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Ruminations on Oil

Some months ago I commented on the issue of ‘peak oil’ and its impact on national security, economic development, and the prospect of balancing growth with quality of life. Powerful books such as The Long Emergency (James Howard Kunstler, 2005), have warned that drastic changes will occur in every community in America as oil becomes less abundant. Mobility is an intrinsic element to our way of life- it is part of our DNA and at the very core of American independence. When we read of gas prices reaching $5 to $6 per gallon as it is in some countries, it is easy to imagine the impact on every family, business and community. Transportation and travel is only a small portion of the challenges brought by declining oil reserves and growing reliance on petroleum products. The Earth Policy Institute has warned that agriculture will be one of the industries hardest hit by oil prices, due to rising fertilizer, transportation, irrigation and operating costs. Far into the future escalating food prices will be tied to the rising cost of oil.

The United States consumes 20.6 million barrels of oil per day. China, Japan and Russia are the 2nd, 3rd, and 4th leading oil consumers at 7.5, 5.0 and 2.9 million barrels per day. Even with strong economies and relatively mobile societies, India (2.7 bbl/day), Germany (2.5 bbl/day), Brazil (2.4 bbl/ day), and Canada (2.3bbl/day) are all far below the U.S. in oil consumption. To admit we are dependent on oil  seems a bit understated.

Unfortunately, the U.S. does not have enormous oil reserves. It currently ranks 14th in oil reserves (behind such countries as Angola, Kazakhstan, Nigeria, Libya, and Venezuela) with 22.4 billion barrels (for perspective, Saudi Arabia has 262 billion barrels, Canada has 178.9 billion barrels, Iran has 133 billion barrels and Iraq has 112 billion barrels). So, why does this matter?

In February 2005, lead author Robert Hirsch and a team of collaborators published a report entitled, Peaking of World Oil Production: Impacts, Mitigation, and Risk Management. Commissioned by the US Department of Energy, it provided a series of observations and recommendations that emphasized the importance of action in consumption and supply/ production if economic chaos is to be avoided. Since that time, and especially in 2009, renewed efforts on the supply side have resulted in many new oil field discoveries that could alter previous timelines for price escalation and supply decline. According to an article by Jad Mouawad in the New York Times (9/24/09), over 200 discoveries (some quite large) have been reported in dozens of countries by huge oil conglomerates (Exxon Oil, ConocoPhillips) as well as by smaller players (Tullow Oil). Oil prices have stabilized at around $70 per barrel after falling to $34 in late 2008. Oil companies have stated that prices must be above $60 a barrel to support development of existing and new reserves. The best bet is that oil prices will continue to escalate toward $85-$90 a barrel as exploration and oil field development continues. Gasoline costs will increase but revenue will support supply and production at a level that may extend peak oil predictions another two to three decades. This will allow time for technology to provide greater vehicle efficiency and sensible alternative energy sources as the global community begins to embrace conservation.

With global oil consumption at 31 billion barrels annually and growing rapidly, the discovery of new reserves merely delays the inevitable. With local government’s focus on current economic challenges it is difficult to turn attention toward the longer view. My feeling is that gas prices will increase in 2010 and escalate more in 2011 to support development of new oil fields and to buy oil that will cost more to produce and transport. Scenario plans should factor in escalating costs well into the future…gasoline will eventually cost $4, $5, or $8 per gallon – and it’s not far off. While gasoline won’t cost $12 to $20 per gallon any time soon, it will be costly and, along with water, become Earth’s most precious commodity.

In some ways, I’m relieved. The good news is that we’ll have enough oil to serve global needs as the economy transforms and we work toward stability.  Unfortunately, this respite may cause many to disregard the fact that oil is a finite resource and cannot last forever. Peak oil will be recalculated but even a cursory review tells us that consumption is rapidly drawing down reserves. While it may not be the immediate crises reported over the past few years, its long-term significance is huge. Local communities, state agencies, and the federal government must plan for higher costs associated with oil and petroleum by-products, and that covers a lot of territory. The sign says, Beware of Inflation Ahead…

With over three decades working in and with federal, state and local government, John Luthy understands public agencies.  Known for his real world, straight talking style, he is a leading futurist specializing in city, county, state, and federal long-range thinking and planning. An innovative and dynamic presenter, John is frequently asked to speak and consult on how to prepare public organizations and communities for emerging challenges. He holds both the MPH and MPA degrees as well as a doctorate in education.

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One Response

  1. What is shameful is that we prolong our dependency and continue to find “just enough” and forstall rapidly implementing new energy sources. Fifty years ago I was a development engineer at Pratt and Whitney. My last activity prior to transferring to another division was working on a fuel cell to provide electrical power to the Apolla spacecraft. At that time we predicted that the fuel cell would be the next step to power automobiles. That was fifty years ago.

    I heard a discussion on TV relative to nuclear. The person speaking against nuclear was doing so because it could, again be used as a weapon. Any thing can be used as a weapon. The most signifficant weapon we possess is what I’m using now, that is my voice and written comments.

    We need to use our intellect and not let fear rule us. Consider that fear and continue moving forward with verifiable safeguards to thwart the mis-use of technology.

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