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Thoughts on the Oil Bubble

The debate about whether—and how quickly—we are running out of oil has long fascinated me. A few thoughts: First of all, we aren’t going to run out of oil; it just won’t happen. As the easily extracted oil supplies are depleted, the cost of extracting the remaining oil will increase, so it won’t be cost-effective for as many uses and we’ll use less. Second, there is going to be a tipping point when the rate of world oil extraction (euphemistically referred to by economists as “production”) reaches a peak and begins to decline. The extraction of a finite resource, such as oil, follows a mathematical curve—starting out slowly, speeding up as demand grows and we become more efficient at extracting it, gradually reaching a plateau as the discovery of new supplies slows, finally peaking, and then beginning the inevitable decline as it becomes more difficult and expensive to extract the remaining supplies. This mathematical curve for oil resources has come to be known as a Hubbert Curve, after the late petroleum geologist M. King Hubbert, who predicted, accurately, in the 1950s that U.S. oil production would peak around 1970.

A great deal of significance is placed on just when this peak in world oil production will occur, because that is believed to be the point at which significant price escalation will occur. That’s when worldwide demand for oil will exceed available supply. We get caught up in arguments about whether this peak in world oil production will occur in a matter of decades or years—or whether it has already occurred.

No matter when that peak occurs, though, the indisputable fact is that a few generations of humans—particularly we Americans—will have squandered a geological resource that took several hundred million years to accumulate. And in the process of burning that petroleum resource we are releasing the vast majority of the stored carbon as carbon dioxide—the primary causative agent of global warming.

Let me put this into a personal perspective: Of all the oil that has been consumed since the dawn of the Petroleum Age, roughly 91% has been consumed since I was born not quite 50 years ago (in 1955). If I live to the current age of my father, now in his 84th year (highly doubtful, if I keep worrying about this stuff!), the world will have consumed during my lifetime between one-half and three-quarters of all of the oil that will ever be consumed—both past and future. Think about that. In the lifespan of one person—a mere heartbeat in the geological time scale—the human race will have consumed as much as three quarters of this resource.

What does this mean? It means that soon—very soon—we will enter a period of significant change. Perhaps, as economist Vijay Vaitheeswaran argues in Power to the People (see page 19), the coming shift to other energy resources will be relatively smooth, driven by market forces. Rising oil prices will make other energy sources more economically attractive; we’ll increasingly shift to those, and the Petroleum Age will fizzle out—not for lack of oil but because of new and better energy resources. That sort of transition would be good.

The other possibility is not nearly so rosy. Richard Heinberg argues in The Party’s Over (also reviewed on page 19) that the transition to the post-petroleum era is likely to be anything but smooth or comfortable. Our society has become so dependent on petroleum and has for so long ignored the need to develop alternatives that there will be massive dislocation as the inevitable crash arrives.

For building owners and those involved in the design and construction of buildings, the impacts of this coming transition—whichever scenario wins out—are likely to be dramatic. Well within the lifespan of most buildings being built today, we will have to retrofit those buildings either to use other forms of energy or to drastically reduce their consumption of conventional fuels. Buildings that cannot be so modified will be uneconomical to operate; they will be harder to sell and harder to lease.

Any building designed today that does not use dramatically less energy than conventional practice will be obsolete long before its useful life should end. If one believes the more dire predictions of Heinberg, such a building—constructed to today’s codes—could become obsolete before the end of this decade.

All this points out how woefully inadequate our country’s energy planning has been for the past several decades. Astoundingly, even as we close in on the tipping point of peak oil production and the inexorably higher costs that will face us thereafter, our political leaders continue to emphasize an energy future built almost solely on the past, rather than embracing a sustainable future of renewable energy and dramatic, tenfold efficiency improvements. For what we are spending on the war in Iraq, we could be investing in a politically stable, environmentally safe, and economically strong future built upon such energy sources as wind, solar, biomass, geothermal, and efficiency.

What do you think? Leave a comment below.

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