Peak Oil News: End of cheap oil: Growing prices, demand raise uncomfortable questions

Sunday, June 29, 2008

End of cheap oil: Growing prices, demand raise uncomfortable questions

By Morgan Josey Glover

High fuel costs in the Triad caused a discount airline to fail, school buses to drain county coffers and companies to switch to four-day work weeks.

All this before the average price of unleaded gasoline hit $4 a gallon.

So what would Guilford County residents experience if fuel hit $8 a gallon? Or $10?

Picture more bicycles on Greensboro's Battleground Avenue than cars. A dearth — for once — of "Made in China" wares on store shelves. Weeds and "For Sale" signs in desolate subdivisions.

The world's thirst for oil might soon outstrip its capacity to produce it — if it hasn't already — and the consequences could be devastating.

A growing number of energy experts, investors and concerned citizens worry about the country's lack of preparation for "peak oil," the point at which the amount of petroleum that is economically feasible to extract and refine goes into decline. Peak oil does not mean running out of oil. It signifies the end of the cheap-fuel era.

"I don't think there is the commitment to make the transition in time for there not to be maximum economic hardship," said Luddy Hayden, a Greensboro resident who worked in the oil industry for more than 30 years. "I'm afraid that we are going to hit a bump that people will look back upon as the most difficult economic time we've had."

Peak oil uncertainty

Americans depend heavily on petroleum to power their cars, grow their food and heat their homes. Price spikes in the past coincided with economic recessions, and record prices this spring led to worldwide protests and economic pressures in the United States.

Many think the country should kick its oil addiction and switch to alternative fuels in an era of increased global competition for declining supplies, an initiative already under way. But Americans must prepare 20 years ahead of the peak to avoid fuel scarcity, according to a 2005 report commissioned by the U.S. Department of Energy.

Some peak oil analysts believe it's already too late, that the decline in production has begun. Optimists believe the peak is decades away.

"The peak moment, I think, is going to come, and I don't think many people are going to be prepared for it," said Megan Quinn Bachman, outreach director for The Community Solution, a group in Yellow Springs, Ohio, that educates people about fossil fuel depletion. "For some reason, it's a very difficult issue to get across."

The end of cheap oil?

For some Americans, the light bulb flickered in August 2005, when Hurricane Katrina damaged refineries on the Gulf Coast and temporarily cut off supplies in some parts of the country. North Carolina, which imports 90 percent of its fuel from the Gulf Coast, saw supplies dry up for five days.

Hill Oil Co. of Lexington and Winston-Salem saw its fuel supply cut by 80 percent during the two months of market rationing that came after hurricanes Katrina and Rita. Walter Hill, who started working for the family-owned company in 1985, recalls being unnerved by the ordeal and motivated to research the peak oil concept further.

"They pretty much booted the energy industry into the 21st century," Hill said about the hurricanes. "It was a real eye-opener for a lot of people."

With oil prices setting records almost daily over the past two months, Hill and his brother, Mayne, spend much of their workdays in a wood-paneled office in Midway watching the televised wholesale price of fuel fluctuate. These days, the price per gallon of gasoline can rise and fall several cents within hours.

"Gas prices wouldn't move 14 to 15 cents in a month (10 years ago)," said Hill, who talks with a twang and wears a khaki hat with "Soy Biodiesel" written across the front. "Markets didn't move to the point where your whole retail (profit) margin could vanish within an hour."

The Hills don't pretend to know how to navigate rising fuel costs over the long term. The brothers cut back on recreational driving, and they figure the company will need to consolidate its 15 stores to save on operating costs and increase their percentage of biofuel sales.

Walter is desperately seeking an old diesel Volkswagen truck for his horse-riding teenage daughter because of its efficient engine. Mayne of Davie County has cut out family trips to nearby Clemmons for ice cream.

He recalled driving down N.C. 801 one Sunday afternoon and seeing no traffic — a sign of the times.

North Carolinians must make changes, the brothers say.

"Being mad is all right," Walter Hill said. "But in order to solve this deal, the general public is going to have to figure out who to be mad at. It's getting up in the morning and saying, 'I have seen the problem, and it is me.'"

Larry Shirley, director of the N.C. State Energy Office, said the state needs to find alternatives to oil to prosper economically. Shirley described peak oil in a 2006 presentation as a "potential economic, political and social crisis."

"(Gasoline has) been priced below bottled water up until this point, and we've taken it for granted," Shirley said. "Now we've got to stretch it as much as we can."

It happened before

America has faced its own peak in both oil discovery and production, lending credibility to predictions of a worldwide event. Geologist M. King Hubbert predicted in 1956 that production in the lower 48 states would peak by 1970.

The accuracy of his prediction is downright eerie. Federal energy data show the United States produced the most oil in one year — at 3.5 billion barrels — in 1970. The country produced almost 1.9 billion barrels in 2007, according to the Energy Information Administration.

Global oil supply swelled in the 1980s after companies stepped up production in the North Sea and other areas, but it has since flattened to about 85 million barrels a day. Companies produced 36,000 fewer barrels per day in 2007 than in 2005, according to the Energy Information Administration, despite a 2.2 percent increase in consumption in the same time frame.

Energy consultant Mike Lynch attributes the current plateau to technical challenges and dismisses the peak oil theory as a faulty interpretation of oil supply data and production cycles.

In five years, people will laugh about the "end of oil" predictions, said Lynch, president of Strategic Energy & Economic Research in Winchester, Mass. Within 10 years, prices should drop to $40 per barrel once new oil supplies become available, he said.

The Energy Information Administration forecast in March that crude oil would cost $68 per barrel in 2016 and $113 per barrel in 2030, based on new oil supplies and reduced domestic demand.

"It's kind of like people who see a recession or stock market bubble, and they think it will last forever," Lynch said.

A call to action

But with crude oil prices setting records and regular, unleaded gasoline averaging $4.08 a gallon last week, the number of public voices extending the era of cheap oil dwindles.

Hayden, who worked in governmental affairs for Chevron Corp. before retiring last year, said he doubts future discoveries will be enough to offset production declines elsewhere. Even Shell Oil, which forecasts a gradual decline in oil supplies, says many Americans are out of touch.

A February company report said Shell found an "overwhelming disconnect between the perceptions of many consumers and the hard realities of the energy picture. This is the crux of our dilemma as a country in determining an energy path forward — the belief that there are easy answers that are readily available, when in reality the choices we have to make will not come easily or swiftly."

Meanwhile, an undercurrent of discomfort flows in North Carolina. Pricey Harrison, a state legislator from Guilford County, expressed frustration at the lack of discussion occurring in the General Assembly and the focus on expanding highways over public transit.

"It's not something that's on people's radar, and a lot of the times, when it is, the answer is drilling in the Arctic National Wildlife Refuge," she said.

Others are speaking out: At an April energy conference, Daniel Douglas, director of the Raleigh Urban Design Center, listed peak oil as a reason to build pedestrian- and bicycle-friendly housing and commercial developments.

The Pittsboro-based Carolina Farm Stewardship Association educates conventional farmers about the concept to motivate them to switch from petroleum-based to organic agricultural practices.

Roland McReynolds, the executive director, said farmers feel the impact of more expensive animal feed, fertilizers and pesticides.

"Something is happening," he said. "We can see it on the commodity exchange right now."

Bachman, of The Community Solution, spent almost a week in Greensboro in February educating people about peak oil. Her group promotes steps such as home gardening, retrofitting houses for energy efficiency and car sharing.

"I think we are going to be living a lot more cooperatively at the local level and not have a lot of these isolated, single-family existences," she said.

Bachman expressed hope to a group of 40 people at the Presbyterian Church of the Covenant that the city could become a model of sustainability in a post-peak-oil world.

"We need to recognize that if we don't choose a different path, then the choices will be made for us," she said.

Jason Hardin contributed to this story.


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