Friday, February 1, 2008

The peak oil scenario

Check out this fascinating article by Mimi Swartz in the new Texas Monthly. It’s about investment banker Matthew Simmons and his contention that a diminishing supply of oil will clash with soaring demand (especially form China and India) to paint a bleak future. The idea is called “peak oil” and it has several adherents, including oilman T. Boone Pickens. In typical magazine style, Swartz describes their meal and the fancy Houston Coronado Club, just to let you know that she dined in style for this assignment. Here’s a quick description of peak oil:

Slashing through his entrée, barely stopping for breath, he describes a bleak future, in which demand for oil will always surpass supply, the price will continue to rise—“so fast your head will spin”—and all sorts of problems in our carbon-dependent world will ensue. As fuel shortfalls complicate global delivery routes and leave farmers unable to run their tractors, we will face massive food shortages. Products made with petroleum, from asphalt and plastic to fabrics and computer chips, will also become scarcer and scarcer. Standards of living will fall, and people will not be able to pay their debts. Lending will tighten, and eventually there will be major defaults. Growth will cease, and hoarding will set in as oil becomes increasingly rare. Then, according to Simmons, the wars will begin. That is the peak oil scenario.

Sounds like fun, no? Just reading that makes one realize just how dependent we are on oil. So what kind of timeline are we on for reaching peak oil?

Simmons believes that the worldwide peak was reached in 2005. He estimates the rate of decline for all oil production at somewhere north of 5 percent a year. At the same time, the global need for oil is expanding exponentially, particularly as China and India claim their places on the world stage. In India energy needs are expected to grow 72 percent by 2025; China’s are expected to roughly double during the same time frame. In seventeen years the world’s demand for oil may well be more than 50 percent greater than it is today, while production capacity may well sink to 1985 levels.

Of course there are lots of industry experts who disagree with Simmons. He dismisses them as wishful thinkers. He claims their optimism that we will find new oil fields or that technology will curb our need for so much oil or the idea that high prices will tamp down demand as “faith-based.”

Just this week we’ve learned that Saudi Arabia and OPEC won’t be turning up the oil spigot to help ease a recession in the U.S. Is it because they won’t or because they can’t? I suppose we’ll see.

A few modest proposals from Simmons and others interviewed for the article: invest in education to prepare for a knowledge-based economy rather than one dependent on natural resources. Stop the 9 to 5 grind – office workers should work remotely rather than commute. Cut out the ridiculous food distribution system whereby we get out of season foods from distant lands.

I would argue that we also need to consider the costs of transporting goods every which way in order to get the lowest labor costs. That would suggest that manufacturing may experience resurgence in the U.S.

One thing about it, if we think 9/11 changed everything, a peak oil scenario will show us what happens when everything really changes.

No comments: