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Energy Insights:47: The Peak Oil Crisis: The View from Capitol Hill

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47: The Peak Oil Crisis: The View from Capitol Hill


By Tom Whipple   
Thursday, 30 November 2006

While up on Capitol Hill discussing the prospects for the peak oil message in the new Congress, I was brought up short by a question from a hill staffer. "Can’t you guys sharpen the time frame when oil production is going to peak?"

“Telling us that all sorts of bad things are going happen sometime in the next five or ten years really is not that useful. Here, in the Congress we constantly hear about so many crises about to befall us— Iraq, budget and trade deficits, global warming, avian flu, Medicare, social security, housing bubble, terrorism, and immigration, to name a few— that trying to put peak oil threat in its proper perspective is difficult.”

Good question, let's try to get some perspective on the urgency of peak oil.

For Americans, and therefore the Congress, it is going to take something big, a development that really hurts, to get our attention. Therefore, for the immediate future, here in America, peak oil is going to be about gasoline prices. World oil production could peak, even begin dropping rapidly, but if gas prices stayed about the same or only inch up, few would notice or care. On the other hand, when the day comes that gasoline prices rise to new highs and begin causing major economic dislocations, Congress will be moved to take some sort of action no matter how much oil OPEC is supplying to world markets.

The interesting question in all this is the relationship between the other "looming crises" and peak oil. Will unacceptably high gasoline prices come first and trigger an economic crisis or will something else cause such economic difficulties that the demand for oil drops precipitously thereby keeping gasoline prices low for many years. The intricacies of all this, of course, are obviously too much to tackle here.

Global warming is frequently mentioned as being intertwined with the peaking of oil production. If we start burning less and less oil then there should be less and less carbon released into the atmosphere, which is good. If, however, we should start substituting more and more coal to replace depleting oil and natural gas, then we would end up with more and more carbon being released with is not only bad, but very bad.

All of our looming crises will have some sort of interrelationship with peak oil, even the avian flu crisis. Should a flu epidemic ever take hold, it is a good guess that there would be less driving and less economic activity as quarantines came into effect. Should the epidemic get so far out of the control that the deaths from the flu became demographically significant, there would obviously be less demand for oil.

Some believe that the current increase in global temperatures will eventually lead to far more serious problems than we are currently envisioning. Global warming might ultimately be in the class with the impact of a large meteor or the eruption of a super volcano.

If this is true, then the consequences of global warming will be far beyond anything the end of the oil age can ever do to life on earth and the world's economy. The problem with global warming, however, is that from a "looming crisis" point of view it is coming on too slowly to get the average person's, or even the average government's attention. I suspect that very high food prices caused by continuing crop failures may be the first clue for many that there is a real global warming problem out there.

This seems to leave us with serious economic problems and peak oil as the most immediate threats to our well-being. At present, few are predicting the world's economy is about to develop serious economic problems of its own accord. Talk of "soft landings" and moderation abounds. Major forecasters such as the OECD are seeing continued, albeit moderate, growth in the years ahead. The US has a whale of a trade deficit, the housing bubble is looking a tad shaky, and a lot of economic numbers are not looking so good. Another dollar or so on gasoline prices could bring on big troubles.

Should a major recession, or worse, develop prior to peak oil, then it would be just part of the business cycle, perhaps nudged a bit by high but not stratospheric oil prices. Oil prices would probably drop with lessened economic activity.

Conversely, much higher oil prices, be they for geological, meteorological, or geopolitical reasons, are certain to have serious economic consequences. There are currently at least half a dozen obvious geopolitical situations in the world that could easily lead to sharp reductions in the availability of oil exports almost overnight. These would seem to be the most serious of the looming threats.

It would seem that preparing for a sudden, major reduction in our oil supplies should rank right up there with preparing for the avian flu and securing our airports as something we really need to be doing. If the lessons of the 1970's have any meaning, a five percent reduction in availability of oil in the US is likely to trigger a serious economic recession. Sudden reductions beyond this are likely to bring on economic havoc requiring major changes in lifestyles.

Thus a case can be made that peak oil should rank up there as one of the most important problems Congress should be looking at. Not only is it almost certain to have very serious economic impacts within the next few years, it could come upon us at anytime and in a matter of days. Moreover, peak oil is something that governments, their spending and their policies can do something about. We may not be able to stop a meteor, a super volcano, or even a viral strain of the bird flu, but we certainly can ease the transition to a post oil-age world.

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