous coal in the U.S.|
|Lignite – Contains the lowest carbon content (25 to 35%) carbon content and releases the lowest energy content of the four types at 8,800-18,260 BTUs per kilogram. Lignite makes up 7% of U.S. coal production by weight and 5% by energy. Texas and North Dakota are the main producers of lignite.|
Calculating the time when the globe will reach its peak in coal production both in total tonnage mined or energetic levels is problematic because the data available is of poor quality. This poor data manifest itself in two ways: first countries have demonstrated a consistent tendency of overstating proven reserves only to downgrade these estimates in the following years. Between the periods of 1980 to 2005 for example global coal reserves have declined by 55% from 10 trillion tons hce (hard coal equivalent) in 1980 to 4.5 trillion tons hce in 2005.On this point it should be noted that the EIA which has stated that it’s Estimated Recoverable Reserves (ERR) of 268 billion short tons for the US cannot technically be deemed reserves because of the fact these “reserves” have not been analysed for profitability of extraction. It remains to be seen whether we will see further declines in total reserve figures but considering the past data amendments it seems likely there will be further reductions made in the future. Thus any projections made in this article must be taken with a degree of caution as it is likely the peak production will come earlier than projected due to subsequent future downgrades of total reserve amounts.
Another issue we see is that many countries – most notably China – have not updated their reserve data for many years despite the fact there has been significant extraction of reserves since the last update. In China’s case the last update was made in 1992 and this is despite the fact that it has extracted over 20% of its reserves since then. With those shortcomings in mind we can try and make a basic overview of the coal situation in the four largest producers who account for 75% of global coal reserves :
|2011 Total reserves||237 Billion tonnes||157 Billion tonnes||115 Billion tonnes||76 Billion tonnes||61 Billion tonnes|
|2011 % of world reserves||27.6%||18.2%||13.3%||8.9%||7.0%|
|2011 Production||992.8 Million tonnes||333.5 Million tonnes||3520 Million tonnes||415.5 Million tonnes||588.2 Million tonnes|
|Year reserves are depleted||2250||2488||2044||2193||2116|
Data obtained from BP Statistical Review of World Energy June 2012.
What becomes immediately apparent are the large production and rapid depletion rate of China’s coal reserves. If China could maintain this 2011 extraction rate then their entire coal reserves would be exhausted by 2044 assuming there are no additions or reductions made to the reserve figures. While this fact is startling enough we must assume that production rates will continue to rise in the coming years as China undergoes further economic growth. If we examine the coal production rates of China against GDP we find that the two factors are closely in line with one another as the graph clearly demonstrates so this assumption of rising extraction is not an unreasonable one to make:
For the mathematically inclined this expiration date
was calculated by applying the formula below:
Te = 1/k × In ((kR/ E)+1)
Te= Expiration time k= percentage as a fraction i.e. 7%= 0.07 E=Production rate
Thus using the known figures of:
k= 0.075, R=1.15×1011,E= 3.52×109
Te = 1/0.075 x In ((8.625/3.52)+1) = 16.51 years
To calculate the time taken to deplete 50% of reserve base
Te= 1/0.075 x In ((4.3125/3.52)+1) = 10.66 years
If current trends were to continue then coal production would grow at a rate of 7.5% per annum which has been the average rate of growth for the 2000-11 period. Taking our current knowledge of existing production rates, total reserve amounts and growth rates we can calculate the number of years until China depletes 50% of its reserve base (when peak coal would theoretically occur) and we find the time required to deplete 50% of the reserve would be 10.7 years while the entire reserve would be depleted in 16.5 years if current growth trends were to continue.Thus by applying some arithmetic we can predict that China will reach domestic peak coal output of 7.61 billion tonnes by around 2022 or 2023. This peak year is not much different to the analysis provided by Dr. Minqi Li who projected a peak coal for China in 2027.
As stated previously, these figures must be approached with some scepticism as we cannot say with any confidence how accurate the data is. Still, even if we were to assume the best that this data is indeed accurate then the figures still paint a rather troubling picture as it demonstrates that current growth rates of coal consumption cannot be sustained for a period much beyond a few years even under the best of circumstances.
On the other hand if we assume that China is similar to other nations and will make downward revisions to its reserve base in the future then the peak is likely to occur even earlier than projected and this will be especially true if we apply the principle of Liebig’s law of minimum. That is production will be constrained by a factor that is most scarce in the production process. In China’s case what is likely to constrain production will be insufficient rail/road infrastructure to transport the coal, water shortages required for power plants and other bottlenecks be it economic (future demand rises more slowly), political (other energies gain more political support) or social (people do not want more pollution) in nature. Indeed it is these combination of reasons why Zhang Guobao; head of the China’s Energy Administration does not wish coal production to exceed four billion tonnes per annum. If that does prove to be the case then peak coal production will be reached in China in the very near future. This lower peak should enable reserves to last a bit longer but it will come at a cost of future GDP growth as China is heavily dependent on coal to generate its electrical needs (in 2009 for example 78.7% of total electrical production and 67.1% of total energy production in China came from coal). As a result, a reduction in coal production growth will reduce electrical supply growth and likely increase utility costs for consumers and businesses in the country. Whatever happens the depletion rates of coal will exceed 3% per year in either scenario which is an unacceptably high rate of depletion and means there reserve will be depleted by 2050.
Often dubbed the “Saudi Arabia” of coal the US has the highest coal reserves in the world accounting for 27.6% of global coal reserves.  It is often quoted by the media that the US has enough coal to last over 200 years under current rates of consumption. While this statement sounds hopeful there are numerous grounds to doubt whether this figure is really accurate. First of all, the estimates made in the 1970s have not been updated.  Second as stated earlier, the EIA has admitted that its reserve figures of 268 billion short tons are not reserves in the true sense as not all reserves have been analysed for profitability. What is more if we plot a graph for US coal production breaking down production into the four grades of coal we find discover a number of trends that may cast doubt that coal reserves are as abundant as commonly thought:
* = Please note that anthracite can be found at the bottom of the graph over the x-axis.
From this graph we see that the best source of coal; anthracite has largely been depleted. In fact the US anthracite production peaked way back in 1914 while the second best source, bituminous coal peaked in 1990 at 693 million short tons. It should be noted that bituminous coal production could, at least in theory, increase from current levels of production as the 1990 Clean Air Act did curtail coal production in the East coast as bituminous coal from this region contained a higher sulphur content. Still, it remains doubtful whether the 1990 peak could ever be eclipsed even if this act was repealed on account production has declined by 28% since the 1990 peak.
More significant however is the fact that the US has peaked on an energetic basis in 1998 with an output of 603.2 million tonnes of oil equivalent. The chances of this energetic peak being surpassed are higher however as 2008 production was within 2% of this energetic peak and the recent declines in gross coal output can reasonably be attributed to the recent shale gas revolution that has – at least temporarily – made natural gas the cheapest fossil fuel in the US market. Once the shale gas revolution ends and natural gas prices rise to more typical levels then we can determine whether this peak will be surpassed with greater certainty.
In any case we can say the EROEI for the US coal will decrease from now on because of the fact that more coal will be needed to be mined to deliver the same energy output due to the quality of coal being mined declining. This declining EROEI is also reflected in the fact that since 2000 US worker productivity, which is measured by tons mined per worker, has declined suggesting that the remaining coal is harder to extract and most of the “easy coal” has already been mined. This decline in worker productivity is a complete reversal of the historic trend in the US coal mining as prior to the year 2000 worker productivity had always been increasing in the country. This declining EROEI is likely to mean that we may have peaked in the amount of net energy this coal can provide, and considering that net energy is the energy used by greater society then that is troubling news indeed. For those that are interested in learning more about US coal reserves I would recommend watching the video below:
While the US has seen a recent decline in coal production and consumption, the same cannot be said for the rest of the world where coal continues to be the cheapest fuel on a BTU basis with a million BTUs in coal costing around $2.5-$3.5. It is this fact that makes coal the favourite choice for many developing nations in the Far East that utilise coal as the chief energy source as coals low cost has been the fuel to drive rapid economic growth. Moreover due to stringent regulations regarding coal pollution in the EU and US much of the heavier industries have shifted to Asia to take advantage of these lower costs. All this means that the production and consumption rates of the Asian block has sky-rocketed in the last 10 years with production increasing by 128.6% in Asia and 63.5% on a global basis since 2000. Off course for people concerned about climate change, CO2 emissions and other pollutants released by coal this increase is terrible news; it is certainly not the future many envisioned and if current trends hold then coal will be set to become the primary energy source of the world as soon as 2013.
Data obtained from BP Statistical Review of World Energy June 2012.
Conventional wisdom – a wisdom that is also shared by many climate change proponents – is that there are abundant amounts of coal in the ground that is sufficient to meet our needs for decades if not centuries. However upon closer inspection of actual reserve estimates we find there is great uncertainty on not just the reliability of the data available but there are also serious questions marks about whether our reserves can cope with the level of growth of consumption in recent years particularly the growth we see in the Asian countries.
Another troubling fact is the large depletion rates in China are likely to result in peak coal occurring in China within the next 20 years. If that is the case then that would have large ramifications on the countries future growth, as despite assertions to the contrary, coal dominates the energy mix in China and will continue to do so for the foreseeable future. Indeed it is this combination of rapidly rising demand and frequent downgrading of reserves that has organisations such as the Energy Watch Group projecting a global peak production of coal in the year 2025.
Diagram from Energy Watch Group projects global energetic peak coal occurring in 2025.
Richard Heinberg and David Fridley also share similar sentiments to the Energy Watch Group stating that the world will soon see the end of cheap coal. These higher costs will come as combination of declining coal quality and the remaining coal deposits being buried deeper underground or away from population centres. This issue of deeper coal deposits will be a particular issue in China as much of its large coal reserves are deep underground and will therefore pose considering engineering challenges to extract. Meanwhile in Siberia and Alaska there are large coal deposits in those regions but it seems unlikely these sources will be utilised due to the fact it would require a considerable amount of capital investment to not only mine the isolated and inhospitable regions but also build the necessary infrastructure for the coal to be transported vast distances so it can be sold in areas where it is needed.
The issues mentioned above will be further exacerbated if the world experiences a terminal decline in world oil consumption as demand for coal will increase even further to make up for the shortfall in lost oil energy. However what people are likely to find is that not only will there not be enough coal to meet new demand but it is also quite likely that any coal that is still available will be of a poorer quality and harder to extract. This therefore means the net energy or EROEI these coal deposits yield is likely to not be sufficient to take the slack from the lost oil production to allow economic growth to occur as commonly believed by many people and pundits.
 = Today in Energy (EIA)
 = Types of Coal (American Coal Foundation)
 = Coal: Resources And Future Production (Energy Watch Group as .pdf file – pg.11)
 = Peak Coal – Coming Soon? (The Oil Drum)
 = Full cost accounting for the life cycle of coal (The New York Academy of Science Journal as .pdf file – pg. 4)
 = BP Statistical Review of World Energy June 2012 (BP as .pdf file)
 = China GDP: how it has changed since 1980 (the guardian)
 = Forgotten Fundamentals of the Energy Crisis (Al Bartlett.org)
 = Peak coal and China (Energy Bulletin)
 = China’s Coal Crisis (The Wall Street Journal)
 = Facing China’s Coal Future (OECD/IEA as .pdf file – pg. 7)
 = US Coal Reserves: 1997 Update (EIA as .pdf file – pg. eight)
 = Coal (EIA)
 = Nuclear And Fossil Fuels (Dr. M. King Hubbert as .pdf file – pg.36)
 = Clean Air Act Taking Toll on High-Sulfur Coal Mines (Los Angeles Times)
 = Coal: The Ignored Juggernaut (PeakProsperity)
 = Coal: Resources And Future Production (Energy Watch Group as .pdf file – pg.7)
 = The end of cheap coal (Energy Bulletin)
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Peak Oil is an old topic for long time Doomers, but many Rookies in the Collapse Blogosphere are not that well versed in the ramifications of energy depletion issues. Here, Monsta666 gives a cogent overview of the Peak Oil situation as it stands now-RE
Peak oil is not “running out of oil” as commonly depicted by critics in the mainstream press rather it is the time when total oil production reaches its maximum. After peak oil the total amount of oil production goes into terminal decline. It is really quite simple what peak oil is but people have a habit (not just with oil) of making the definition overly complicated.
A good example of peak oil can be seen in the graph below which shows that US oil production peaked at 9.6mbpd (million barrels per day) in 1970 and since then has gone into decline. There have been two recoveries with the first occurring in the late 1970s to late 1980s. This first recovery came about when the biggest oil field in the US (Prudhoe Bay) came online. There has also been a more recent recovery in production and this new recovery was mainly the result of the shale oil revolution in the late 2000s. None of these recoveries have exceeded the peak of 1970 however. This oil production profile is typical of most countries and perhaps the US is even slightly unusual in this aspect when compared to other countries as most countries do not experience a recovery periods.
Since peak oil is concerned with production rates it is about flow rates. That means it is not about reserve numbers as flow rates cannot be accurately determined by looking at reserve numbers in isolation. This point must be stressed particularly in light of recent years were a disproportionate amount of new oil comes from unconventional sources. As well as providing lower EROEI (Energy Return On Energy Invested) the flow rate from these sources tend to be lower relative to reserve size. This means that huge reserves number can be added but as they have low flow rates then these sources cannot offset the declines of conventional oil which incidentally are expected to decline by about 7% per annum according to the EIA (Energy Information Administration). Thus peak oil will be reached even though total reserves may increase substantially.
It should be noted that the dynamics of a global peak oil production will be quite different to the peak oil of an individual country. This is because unlike a single country, a change in the supply on a global scale will have a profound effect on the global price. An individual country on the other hand has a small influence on the world price (at least for the vast majority of countries). If the world supply of oil becomes constrained the price of oil will rise and this will either create a recession, bring more oil to the market or a combination of both. These factors will likely result in an extended plateau as more oil is brought online to offset declining fields while the high price will reduce demand keeping production from having to get too high. The graph below of world oil production demonstrates the trend described in this paragraph:
This plateau cannot be maintained indefinitely. As time progresses the amount of investment required to maintain production rates rises exponentially which means higher and higher price is required to maintain flow rates. At some point the global economy cannot support the costs required to maintain flow rates and as a result total oil production will decline. If the flow rates decline then the total supply in the market will decrease and if demand remains constant or worse rises, then oil prices must rise in tandem. Now the issue to bear in mind and this is a point that is often forgotten or overlooked even to people aware of peak oil, is the belief that oil prices will rise to infinity. I would say such a scenario is not going to happen, at least not within the foreseeable future..
It should be remembered that the price of oil has a profound effect on the world economy. If the price of a barrel of oil reaches a certain threshold it will send the economies that import oil into a recession. When a country enters a recession the demand for oil will decrease which will result in a price drop. We have seen two examples of this demand destruction in recent years; the first occurred in 2008 when oil reached $147 a barrel before the price fell dramatically due to the onset of the global financial crisis. The second more recent crash happened in March 2012 when oil reached $128 a barrel (Brent oil) and then subsequently fell to $90 a barrel. These high prices contributed to the ensuing recession in the major OECD countries particularly Europe and this demand destruction has been the chief contributor to the recent price decreases. We can therefore say there is a limit on how high oil prices can reach before it results in a recession and prices come down. The correlation between oil prices and recessions is strong with nearly all recessions in the last 50 years coincided with a recent rise in world prices as shown in the graph below:
Another important aspect to remember is when oil prices rise the economies of oil exporting nations grow leading to more internal consumption of its oil resource. In nearly all cases this internal consumption increase exceeds the rise in total production which results in less oil being exported. This rise in internal consumption is even more pronounced in Middle-Eastern countries were the price of oil is heavily subsidised and the culture for efficient use of petroleum is not widespread. Furthermore a significant amount of electrical energy, which is also heavily subsidised in the Middle-East, comes from oil which creates a strong downward pressure on the total amount of oil exported. As less oil is exported the price needed by these exporting countries to balance its books rises.
This issue of balancing the budget becomes even more acute if the exporting country needs to pay large fuel subsidies or/and social programs as these costs will be added on top of the increased investments required to maintain/increase oil production. These elevated costs are further exacerbated if the population is rising rapidly which is often the case in Middle-Eastern countries. If the price of oil were to fall below the break-even price for an extended period of time then the exporting country will reduce supply in an attempt to bolster prices. Thus there is a price floor for oil and since global net exports are decreasing this price floor will slowly rise over time. This decline in global net oil exports is clearly seen in the graph below:
Now with both those facts established we can see that there is a price ceiling which oil prices cannot exceed without creating a recession and there is also a price floor that oil will not stay below for long. Since the price floor will rise over time, there will come a time when the price floor meets the price ceiling and when that time arrives it is likely to create significant problems on the global economy.
This constraint supply and shifting price floors/price ceilings (which will come closer together over time) will also lead to another phenomenon. That is an increase volatility of oil prices. In fact a high volatility of price can be seen as indicator that the amount of spare capacity in the system is low. This increasing price volatility can easily be seen in this graph below:
As a result of this increasing price volatility it will become more difficult for consumers and suppliers of such oil to make long-term business plans which will raise costs indirectly as result as it becomes harder to maintain favourable long-term contracts. However what is more significant is since oil prices are so heavily connected to the state of the economy there is a good chance these bigger fluctuations will lead to greater volatility in growth rates (going from recession to growth and back again).
It should be noted that as stated earlier, there are limits to how high prices can rise and it is likely that coming oil crunch will not manifest itself initially as an oil crisis (with oil lines at the petrol station) but as a financial crisis with large numbers of bank insolvencies and other associated systemic risks that will stem from this initial crisis. It should also be noted that global economy is highly efficient and can produce goods and services at extremely low costs but this high efficiency comes at the price of low resilience. This is because many of the supply chains that supply our economies with goods/services are not only long spanning many countries but also operate on a JIT (Just-In-Time) basis. With the risk of various systemic failures what are the chances these low resilient supply lines can continue to operate in the midst of a financial AND liquid fuel crisis?
This distinction between and an energy crisis and a liquid fuel crisis is an important one because 90% of the energy for global transportation comes from oil. This transportation energy covers the most obvious examples such as cars, trucks, planes etc. but what should also not be forgotten is the machinery (and pesticides) necessary for agriculture and the mining of various metals that is needed for various goods including metals needed for the construction of renewable sources of energy. These sources, at this current time all depend on oil for these products are either transported or extracted using oil or oil itself is a basic input in the production of the said resource. In fact we can easily say that oil is an enabler of other vital resources so when we face an oil shortage it is likely we will also face a shortage in other resources. Again it is likely this scarcity will not initially manifest itself with the resource or good disappearing but merely that the price of the goods rises considerably.
While price rises and the accompanying demand destruction will serve to alleviate the constraint supply of oil for a time eventually higher prices can no longer manage a basic shortage. There will come a time when the price of oil rises creating a recession. However unlike previous cycles the next price rally will not generate a sufficient amount of income to overcome the existing decline rates from old fields. When this time comes not only will global oil production decline but more important, the rate of global oil exports will decline at an even greater rate. This decline will be higher than what developed countries can handle and adjust to so it is likely at that point that real oil shortages will occur.
Once the perception of an oil shortage begins to take hold then it is likely to induce not only higher prices but hoarding of the available resource. This behaviour occurs not only on a consumer level but also on an interstate level as exporting nations will begin hoarding their oil from the importing oil countries. The exporting nations will hoard oil as it will wish to save its remaining resources to itself as it will prioritise the needs of its citizens over the needs of foreign customers. This hoarding behaviour has been seen in the UK in two occasions when there was a perceived shortage of oil, first in 2000 and more recently in 2012 when an oil shortage induced consumers to panic buy and hoard the valued resource thus exacerbating an already difficult situation. It is likely that when a strong perception of shortage is felt then rationing will need to take place to avoid such irrational behaviour. In any case, when thinking about peak oil in its later stages, the physiological component cannot be forgotten as that will play a big part in how this situation unfolds. This last point cannot be understated as it is likely that once the problem of peak oil becomes apparent it is likely that other systems and conduits will be in a severely degraded state. What is more a shortage of oil is likely to compound any existing problems that are occurring.
Off the keyboard of Steve from Virginia
Published on Economic Undertow on December 2, 2012
Discuss this article at the Waste Based Society Table inside the Diner
Building the 1955 Oldsmobile and other GM car bodies at a ‘Body By Fisher’ factory in Detroit. Fisher started building horse-drawn wagons before the turn of the 19th century then turned to the horseless carriages. From 1908 though the 1920s, the company built bodies for many manufacturers including Ford Motor. Eventually Fisher became an semi-independent unit within General Motors. During the 1950s and 60s auto heyday, Fisher employed more than a 100,000 unionized workers in dozens of facilities across the country, building car bodies for GM.
This promotional film suggests the timeless quality of General Motors products even thought the products were designed to be obsolete within short periods. Americans were expected to ‘keep up with the Joneses’ and buy new cars whenever the manufacturers introduced new models, every three years. Extremely durable vehicles such as Henry Ford’s ‘Model T’ were undesirable as the makers had ever-increasing amounts of production to absorb. Makers needed their affluent customers to buy frequently, to ‘move up’ from basic models such as those made by Chevrolet to more expensive models made under the Oldsmobile, Buick and Cadillac nameplates. Older models would be traded in and resold to those who were less affluent. What made the process work was car loans, anyone could qualify as the car itself was security for the loan.
Along with the loans came insurance as a burgeoning industry. Lenders did not wish to lose the worth of their security in crashes. If a car was damaged, the insurance would pay for repairs. If the car was totaled the survivor would obtain a replacement. With insurance, car crashes were good for business.
Cars made during the immediate postwar period had infinitesimal warranties, it was ‘buyer beware’ at all times. Components failed spectacularly including transmissions, brakes and steering gear. Fisher’s highly-engineered craftsman-like bodies could not withstand corrosion. Few examples of GM’s ‘permanent quality’ from 1955 remain, most are rusted away and recycled, others were destroyed in collisions.
The emphasis on safety is ironic because American cars of this period onward were death-traps, among the most dangerous vehicles ever built.
Cars were top-heavy and bulky, overpowered with large cast-iron block engines. Pre-war models had large engines because smaller versions did not produce enough power or were noisy, vibrated excessively or were difficult to operate. Large engines were smoother and more powerful at lower RPMs. Engines improved after the war due to better material and higher craft standards, yet the large engine did not give way. Makers simply advertised their models’ increased horsepower and driving performance.
The heavy engine in the front of the car powered the rear wheels by way of the transmission and drive shaft. Consequently, cars tended to understeer. That is, the driver would turn the steering wheel to go around a curve and the car would tend to continue straight because of the arrow-head like weight in the front. The driver would compensate by turning the wheel more. At the same time, auto suspensions were primitive affairs little changed from the horse-and-wagon era. The solid rear axles were carried on leaf springs with little play, coil spring front suspensions tended to have much more travel … for a more-comfortable ride on poor quality roads. The result was a suspension that could not keep all four wheels on the road under all circumstances. The heavy vehicle weight and poor suspension had cars leaning away from turns. Body lean would unload the ‘inside’ wheels: the cheap, polyester cord bias-ply tires would lose grip. Even slow turns of 35mph under certain conditions would have the car sliding straight off the road into an obstacle or rolling over.
Brakes were also poor. The drum brakes found on most American cars faded with repeat applications. Brake linings would overheat and the hydraulic brake fluid would boil. Fittings and hoses would leak leaving drivers with nothing to stop the car but a hand brake with little more stopping power than the failed foot brakes.
If there was a wreck there was little protection for car occupants. With few exceptions, manufacturers did not offer seat belts, even as an option. The rotary door latch seen in the film was not strong enough to keep the door closed in the event of a collision. Under stress, the door would pop open, the occupants would be pitched out of the open door with the car rolling over on top of them. The steering column was a solid steel shaft that extended from the steering box forward upward and back toward the driver’s heart. In a collision the car body would detach from the frame and slide forward or the steering box would be driven backwards. The column would impale the drivers’ seat penetrating through the driver on the way. Alternatively, the heavy seat would break loose from the floor and ram the driver forward against the steering column.
One of the tasks of emergency workers was to saw through steering columns in order to remove drivers from car crashes with the columns pierced through their bodies.
The cheap door latches and lack of restraints left passengers ejected in all directions in serious crashes. The thumb-push door latch shown in the film was a killer as even modest collision force and inertia would ‘push’ the button and open the door.
Car wrecks during this period were gruesome affairs. Front seat passengers in a forward collision were simply ejected through windshields, leaving their faces, scalps, breasts, testicles and other body parts hanging from shattered glass. Paralyzing neck injuries from both front and rear collisions were common, so were multiple amputations. Quality auto bodies by Fisher would crumple in collisions trapping victims inside to bleed to death. An overturned car would have its roof collapse with the weight of the car crushing occupants inside.
Starting in the 1950s almost every US car was capable of speeds over 80 mph. Passenger restraints were limited to simple lap straps as in airplane seats: in crashes, belted occupants would be hurled forward to slam faces and heads against steel dash panels, against unpadded front seats or against control knobs that would penetrate their skulls. Door releases, window cranks and interior accessories became lacerating or impaling weapons in crashes. Gas tanks and fuel systems were unprotected and poorly mounted: collisions resulted in car fires with occupants trapped inside burning coffins. The same doors that were self-opening during modest collisions tended to become unopenable if the car was underwater or burning, particularly if the car was upside down. Injured passengers needed to maintain some presence of mind to drag themselves out of windows and away from flaming or sinking vehicles.
The fins, wheel hub spinners and chrome sheet-metal bumpers so favored by auto fashion designers became sword blades that maimed and killed all within reach. The manufacturers didn’t care, highway deaths were simply the cost of doing business.
Figure 1: the US highway death rate-per-10,000, (Wikipedia, click on for big). Here we can see the twin heydays of the US auto industry: from 1908 through the 1920s and the 1950s and early 60s. The chance of death around every curve during a high-speed run down a lonely highway was — and is — part of the glamor of auto ownership. Risk, danger and fear: car death was a component of F. Scott Fitzgerald’s Great Gatsby as it was to James Dean’s ‘Rebel Without a Cause’. ‘Easy Rider’ offered vacuous rage and murder on the highway as a metaphor for the meaningless Vietnam war and the consequent culture divide. Car chases and crashes became a boring/predictable element of motion pictures and television shows. Automobiles, anomie and hormones were — and still are — the ingredients of American rock-and-roll … all of these things were — and are — good for car sales.
Making and selling automobiles is a bloody business: designs in the 1920s and 30s periods were intended to ease/standardize manufacture rather than provide passenger protection. Car bodies were made with wooden components which could not withstand the forces of higher-speed impacts. At the same time, roads were poorly engineered, almost all were narrow and unmarked. Off the road was the ravine or unyielding obstacle. Cars off the road with injured occupants might not be found for days. Except in cities or developed areas there was little enforcement of traffic laws … if there were traffic laws. Most roads even city streets were unlit, some were paved with cobblestones, others with irregular concrete slabs. The first high-speed, limited access road in the US did not appear until 1940, in Pennsylvania.
The public furor over seat belts during the 1960s was remarkable. Manufacturers resisted belts because of the implication that both cars and drivers were unsafe. Belts also cost money which the cheap manufacturers were loathe to spend. Throughout the fifties and early sixties, drivers wanting belts had to order them from aftermarket manufacturers and have them installed privately. Eventually seat belts were offered as options on luxury models.
During the 1960s, manufacturers started putting largest V-8 engines from luxury sedans and station wagons into smaller commuter-cars. The higher power combined with lower vehicle weigh increased potential vehicle speed. Buyers looking for the larger engines could also buy four-speed manual transmissions, stiffer front suspensions and wider ‘performance’ tires. The US ‘muscle cars’ were still primitive compared to European performance sedans, they were nevertheless able to kill thousands of American teenagers ‘looking for a thrill’ on public highways.
The US industry was complacent. A feature of US automobiles was poor fuel economy. Starting in the 1920s most American vehicles would travel about 15 miles or less on a gallon of gasoline. Following the gas shortages of the 1970s, the public demanded more economical vehicles which Detroit found itself unable to produce.
The casual disregard for human life on the highways continued until the mid-1960s when German and Japanese imports started appearing in US markets with safer, more economical designs. Ralph Nader published his ‘Unsafe at Any Speed’, which lambasted the industry … General Motors in particular. Foreign manufacturers offered standard models with seat belts and collapsible steering columns, strong unit-bodies that protected the passengers, disc brakes, four-wheel independent suspension, radial tires, smaller engines and better attention to vehicle assembly. Insurance companies and legislatures began mandating these and other common sense safety features in all cars.
Cars gained redundant brake systems so the failure of one system would not leave the car without brakes. Fuel systems were isolated from crash areas. Manufacturers designed and installed energy-absorbing crumple zones, air bags, lap-and-shoulder belts for all passengers as standard equipment, padded dashboards, stronger door latches, recessed dash controls and better steering. Starting in 1973, cars in California were required to have pollution controls to recycle unburned fuel back into the fuel system … this led to computerized engine controls and catalytic converters. Detroit management knew of these ‘innovations’ and had in fact invented some of them, manufacturers knew how to build safer, economical cars immediately after the war, they simply refused to do so, focusing instead on restyling conventional models and advertising.
During the 1970s, highways were re-engineered, surfaces were widened with pull-off areas and force-dissipating Armco- and Jersey barriers installed along right-of-ways to keep careening vehicles on the highway. Bridge abutments, culverts, poles and sign-posts were removed to the side away from the travel lanes, exit- and turn areas were made more gradual. Stop signs, lighting, ‘traffic calming’ devices were installed including medians, curbs, speed bumps and rumble-strips were installed to deter traffic and annoy drivers into slowing down. Law enforcement campaigns against impaired drivers has also made the roads safer. Enter the speed camera.
Since the 1950s use of cars has mushroomed. Benefits gained by safer designs were overcome by the massive increase in car numbers, the wear on infrastructure, the numbers of older, mechanically defective vehicles, the increase in elderly, impaired or unschooled drivers along with the disparity in vehicle sizes. Small economy sedans and motorcycles share crowded roads with heavy transport trucks and bloated ‘light vehicles’ such as SUVs.
Grant Wood, “Death on the Ridge Road”.
Auto manufacture has spread around the world and Detroit has been passed by. A deadly industry currently faces its own demise. The auto industry narrative its entirety can be seen in Detroit for those with the wit to look for it: birth, an adolescent ‘heyday’ of public enthusiasm and industrial expansion, a long maturity leading to senescence and final ruin. With the unraveling of the auto industry comes the unraveling of everything that is dependent upon it. Just as Detroit has fallen, so too will fall Japan and Germany, Korea and the other auto-manufacturing centers. They must fall because fuel is too valuable to waste in non-productive gadgets and because the debt needed to build and buy the gadgets has become too costly.
In an industry’s infancy, debt is taken on to buy the tools of production and for customers to pay for the industry’s products. With the passage of time, the debt an industry takes on buys increased competition. Debt also flows to the owners away from tools. At the end, debt taken on by the industry services the debts taken on previously, nothing remains for any other purpose. The auto industry helped win the Second World War by making a vast inventory of war goods with public financing. After the war, the US government assisted the reconstruction of overseas’ competitors who devastated the industries in Detroit, then the city itself.
The Fisher factory today is a shell used by the City of Detroit to store impounded automobiles. In place of the thousands of workers who labored in Fisher Body’s plants, there are now computers to design and build the tooling, robots to assemble the parts into finished cars. One of the intended products of industry was plentiful jobs: industrialization is a complete failure with regard to jobs.
In 2009, both General Motors and Chrysler faced liquidation but were bailed out instead. Ford Motor avoided the others’ fate by borrowing from the Treasury and the Federal Reserve discount window. Auto industry overproduces because too much credit has been directed toward it. Cars in their making and operation are extraordinarily costly, in particular the petroleum needed to run the cars and all that has to do with them. Although pollution costs have not been accounted for, they do exist and they are significant. As it was with safety belts, the industry steadfastly ignores these costs as if ignorance can make them disappear.
Cars have killed 3 million Americans in the past 100 years, more than all American wars put together. According to the World Health Organization, cars have killed 1.2 millions persons world-wide per year since 2007. Each death is someone who will never buy another car. Car making is a bloody business, but one that has wormed its way into public affection. The car business’ time is passing, in the end the heyday of the car will be no different from the heyday of the clipper ship. The cost of doing business is the demise of the car business itself.