At the Association for the Study of Peak Oil and Gas (ASPO) conference two weeks ago in Houston ”“ the energy capital of the nation ”“ the global view of oil resources was laid out in stark numbers with severe implications for the U.S. economy. In order to make sound decisions from here on, the business community must be guided by this principle ”“ don”™t guess, assume or hope when it comes to predicting the future of oil, let the numbers do the talking.
The price of gas is still not above what it was in the early 1970s, when adjusted for inflation, but the price of a barrel of crude is soaring with no end in sight, now hovering around $90 (it was $10 in 1985). That is the crucial number, not the price at the pump which is influenced by several factors that cloud the issue of supply versus demand. The market has been touted as the great solver of economic problems but it is becoming clear that the market cannot respond to sudden crises.
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Demand for supply
Let”™s talk about supply. The Wall Street Journal seems to be the only mainstream print publication that contains solid information on worldwide energy resources. If you really want to know what”™s coming, take a look. Cantarell, Mexico”™s largest oil reserve and a supplier of 30 percent of U.S. energy needs, is peaking. The North Sea Slope has peaked. And the U.S., of course, peaked more than 30 years ago. Many more of the world”™s major oil reserves have peaked. Another factor influencing the supply and cost of oil is that light sweet crude is now declining and more heavy crude is being pumped out of the ground, more difficult to refine and hence more expensive.
There are other global maneuvers that can affect the supply of oil. As reservoirs are perceived to be peaking the OPEC countries may hold back on production as a way of conserving a diminishing resource, an intelligent move from their perspective, posing yet more uncertainty on U.S. imported oil supplies.
Another global influence is the staggering demand for oil required by India and China ”“ dubbed “Chindia” in Houston ”“to supply their ballooning economies. We may soon lose our position at the head of the petro line. To assure sufficient energy supply for the future these countries are making deals all over the world. If that were not enough concern, there is the matter of increasingly unstable weather that can severely affect the flow of oil, as was witnessed with the impact of Hurricane Katrina on Gulf Coast refineries.
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No easy answers
Even with all this verifiable uncertainty, too many people still place their trust in new discoveries. Canada”™s shale oil comes to mind. Purported by many to be the answer to peak oil, shale is anything but. It is energy intensive, highly polluting, very expensive and contributes mightily to climate change with its greenhouse gases. The same negatives can be attributed to arctic oil and coal as the answer to everything. It can be a matter of the energy cost of retrieval equaling the energy produced by the refined oil. Not a good business plan.
Other optimists are looking to the alternatives to ease us gently into the new energy age. First, we must realize oil is denominated in barrels while alternative fuels are generally considered in gallons, illustrating a total lack of understanding of the scale of the dilemma. If all the alternative fuels were fully developed and a distribution system in place ”“ a highly unlikely scenario ”“ it would only fill a small percentage of the role that oil plays in our economy. The only answer then is full-scale conservation ”“ make the oil last longer while we develop substitutes. In the gallows humor of the Houston conference there was this example of what we can do to solve our crisis ”“ supposing there were a keg of beer with a tap on it. Perceiving it to be running low a tap is put near the bottom of the keg and when beer spurts out there is great joy that the beer is still flowing. Got it?
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Consider what rising energy costs will do for globalization, which fundamentally depends on cheap oil. On average, our food supply now travels 1,500 miles before reaching the dinner table. How far did an apple from Chile travel before reaching the Hudson Valley? How long will we be able to pay for that apple in the off-season?
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Disastrous diversion
The Bush administration is interested in supporting alternative energy but seems totally enamored of corn ethanol as the solution to everything. As described in a prior column, corn ethanol is a disastrous diversion, contributing a fraction of new energy, after the petroleum products required to produce it are added up. Furthermore, it has upended the national food balance since corn is used in such a vast number of food products. If all the arable land in the nation were somehow turned over to produce corn, or other fuel crops such as switch-grass, it would not lower our use of fossil fuels. Yet precious subsidies are being poured down the rat hole of ethanol to satisfy the farm lobby.
Richard Nehring said in Houston, “It is not too little supply but too much consumption. Demand for this diminishing resource must drop.” Mark Gaffigan of the U.S. Government Accounting Office has pointed out that “we have put all our eggs in one basket.” Not a wheel turns without oil. Yet, incredibly, the corporate world seems to be betting their companies”™ future on cheap oil.
Randy Udall describes our civilization as being on a space shuttle with the tiles coming off. According to Udall, we have been living like gods, astride the universe, with no one to challenge our position, assuming our control will last forever. The dream is over, friends. It is time to wake up.
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Note: This article was written on an Amtrak train as I returned from the ASPO conference in Houston. Ridership on Amtrak is steadily rising in spite of efforts to dismantle the federal system.
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Surviving the Future explores a wide range of subjects to assist businesses in adapting to a new energy age. Maureen Morgan, a transit advocate, is on the board of directors of the Federated Conservationists of Westchester. Reach her at mmmorgan10@optonline.net.
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