The Peak Oil Crisis: A Mid-Summer Review
By Tom Whipple
The world has never been to peak oil before so we may not immediately recognize what we are seeing. A few months back, most knowledgeable people would have said oil at $60 a barrel would have triggered an economic tsunami by now. But surprise! Here we are and it seems to be business as usual in America with company earnings doing well, the stock market setting some new highs, and thanks to great prices, SUVs and pickups are leaping off dealers' floors and onto America 's highways.
So far this summer oil prices have been jumping up and down depending on which hurricane is or isn't threatening which offshore oilfield, the weekly US oil stocks report, and a little "what is happening in China?" thrown in. The International Energy Agency (keeper of the books on the world's oil supplies and who incidentally haven't had much of a track record recently) says demand — especially from China — is not what it was supposed to be this year, so we can all relax for a while and enjoy the rest of the summer. It may not be 1914 redux after all.
Below the radar of even the most attentive newspaper readers, however, the first stirrings of peak oil reality are starting to trickle in. Not surprisingly, most of these reports come from the poorer parts of the world where $60 oil is simply too much for fragile economies.
Here are a few of the items:
• Last week the BBC reported that dozens were killed in fuel riots across Yemen when the government withdrew subsidies resulting in dramatic price increases.
• All across Indonesia people were lining up at gas stations in response to developing fuel shortages. In one city, half the public transport was inoperable due to a lack of fuel.
• In Zimbabwe , the government has moved to deregulate fuel procurement in the face of severe shortages: waits of hours for buses, gas lines that are blocks long, and a bread shortage. The black market price for gasoline is now ten times the official rate.
• Nearly all the poorer countries make their electricity using diesel generators. Nicaragua , one of the poorest countries in Central America , recently started blacking out the poorer districts between 7 and 10 p.m. , the hours of peak usage.
• Tanzania , with the highest gasoline taxes in East Africa and a chaotic oil marketing system, is seeing its plans for economic growth "suffocated" by high-priced oil. Tanzania also handles fuel for the landlocked states of Malawi , Rwanda , the Eastern Congo , Burundi and Uganda .
• And closer to home, Maxjet put off plans to offer cheap flights from Baltimore to London until spring when the company hopes fuel prices will be cheaper.
At mid-summer, the supply-demand situation remains about the same. OPEC is supposed to be increasing its daily output by some 500K barrels a day and there is evidence from increased tanker charters that this indeed may be happening. In the meantime, production in the non-OPEC countries seems to have dropped by a collective 1.2 million barrels a day below the IEA forecasts for the first half.
Thus, we have learned that $60 oil and the ensuing $2.30 gasoline is not much of deterrent to American driving habits. It is not doing much to the economy, and certainly isn’t stirring up any serious action in the Congress which continues to fuss around with a largely meaningless energy bill. With good economic growth, the US demand for oil continues to increase.
The Chinese continue to claim their economy is growing nicely, suggesting increased demand for oil in the near future.
OPEC and the Russians — the folks with some spare capacity left — seem to have at least squeezed out one last round of production increases in response to calls to stem growth-endangering higher prices. At the same time, many of the world's older non-OPEC oil fields are talking of dramatic drops in production.
If one puts all this together, it is hard to escape the conclusion we just may be very close to Hubbert's peak right now and, some day, 2005 will be declared the year of peak oil.