Peak Oil

Our guest Blogger this week is my good friend Hugh Jones who is a consultant to the water treatment industry and has spent considerable time in power plants worldwide, especially in the Petroleum producing countries of Saudi Arabia, Kuwait, Venezuela and Indonesia.

I thought I would open his blog with a song borrowed from Ray Charles. It is now called “Bye Bye Oil”.

Chorus:

Bye Bye Oil

Bye Bye happiness, hello loneliness

I think I’m gonna cry-y

Bye bye oil, bye bye automobile

There goes my lawn mower.

I feel like I could di-ie

Bye Bye Oil goddby-eye


Refrain:


Its gonna be tough. I sure am blue.

Oil was my life, now what’ll I do?

Goodbye to Mercedes that might have been.

Goodbye fishing boat. Hello oars.



And now here is the Peak Oil Story:


Although rarely discussed, in just a couple of years, Peak Oil may be the greatest challenge and threat to life as we know it. My definition of Peak Oil is the point at which conventional oil production reaches a maximum. As of December 2007, oil production has already plateaued and in a few years, we will have peaked. Following the peak, the estimated decline in production is estimated at 2 1/2 % per year. Peak oil will have dire consequences for every person on the planet.

Globalization has been possible only because relatively cheap oil allows goods (food, raw materials, and manufactured goods) to be transported inexpensively from low wage countries to wealthy, high consuming countries half a world away. In the United States, the motor transport system which has allowed for massive population shifts to occur, uses 70% of the petroleum in this country and allows one 200 lb individual in a 3000 lb vehicle to travel hundreds of miles a week to and from home to places of employment. Cheap petroleum allows millions of people to live in desert climates and remain comfortably cool and well fed. The United States with 4% of the world’s population consumes 25% of the world’s petroleum. When this cheap petroleum becomes far more expensive or worse, unavailable at any price, you can imagine the consequences.

The US Congress is currently considering legislation that would require US auto manufactures to increase fuel efficiency standards to 35 m.p.g. by 2020. This is far too little and far too late. European autos currently run 35-40 m.p.g on average and Japanese autos run about 45 m.p.g. Current gasoline prices per gallon are $8 in Norway, $7-8 in UK and Germany; $4 in Canada, and $3.25 in US. Using basic economics 101, as demand increases for a product if supply cannot increase to meet demand, the price of that product must increase. Then demand will drop to balance supply. If oil production is at or near peak and demand worldwide continues to increase at 2% per year (demand in US and Europe is generally flat with developing countries like China, India, Indonesia, Brazil, Mexico, Venezuela increasing demand at 4%), then certainly demand outstrips supply in the very near future.

It is not unlikely that we see $4/gallon gas in the next year or two, $6/gallon gas by 2012, $8-9/gallon gas by 2016 and something north of $12 /gallon by 2020. If US auto manufactures are not producing cars that get 50 m.p.g. by 2020 then, I believe, General Motors, Ford and Chrysler will be out of business. I expect oil shortages to occur long before 2020 and $12/gallon gas. As of December 2007, the countries that export the most oil to the US are in descending order, Canada, Mexico, Venezuela (Hugo Chavez), Saudi Arabia, Nigeria, Algeria and Russia. Mexico has already announced that, within five years, it will become an oil importing country. Nigeria is a politically unstable basket case and Russia’s population is becoming more affluent and therefore a larger consumer of oil leaving less for export. China, India and Japan have large resources of US dollars so they will be able to afford to pay for an increase in petroleum.consumption. Saudi Arabia, Kuwait, and United Arab Emirates have growing populations that consume more oil domestically each year. The good news is that the US is currently so wasteful and inefficient in our use of petroleum that, in the short term, we could use drastic conservation measures to offset large increases in price and declining availability. However unfortunately, there doesn’t seem to be either the will or the leadership to make this happen.

Many people believe/hope that alternative energy sources (ethanol, biofuel, hydrogen or coal to liquid) will offset the coming petroleum shortage but none of these can replace more than a few percent of current petroleum consumption. In addition to the high cost of production and the lack of a delivery infrastructure, there are also significant environmental and economic impacts from these alternate fuels.



For those interested in additional information on the topic of Peak Oil, I recommend these websites: A.S.P.O – Association for Study of Peak Oil.com; Energy Bulletin; Die Off.org. Books are: Twilight in the Desert by Richard Simmons; The Long Emergency by James Kunstler; Beyond Oil by Kenneth Deffayes, Power Down and The Party’s Over by Richard Heinberg.



Thank you Kate. N.H.W.Y.

Coming Attraction

I have been working with my friend Hugh Jones on a very big “Oil Story.” If you think we had a bad situation with the “Housing Bubble” wait to you see what happens when the “Oil Bubble” springs not a leak but a dry up. A leak is easy to fix while a dry-up, well that’s another question and a very very big one. Note the 2 very’s. (When my son Fred was about 6-7 he and his friend Kenny had a series of very’s that determined their friendship.)

We are looking at the basic economics of SUPPLY AND DEMAND that are basically going out of joint. Hang in there. Coming soon RS