Tuesday, October 11, 2005

The Peak Oil Crisis, Part 6: Will 2005 Be the Peak Year?

Falls Church News-Press

By Tom Whipple
June 9, 2005

As we approach the second half of 2005, the concept of peak oil and all it implies is bubbling just below the threshold of public perception. Out in “cyberland,” some 30 web sites are following developments related to the coming of peak oil on a minute-to-minute basis. Every scrap of new information or official utterance is flashed around the world and hashed and rehashed.

Recently there has been a spate of magazine articles and newspaper stories all warning that a century of cheap oil is very nearly over. The response from the US Government and Congress, however, is very close to zero.

A lone congressman, Roscoe Bartlett(R-MD), gives an occasional speech warning of the consequences, but these occur late at night when few are listening. The US Department of Energy did commission a study, released February, outlining what we could do to make living with very expensive and scarce oil less painful. The study approaches the “when” issue gingerly, noting that opinions range from 2005 to never, but assumes that peak oil will come sometime in the next 20 years. The authors conclude however, it will take some 20 years of and trillions of dollars in crash programs to have any significant effect in mitigating the damages caused by the advent of peak oil.

Anyone with an appreciation of the devastation that will be wrought by steady reduction in worldwide oil production, will recognize that the energy bill currently making its way through Congress is an absurdity.

Instead of mandating massive energy conservation measures and DoD-sized funding of an as-quickly-as-possible shift to renewable sources of energy, the bill offers tax breaks to search for more oil when there is little more to be found. Other provisions to increase energy supplies are orders of magnitude too small to have any mitigating impact.

The leaders of many other countries, however, seem to have gotten the message. While not trumpeting, “doomsday is nigh,” they are quietly realigning their economies to at last partially cope with the consequences of peak oil. Many industrialized countries got the message from the embargoes and shortages of the 1970’s. They imposed heavy taxes on gasoline and other fuels so they now run modern economies with about half the per capita energy consumption of the U.S.

Only in America , did we toss out the leader who understood that the end of the good times were in sight and embark on a 30-year binge of unchecked energy consumption. The letdown will be very painful.

The timeless moral of all this seems to be that no matter how strong the arguments, you just can’t warn a critical mass of people that something bad is about to happen — they have to experience it for themselves.

Long lines at the local pump or perhaps a multi-thousand point drop in the Dow-Jones is a no-brainer -- everybody gets the message, just like on 9/11. Fluctuating gas prices that trend upward will take longer to make an appropriate impression on the White House and Congress.

For, as soon as prices go up 50 cents or a $1 per gallon, demand from those who simply can’t afford the higher prices slips away and prices slide back for a while. In this situation, it may take many months or even years for the oil optimists to capitulate to the reality of peak oil.

It is certain the growing demand for oil is steadily moving closer to readily available supply. Except for the occasional aberration, for over a century there has always been an ample supply to meet demand. In recent months “spare” oil production capacity, however, seems to be disappearing. Production in non-OPEC countries is universally acknowledged to be on the decline. Moreover, new stories or analysis pointing to the conclusion that OPEC, particularly Saudi Arabia , is currently running “flat out” appear every few days.

The official OPEC and Saudi claims that large production increases in the next few years are possible, sound increasingly dubious to many competent observers who simply can’t make the numbers add up.

Demand in the face of sharply rising prices is a factor with which we have little experience. There are currently some 6.3 billion people on earth of which some 1.5 billion are serious consumers of oil (ride in cars and planes, heat homes etc). All of these people have an input into the demand side of the equation, and, at some point increasing prices will reach the point where many will no longer be able to pay.

While Chinese imports increased by 25 percent last year, the increase has been at a slower pace this year. The Chinese, however, recently established a strategic reserve and plan to start filling it shortly. When this program starts up, they may begin importing an additional 650,000 barrels per day.

Thus, the mosaic achieved by putting together those pieces of a very complicated puzzle that we can observe suggests significantly higher oil prices by year’s end.



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