Peak Oil News: How Serious is Peak Oil?

Tuesday, August 16, 2005

How Serious is Peak Oil?

American Chronicle

By Thomas Dawson

To hear some people tell it, this is a crisis threatening civilization itself. Others claim that we will have more oil than we need for many years to come and seem to be unconcerned. Just what is Peak Oil? When will it arrive? What are the major ways it will affect us?

For the last forty years or so, we have been extracting oil faster than we have been able to find new oil reserves. Soon, in the very near future, we will no longer be able to extract oil on a daily basis at the same volume as we have in the past. When this comes to pass, the price of oil will be determined by the current demand and the willingness to continue at this peak production. At that point, we will have reached what is referred to as Peak Oil. The truth is that we will probably never run out of oil. There will be a slowly, but ever-falling volume of oil available. This will create much greater competition for the limited product. Some third world countries cannot afford oil now. Many more will no longer be able to afford oil.

There are those who believe that we have already reached that point in time. There are many who think Peak Oil is at least twenty years away and some think it is even farther away. However, the general consensus of those in the business points toward the Peak Oil Crisis occurring sometime in the next decade. It may be prudent to consider Peak Oil as happening between now and 2010. We won’t know for sure until a year or two after it has happened. Speculators are already beginning to force the financial impact of Peak Oil upon the world.

In the past, oil was considered to be an unlimited natural resource. It was sold freely, like gravel or crushed stone. Until now, the real price of oil has generally been related to the cost of extraction. Speculation and politics have caused the wide shifts in the price of oil that we have seen in the past, and will continue to do so in the coming years. But, in the near future, oil will also be sold less casually. Its price will be only partially related to demand, and partially because it will be held back in reserve, as a valuable, but dwindling resource. It will be sold with a view toward the conservation of capital, if you will.

The problem we are talking about is related to only the “easy stuff”. We just drill a hole and find the well full of oil. Much of the light, sweet oil is nearly depleted, and the heavier, sour oils are costing more to refine. In 1940, we used about a barrel of oil to extract one hundred barrels. Today that same barrel only gets us ten barrels.

There are other sources of oil. There is oil from shale, tar fields, coal and bitumen, and several other sources. Most of these sources are untapped because the cost of extraction is much higher than well oil. As the price of oil rises, these new sources will come into play and relieve, or temporarily level the price of oil.

As you can see, the problem is not a shortage of oil, but it is the price of oil. International politics and speculation would have prices rising in any case, but the war and turmoil in the Middle East is causing most of the excessive price speculation that we see today. Certainly developing countries like India and China are having some considerable affect on the price as well. It is highly unlikely that we will see oil under $50 again, for any prolonged period of time. On the other hand, prices over $100 will cause investors to initiate adventures into other sources of oil and other sources of energy. Even at $75 or $80, some other forms of energy will begin to replace oil in certain areas, from wind farms and bicycles to solar cells and hybrid automobiles. Most of these new energy sources are of questionable value except on a very small scale. However, new energy sources of any kind require investment and lead time. Meanwhile prices can become disruptive.

Gas and oil are the only two products deemed useful at this time for transportation use. Other biomass products are too bulky to be practical. We live in a world of plastics and nearly all of our plastics are made from oil derivatives.

We will undoubtedly relax our environmental restrictions so that coal can be used for heat and to generate electricity. Coal plants too, require investment and time to come to fruition.

Without an alternative source of energy, commercial airlines will become nearly obsolete. They are already losing money and filing for bankruptcy. In order for them to survive, the government will have to either subsidize them or nationalize them.

People will be looking to move nearer to their work and schools. Unnecessary travel will be cut to a minimum. Trains, buses, and underground public transportation will become more popular.

Electricity will become very expensive along with home-gas and heating oil. It is said that brownouts and even blackouts will become commonplace. This prediction may overstate the case, as the escalating price of electricity will also curtail its use.

As the price of energy rises, so will the price of nearly everything that we eat or buy. Shipping costs will quickly double, as will the cost of packaging with plastic. Fertilizers and insecticides to produce food will more than double. Supermarkets will raise prices at first, and soon will offer a much smaller variety of product. Everything in our lives will have a much higher cost. Consumers around the world will have to tighten their belts.

It is not difficult to see that these inflationary conditions can quickly lead to a recession that may easily feed upon itself. An ensuing world depression is not out of the question.

At about the same time that we have depleted our excess oil supply, we are also depleting our water supplies, and the topsoil needed to raise crops. Prospects of “the good life” for our children are not looking up.


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