I hate Doomsdayers as much as the next person, but I also believe that simply ignoring the truth can be devastating. This is even more true when dealing with the subject of oil. I chose the title of this article based upon these two facts 1) It would get readers attention and 2) As dire a topic climate change is, it is not our most threatening concern. Although climate change does threaten our basic ability to survive, so the previous statement is debatable. What I wish to discuss in this paper is the subject of “Peak Oil”. I’m sure many of you are familiar with the term in some way. With gas prices on the rise, any oil related topic is bound to be touched upon more than once. My goal is to try and provide a clearer picture about “Peak Oil”. I will also attempt to convince my readers that it is a topic that we need to address now! Time is running out and knowledge is the key.
During the 1970s a calculation was made to determine when the United States would reach “Peak Oil”. What this means is the point in time when the US would start to see its oil production decline due to a lack of untapped oil resources. This study came to be known as Hubbard’s Peak and predicted the US would peak during the late 1970s. As predicted, the US did peak which lead to a brief fuel crisis. Some of you may remember the lines at the gas pumps. For a short time we said “Never Again” and we bought more fuel efficient cars. No more would we waste this precious resource. As time went by and as the US began to secure oil supplies from overseas, it wasn’t long before we were back to our old ways. Fast forward 25 years and the SUV is the norm. That brief scare provided us with a blueprint of what to expect in the future. Rather than a country peaking, we are now looking at World Oil Supply.
As we are all finding out today, in a very painful way, we have reached “Peak Oil” once again. Only this time we are not talking about a country peaking. What we are faced with now is far more worse, and must be taken far more seriously. Hubbard’s equation was applied on a global scale. The result was a global peak in world oil supplies sometime between 2005-2014. The window is narrower than that. The consensus has been around 2008-09 as the best estimate. The reason it is hard to nail down an exact year is due to so many deciding factors. Some of which are:
1) current reserves
2) any new oil field discoveries
3) rate of consumption
4) global demand
5) efficiency of use
Just to name a few, the reality is far more complex. As you can see, we are within the range of time when the world oil supply is supposed to peak. I believe we are in that time now. I believe we peaked at some point during the latter part of 2006 or the first few months of 2007. The exact day can be narrowed around the time at which gas prices began to climb beyond $2.00 a gallon. When I think back 10 or 12 years I can remember gas only costing 99 cents a gallon. It did for a long time. Over that period of time gas prices began to climb steadily. I believe that it was during this period that we were approaching Peak Oil. When the gas prices began to sky rocket and fluctuate wildly, we had already crossed the point of no return.
The signs are all there. Especially looking back over the events of the past 10 years. Much has changed during that time period. Speaking with a friend of mine recently, he relayed an interesting observation he had made recently. He had visited China some 10 years ago. While he was there he observed the majority of people walking or riding on bicycles. Upon his return to china 10 years later, he observed that every one was driving a car. He marveled at how in such a short time they had seemed to trade in their bikes for their very own cars. The point he was making was this, “10 years ago China was not competing with us for Oil, the way that they are today.” The United States has a population a little over 300 million people. China has well over 1 billion citizens. Another country has also joined the economic boom, India. India also has over 1 billion citizens. Both China and India are prospering economically. Roughly 1/3 of the population of the Earth is now competing with the United States for oil. China’s economy is the fastest growing economy ever witnessed. India is close behind.
For years they looked at the west and envied our standard of living. Like any normal person would, they wanted to attain our standard of living for themselves. The stage was set. As soon as many developed nation’s corporations cam to the realization that they could increase their profits by setting up shop overseas. An ideal country would be on with a large population and a relatively stable government. Countries like China and India fit the bill. Over a billion people willing to work for a great deal less money than any one American would. That wage is probably less than our minimum wage. This is not to say that Americans are greedy. Our salaries reflect our economy. We make the wages we due based upon the costs of things around us. It costs a certain amount to transport goods. It then costs a little extra once that product comes to market.
We have to be paid an appropriate wage to allow us to purchase those products. If we decided to cut our wages to that of what workers in China and India are making, what good would it do us? Especially when we then would not be able to afford the products that are waiting for us to buy them. Not a good scenario for our economy. So, our wages are on par with our economic niche. Unfortunately, this means that a company can go else where and have their products produced at a fraction of the cost, ship those products to the US, and make a great deal more money than if they had that very same product manufactured here. Another huge plus for doing business in another country are the regulations. Companies do not have to deal with pollution controls and other regulations to the extent they would have to in the United States.
The end result is a flood of products entering the US with the label “MADE IN CHINA”. We don’t usually see the label “MADE IN INDIA”, but I seem to get them every time I call customer service. The economic ramifications of this are clear, but not the focus of this paper. It is just one of many factors playing a role during our economic meltdown. What is the focus is this, “There are over two billion people seeking our standard of living , and they need oil to achieve this!” On average 2 new coal plants come on line in China daily. Clearly oil alone cannot meet their energy needs. What does this mean for the rest of us? It means that we now have nearly 8 times the population of the US seeking our way of life. The US is the leading consumer of oil, for now. With China and India breathing down our necks we now have the worlds oil supply being consumed at a rat 8 times that of what it was just a few short years ago.
As demand for oil continues to rise and supply continues to fall, the price of oil will rise sharply. Think of our oil supply as a hill with the upside representing the past 100 years. The top of the hill represents peak oil and we can place at around 2007. The down slope represents the future oil supply, and represents less oil coming to market at current productions levels. The demand line can be found on the upside of the oil curve and leaves the oil curve at the peak. The reason for this is that demand continues to increase, while oil does not. Once this demand line leaves the oil supply curve a gap begins to form. This gap represents our inability to provide enough supply to satisfy demand. The greater the distance between the demand line and the oil curve represents a greater and greater strain on our economy and our entire way of life.
The oil companies have been accused of overpricing gas. It is true they have posted record profits. I assure you that they economy will regulate the price of oil based upon supply and demand. Oil companies may be tacking on a few cents a barrel. Can we blame them? They know that once we are beyond peak oil they will begin to lose money bringing oil to market. Yes, the price will rise, but less will be purchased. As far as they are concerned they need to make as much as they can now, before the majority of the population finds the price of gas beyond their means. Wealthier individuals will continue to pay those prices and oil will become a status symbol for those who can afford it. Of course, we won’t ever
reach that point. Things will fall apart long before that. And those millionaires will not remain so for long as the price of the dollar continues to plummet. Any smart individual will keep part of their wealth in the form of gold, silver, and precious stones. Land will also retain its value long into the future. The price as far as the dollar is concerned may cause it to seem that land is worthless, but its true value cannot be touched by currency. If things keep going the way they are than what is in our pockets will end up as nothing more than pretty green cotton paper. Nothing more.
House of Cards
The current state of things is precarious at best. Our entire way of life is dependent upon oil. We need it to produce our electricity, we need it to produce fuels, we need it to lube our machinery we need it to make plastics, we need it for our medical industry, the list goes on and on. Put simply, “If you remove oil from the equation, you are left with Nothing!” You name it and I will link it to oil. I am so confident of this that I welcome any challengers. Simply write a comment about this paper and I will reply with a comment. Give it your best, but you may be disappointed with the result.
So here we are today. Gas prices are at $4 a gallon, $5 for diesel. The housing market is in the toilet. The stock market seems to be heading south forever, the value of the dollar is in the toilet. The US is 8 trillion dollars in debt, and the blood of our entire way of life is running out. I wish I could say that things are going to turn around, but I just don’t see how they can. Not unless we discover an alternative to oil that allows us to just mine it and burn it. Hydrogen, at this time, remains our best hope. It is the most abundant element and the easiest to get at. This does not change the fact that at the present time, oil will be in the process somewhere along the chain from production to the market. Solar power, hydro, and wind technologies are site specific and only addresses the need for electricity. Having a solar powered car is one thing, but a solar powered big rig or train is another. I doubt we will see solar powered 747s and NASA space shuttles either. We can solve the personal travel problem, but not the supply line problem.
With Diesel prices at $5 a gallon, truckers have to charge more for deliveries. That added cost will eventually get passed onto the consumer. Where does the consumer pass their extra costs on to? They can ask for a raise, but it will be a fat chance that they get it. At the same time we are paying more and more for gas. We need the gas to get to work to make money. We need the money to buy food and other items that are rising in cost. The average American salary will get squeezed at both ends. Bush’s tax stimulus would be great if it were not for the fact that once you get the refund the price of everything will go up and negate those refunds. Anyways, isn’t it kind of like eating your own arm because you are hungry? At best it will only buy us very little extra time. In the mean time our economy is cannibalizing itself.
Unfortunately, I see very hard times ahead of us. Our civility is a luxury of our standard of living. Once that begins to fall apart, the civility goes out the window. Now that we have crossed peak oil, it is only a matter of time. Gas prices will continue to rise. Unemployment rates will rise as companies fold financially. Banks will begin to see record numbers of defaulted loans. They could foreclose, but who would they be able to sell the houses to? The price of food will rise, along with the price of everything else. Companies that manufacture luxury goods and services will fold first. Consumers will only have enough disposable income for food and gas. Eventually the price of gas will get to a point where people can’t afford it. Millions will lose their jobs simply because they cannot afford to drive there. All the while crime is on the rise. People do not adjust as abruptly as an economy or way of life can. GOD forbid we reach the point where it is a free for all. Our government, police, fire department, military, and health care professionals all have families of their own. They will choose their family, as well they should.
Best case scenario, we find an alternative energy source that will allow us to avoid this impending doom. Worst case scenario, World War III is fought over the remaining oil reserves.
Be prepared, that is the best advice that I can give. Make sure you have at least 1 months supply of food on top of your normal supply of groceries. Stock up on seeds and plant your own gardens. Make sure you have flashlights and radios with a crank for power in addition to battery power. Make sure you have basic tools such as hammers, shovels, etc. Try and think ahead. Picture a scenario and what you will need to overcome that obstacle. I would also recommend having an emergency supply of gasoline for at least one vehicle. With a little planning the coming events can be dealt with more easily. It would be wise to also ensure that you have some sort of means to defend yourself, your family, and your property if necessary. Never underestimate how far desperation can drive another human being. Especially if that human being is watching their own child stave to death. Knowledge is power. We may not be able to prevent the down fall of our way of life. What we can try to do is keep our wits about us and be prepared.
I know many who read this may believe that we have plenty of oil. This is just not true. Even if we tapped into an oil field on protected land, it will only buy us a few years at best. Many of the new wells drilled today go down into the same exact oil field. The only true frontier left is the final frontier. I refer to offshore drilling. The farther out into the ocean we go the bedrock gets younger and younger. Younger(New Rock) = NO OIL. It hasn’t had time to form. To put it another way, we began really consuming oil during the Industrial Revolution, a little over 100 years ago. In that time we have gone through half of global supply. Single celled life appeared on earth around 3.3 billion years ago. Assuming that oil came soon after then we can roughly state the following; “We have burned through 1.5 billion years of oil in only 100 years!” Yes, we have around 150 years of coal, but then we are back to “An Inconvenient Truth”. We are living in interesting times. Peak oil may prove to be the most complex dilemma we will ever have to face. In the beginning oil cam easy. Something tells me that letting it go will be anything but EASY!