America: When Oil becomes scarce, what then?

 Resource Shortages  Comments Off on America: When Oil becomes scarce, what then?
May 242008

The increasing demand for oil worldwide and the acknowledged inability to meet the demand over the next four decades will have a profound impact on the lives of Americans. The current rapid rise in gasoline prices will continue, causing a crisis in our nation and a drastic change for our society in the near future. (Photo: cars in  line waiting for rationed gas, San Jose, 1973.)

The forecast for oil production “…signals a period of unprecedented scarcity,” Oil prices could pass $200 a barrel by 2012 (subject to change), bringing $7.00 a gallon gas. (Jeff Rubin, CIBC World Markets analyst, NY Times, 04/21/08)

Goldman Sachs analyst Arjun Murti also sees oil spiking to $200 a barrel. (NY Times, 05/21/08)

The reason we can expect no relief is that, unlike the past, as demand and prices go up, oil production is not increasing among oil producing countries outside of OPEC. And experts think that we have already reached peak production or will in the very near future. And demand is about to go up significantly from now on.

“Global consumption is forecast to increase by 1.2 million barrels a day this year, to 87.2 million barrels a day, with much of the growth coming from China, India and the Middle East, according to the International Energy Agency…”

“…if by 2050, the per capita energy consumption of China and India were to approach that of South Korea, and if the Chinese and Indian populations increase at currently projected rates, those two super giant countries by themselves would consume more oil than the entire world used last year.”

Chairman of Hess Corporation: “An oil crisis is coming in the next 10 years. It’s not a matter of demand. It’s not a matter of supplies. It’s both.” (Not even the oil find off of Brazil can solve the problem.)

In a May 14, 2005 interview,author James Howard Kunstler discussed his book, “The Long Emergency,” a dystopic view of a United States without enough oil to continue business as usual.

“Kunstler believes the human race will survive as we slip down the other side of Hubbert’s Oil Peak (the point at which oil production starts diminishing worldwide and, in our case, demand skyrockets). But the high standard of living we’ve built by gorging on cheap oil will not. America, as a political entity, will be history too.”

We are well into the process now. “Kunstler foresees the end of the entire artifice of American life, from the suburbs to the interstate highway to Wal-Mart and the global supply chain that supports it.”

(When the lack of oil for transportation causes our cost of goods, including food, mostly from China, to increase and delivery become unpredictable, we will have no alternative. That’s because we now live in an INTERDEPENDENT WORLD since CEOs sent much of our manufacturing and food processing jobs overseas so our transnational corporations can enjoy outrageous profits on the backs of cheap Asian labor.)

Kunstler: “The truth is that no combination of alternative fuels or so-called renewables will allow us to run the U.S.A.-or even a fraction of it-the way we’re running it now.”

“These immensely hypertropic organisms like Wal-Mart are products of the special economic growth of the late 20th century, namely an  unusually long period of relative world peace and extraordinarily cheap energy. If you remove those two elements, all large-scale enterprises-corporate farming, big box shopping, big government, professional sports-are going to be in trouble.”

Kunstler is not saying it will be a collapse: “What we’re talking about is heading down the arch of depletion, not the catastropic cutoff of oil. Heading down the arch implies that we will not have the normal growth of industrial economies anymore. And that has tremendous implications for capital-finance instruments to produce wealth, namely securities and bonds. All the financial paper in the world is essentially based on the increasing accumulation of wealth.”

The signs of the long emergency: “We’re already seeing them. The two clearest signs are serious geopolitical friction and the volatility in the oil markets. A third one, which hasn’t quite gotten traction, will be disruptions in the financial markets. But that could happen at any moment.”

And the real estate bubble? “Absolutely. The housing bubble is a perverse form of financial behavior. It’s a consequence of capital desperately seeking a way to increase in an industrial economy that has ceased to grow. America is no longer producing wealth in the conventional sense. And so the housing bubble is a way for residual capital to produce wealth. But like all bubbles, it’ a delusional thing that will probably end in tears. (And it did. Kunstler did this interview in 2005.)

When will an oil crisis occur? “The International Energy Agency estimates that current investments will be insufficient to replace declining oil production. The energy agency said it would take $5.4 trillion by 2030 to raise global output. Otherwise, it warned that a crisis before 2015 involving ‘an abrupt run-up in prices’ could not be ruled out.” (NY Times, Oil Price Rise fails to open Tap, 04/29/08)

A Department of Energy study in 2005 came to this conclusion:

“The world has never faced a problem like this. Without massive mitigation more than a decade before the fact, the problem will be pervasive and will not be temporary. Previous energy transitions (wood to coal and coal to oil) were gradual and evolutionary; oil peaking will be abrupt and revolutionary.”

modified 05/25/08