Expired · 22nd June 2009
... That Could Happen to Us
Peak oil is usually defined as the point at which the world's consumption of this crucial fuel reaches the supply available on the market. When this occurs, oil becomes a scarce commodity and demand forces dramatic increases in price. A hint of this happened in August of 2008 when oil reached an unprecedented $147 per barrel, only to collapse to about $40 when demand was reduced by the global financial crisis.
Once deemed unthinkable, peak oil is now the subject of very serious consideration, partly because global consumption is rising faster than supply, and partly because the predicted rebound of our depressed economy is expected to increase demand and thus price. Furthermore, the worldwide recession and the subsequent fall in the price of oil has reduced exploration and development, further jeopardizing the immediate supply should the economy recover. The implications for the short term are worrying. If we are brave enough to think about the long-term, implications are staggering. A world of expensive and scarce oil would be radically different than the one in which we live today.
Total, the fourth largest oil company in the world, is betting that peak oil will occur in 2020 at a production level of 95 million barrels per day (bpd) – our present consumption is about 85 million bpd. According to Total's "95 theory", falling output from old wells and scarce new ones mean we will not be able exceed this "plateau" of production regardless of effort – we are already having to find 4 million bpd just to compensate for depleted wells. By Total's calculations, we have 33 years of oil left, with an additional 17 years of supply that might be available with advanced recovery methods. The ramifications are sobering. But even more sobering if we consider that conventional economic predictions expect us to be needing 130 million bpd by 2020.
Other oil companies are hinting at Total's predictions. British Petroleum has changed its name to BP for "Beyond Petroleum", an ominous sign for oil security. And the president of Chevron has frequently used full-page ads in numerous popular publications to warn us of upcoming oil shortages. Exxon remains silent on the subject.
One of the more informative responses to peak oil is coming from Jeff Rubin, the former chief economist and strategist for CIBC's World Markets. In his new book, Why Your World is About to Get a Whole Lot Smaller: Oil and the End of Globalization., Rubin expects an entire reorganization of our socio-economic system because of peak oil. He is predicting oil at more than $200 per barrel by 2012, with significant price rises in the next 6 to 12 months as increased economic activity collides with tight oil supplies. It is already approaching $70, near the bottom of a recession that is three times worse than the one eight years ago when oil was $20. (Since 1945, the average price of oil, adjusted for inflation, has been $25 per barrel; since the 1970s, it has been $35.) "People have to realize," Rubin notes of high oil prices, "that this is not a shock, it's a permanent set of conditions" (Globe & Mail, May 29/09).
One of the consequences of this "global scarcity" of oil, Rubin reminds us, is going to be "increasingly wild and destructive movement in prices...". High oil prices will trigger recessions that will collapse oil prices, then economic recoveries will lead to rising oil prices and more recessions. But the average price of oil will continue to rise in each cycle. These increasing prices will be exacerbated by the cost of developing the tar sands in Canada and Venezuela – they will only operate profitably above $60 to $90 per barrel and, therefore, will only reduce supply pressures when the price of oil is high. The severity of these cycles, Rubin says, will be decided by how quickly we can divorce ourselves from our dependency on oil.
As a measure of the impact of high oil prices on everyday life in North America, Rubin writes, "In August 2008, when oil prices peaked, Americans drove 15 billion miles fewer than the previous August, the largest drop since the government started collecting data in 1942." He estimates that gasoline at $2 per litre or $7 per gallon will remove 5 million Americans drivers per year from the road. (Attention auto industry!) But this is just the initial changes that will be wrought by high oil prices.
In Rubin's assessment, the high price of oil will lead to exorbitant transportation costs that will obliterate Asia's huge economic advantage on labour and production. Export economies such as Canada's will also be disadvantaged. But the loss of long distance trade will be compensated by a dramatic rise in local manufacturing and travel – no more inexpensive flights to Mexico, Europe and Asia. We will return "to the bygone years of our fond memory where people work and vacation nearer to home, eat locally grown foods and buy locally produced goods, and suburban sprawl is replaced by revitalized cities" (Globe & Mail, Ibid.). Agricultural land presently occupied by suburbia will revert to farms, and massive expenditures on public transportation will make cities more efficient and liveable.
In Rubin's assessment, this need not be a time of deprivation and hardship. The world will become smaller and more intimate as centres of production shift to locations closer to consumers. Employment and prosperity will be more amenable to local control. We will become more familiar with nearby attractions, entertainment and recreational places such as parks. Native wildlife and provincial wilderness areas will assume new value as our attention shifts from the exotic and distant to the familiar and close. Indeed, peak oil may be one of the best things that could happen to us.