Thursday, December 15, 2011

"Peak oil" might be right

I just started reading a book called "$20 Per Gallon" by Christopher Steiner. I can tell already that it needs to be read with a grain of salt, because it was written back in 2009. Statements like, "We could see $7/gallon gas by 2010" seem horribly dated by the eve of 2012, not to mention unbearably pessimistic. But that's not really what the book is about, anyway. It's an interesting thought project where he tries to imagine how the world would (will?) change at different price points for oil. He makes the excellent point that oil is in everything--only 40% of our total oil consumption is in the form of gasoline for cars. It's also in nearly ever commercial beauty product, every plastic, and in many synthetic chemicals. Think that ball is rubber? It's a synthetic petroleum substitute for rubber. (Real rubber comes from plants.) Your toothbrush is made of petroleum, and even most (if not all) of your food has either been shipped using petroleum, or packaged in some form of it.
So what makes me believe that peak oil might be real? Well, there's the price. It keeps going up and up and up. When I first started driving (in WA state) for a time the gasoline was $.97 per gallon. Halcyon days! For the last couple of years, gas has been hovering between $3.50-$4.00, depending on your area. That's with a huge decline in the amount of driving people have done during that same time period. The author points out that in the year 2008, people drove about 180 billion fewer miles than they had the year before. And the price still went up. Oh, not all at once. We might see big leaps every few years (as with the leap from $2/gallon gas to $4/gallon, which happened rather quickly) but for the most part I think prices will hold steady for the most part and rise rather slowly, without ever dropping significantly. $4/gallon has become our new normal hasn't it, after roughly 3 years of it? (At least, it's still about $4/gallon here, I don't know about your areas.) I have a hard time believing that speculation is the sole cause of the jump in price. Supply and demand are still the biggest indicators of price, and demand is still going up.
The more convincing argument to me, though, is simply to read the news and hear where oil companies want to get their oil from now. Places like the Arctic Ocean. I think of that as a place of last resort, because it's so damn difficult to get to and work with. There's no reason why any sane person would think, "I'll drill there! Fantastic!" unless they had no other choice. It's expensive, it's difficult, and it's dangerous. There's no way around those three facts.
Then there's the huge debate about the tar sands in Alberta. From what I've read, it actually takes more energy to get the oil out of the tar sands than it will create. (The difference is that the energy to extract is natural gas, rather than oil.) Even if it's not true, it's still a very energy intensive place to get oil from, so the profit margin is much slimmer. From any logical perspective, this makes no sense. Except that most things run on oil, not natural gas, so with that in mind (and factoring in the idea of profitability above any other considerations) it does make a weird sort of sense to go for it. But as with drilling in the Arctic, it's not easy and it's not cheap for the companies. In future prices, if they're allowed to move ahead with these projects, a certain amount of risk will need to be factored into the price of oil. Which means that prices will go up again. A lot. And since oil is so prevalent in our daily lives, everything else that's attached to or made from oil will also go up in price.
The last convincing argument for me is the fact that several oil industry insiders (most notably T. Boone Pickens, the Texas oil magnate) have said that peak oil is real. Pickens, last I heard, has started a wind energy project. I can see how one might suspect him of fanning the flames of peak oil to get a leap on making his new venture profitable. What I find less easy to believe is that he'd jump ship on a very profitable venture to start a riskier and often less financially rewarding one. As with most things, it's easiest to follow the money. If oil barons think that oil won't be as profitable in the future, they'll move onto other profitable things.
We might wonder why more isn't being done to create a more sustainable, renewable system of energy. As with a lot of things, the answer is money. As long as oil is profitable, they'll keep pushing it. As long as people keep buying it, they'll keep producing it and charging as much as they can for it. It's simple economics.
I don't think that oil is going to "run out", as the common wisdom goes, and I'm not a "doomer". I don't think society will totally collapse because I think that changes will occur over a period of time rather than all at once. Oil won't disappear overnight, it's simply going to get too difficult to extract, and too expensive to use. I'm torn in my hopes for the future prices. On the one hand, people would make many different choices if gas got up to $20/gallon, or even $8/gallon. They'd drive less, be more economical with their energy consumption, probably utilize more naturally sourced things (since plastic would go up in price, too) and generally be forced into living greener lives because not doing so would be too expensive. However, this would also disproportionately hurt the poor. So many people are struggling as it is. What would happen to them? For that matter, what would happen to us? Heating oil is already horribly costly (I haven't priced it out lately, but I know it's at least a dollar or two more per gallon than regular gasoline) and we use it for so much of the year. What would happen to our rent if the price went up another dollar or two?
Speaking of which, when I spoke to my brother in California the other day he was shocked by the fact that our landlord can raise the rent by 10%. I guess in Cali there's a cap of 3-4% per year. I did say, though, that this is the first time in three years that the rent has been raised, so it's basically only about a 3% average increase. I never thought of it in percentage terms before, though. $100 doesn't seem that bad, but 10% seems like a lot.


  1. Doug Reynolds, the oil economist up at UAF, is a big peak oil guy.
    If you were at his talk last night (Monday) at College Coffeehouse, he talked about his theory that it was a peak oil problem at the Soviet state level that caused hyperinflation in the early 1990s (and, in large part, the union's 1991 collapse). He extended his theory in scope and argued we should expect hyperinflation across the board at some point as the global economy climbs out of the ditch it's now in.

  2. Interesting. I was, unfortunately, out of town Monday night and couldn't make it. But it's interesting to hear his theories. I'll see if I can find out more about Reynolds. Thanks!