The Peak Oil Crisis: COG & Peak Oil

Falls Church News-Press

By Tom Whipple
October 6, 2005

In the Washington metropolitan area we have an organization called the Council of Governments. Known as "COG" to its intimates, the group attempts to coordinate the policies and actions of the 21 state and local governments that govern one piece or another of the region. Some of these governments are world famous, such as the nation's capital. Others are rather large, such as Fairfax County with a million residents, and still others are village-sized.

The major function of the council is to study issues and make policy recommendations to its members that can be carried out in common. In peak oil circles, COG is remembered best as the folks who invented the odd-even system that linked license plate numbers with days of the month thereby cutting the gas lines in half during the gas shortages of the 70's.

This week, COG held a public forum on the looming energy crisis entitled the “Impacts of High Gasoline Prices.” They certainly picked the right day, for as I left for the meeting, the price at my local station was $2.99; on the way home it had risen to $3.09.

For the discussion of gas prices, COG assembled a distinguished panel of economists and a senior analyst from the federal Energy Information Administration (EIA) to explain the origins of expensive gas and look at the implications for the regional economy.

The man from EIA quickly outlined the situation. Prices had climbed from something over a dollar at the beginning of the decade to over $3 today. He pointed out that about half the cost of each gallon was the crude and that the rest was refining, shipping, taxes and profit. He showed the rapid growth in world demand for oil, which increased by some 2.6 million barrels per day in 2004, and is projected to increase by another 1.6 million barrels this year and next. He showed charts indicating our gasoline inventories are currently low and how gasoline consumption in the United States usually climbs from a winter low of some 8.5 million barrels a day to an August peak of 9.5 million.

Without being alarmist, he noted that the hurricanes temporarily had taken out a good piece of US crude production and refining capacity, but he left us with the general impression that with a some re-jiggering and additional imports of foreign gasoline, we will somehow muddle through.

We then got to the economists. The first speaker pointed out that in the Washington area we have seen little reduction in driving due to the price of gasoline climbing from $1.50 to $2.50. The conclusion is that in the short run, people simply have no alternatives to using their cars in nearly the accustomed manner. A listener is left with the impression that the overall economic activity in the Washington area is growing so well due to increased government spending, that economic damage from the markedly increased costs of gasoline is thus far minimal.

Our next economist pointed out that while there can be many beneficial effects of rising gas prices, such as greater transit usage, more car pooling, and cleaner air, there will soon be serious reductions in revenues for local governments. This will be due to the fixed price per gallon of our gasoline tax and reduced receipts of user fees as discretionary spending slows. He proposed a new regional 15 cents per gallon tax to be imposed next year, followed by annual 2-cent increase for five years as a way to offset declining governmental revenue.

The final speaker spoke of the impact increasing gasoline prices would eventually have on the growth of the local economy. Although the economic situation in the Washington area is one of the strongest in the county, economic growth is already starting to be stifled by the millions of dollars going to pay for the extra cost of gasoline.

Question time brought out some new information and concerns. The EIA has undergone funding cuts in recent years just as we are about to need them the most. They are currently reevaluating their projected cost of a barrel of oil. In a year when the price has been as high as $70 and many are talking of $100 per barrel, an estimate that oil will sell for around $30 for the next few years does seems outdated.

A number of planners in the audience were clearly concerned about the prospects for their 30-year plans projecting the future of transportation and housing density.

Only once during the meeting was the phrase "Hubbert's Peak" mentioned, and this only came in the middle of a lengthy question from a visiting energy professional. It is doubtful that many in the room grasped the import of the reference.

So where did all this leave us?

First, it is good that governments are starting to talk and think about rising energy costs. When approaching a phenomenon with the potential to turn industrial civilization on its head, it is best to start slowly. High gas prices are about as good a starting place as any, for charging directly into the concept of peak oil and all its ramifications is an awful lot to take in at once.

If one has an insight into the deeper forces causing higher gas prices, then one realizes that "solutions" such as relatively small increases or decreases in gasoline taxes are likely to be inadequate for the problem at hand. Gasoline prices have become so volatile, the 17-cent state tax we pay in Virginia is lost. As this is being written, I am looking at gasoline ranging from $2.79 to 3.39 in Northern Virginia — a 60 cent spread.

Meanwhile in the Washington area, we are still waiting for the full impact of the hurricanes to reach our gas pumps. Reports of the damage to oil production facilities in the Gulf of Mexico are not good. Some are now saying it may take years, to get back to pre-hurricane levels of production and exploration.

In a newspaper interview last weekend, the Secretary of Energy Samuel Bodman said that "Both in terms of gasoline availability and (prices of) natural gas and heating oil, we're going to have some problems." He does not expect the situation to return to "normal" for at least six months, and has kicked off a big voluntary energy conservation program— but no 55 mph speed limit yet. For an administration that has heretofore held that cheap, plentiful fuel was every American's birthright, this is indeed a big change.

We are still waiting for the other shoe to drop.

http://www.fcnp.com/531/peakoil.htm