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Time to prepare for the coming peak in world oil production

I recently saw the movie "The End of Suburbia" at the University of Alaska Fairbanks, sponsored by the Interior Alaska Outpost of the Post Carbon Institute (Alaska.postcarbon.org). The Post Carbon Institute is a national grass-roots organization that educates citizens about the imminent oil crisis.

I only wish that when I was a student such an organization existed. They are committed to talking about energy scarcity problems--problems that every single one of us will have to face in the next few years. The movie and the organization are about looking to the future to see what we as a civilization will do when oil prices start to increase substantially. "The End of Suburbia" offers insights on how our economy depends on oil and why world oil production will soon peak and cause high prices.

I concur with their analysis. In my own book, "Scarcity and Growth Considering Oil and Energy," I highlight other, more complex, arguments behind the peak, but nevertheless a peak in world production will soon be upon us and will hit today's economy even as hard as the 1930s Great Depression. In fact, I predict that an oil price shock will happen in one to five years.

Another organization, the Association for the Study of Peak Oil, also supports this timeline. Unfortunately, most government and nongovernment reports support a 10- to 30-year time frame before oil shortages occur. Even so, we must start preparing now for that eventuality, and organizations like the Post Carbon Institute are helping people to do that.

Immediately upon hearing about the peak in oil production, most people argue that hydrogen fuel cells, corn-based methanol, or solar energy will be developed to replace oil. In fact, most members in my own professional organization, the International Association for Energy Economics, believe that technology can overcome any resource shortage, even an oil shortage.

Yet economic evidence shows that high oil prices indeed negatively and substantially affect the economy. Here again the movie does a good job of showing just how difficult it will be for these alternatives to replace oil. If you look at such concepts as the energy per acre of a corn field versus an oil field, then it is clear how inadequate these alternatives are compared with oil.

The one alternative, though, that I believe will be used to replace oil, which the movie does not talk about, is coal--the miracle energy of the 19th century--even with its environmental negatives. Fortunately, Alaska has hundreds of years of reserves.

One interesting issue surrounding the coming peak in oil that the movie brings up is the international situation in the Middle East and Iraq. "The End of Suburbia" portrays today's war in Iraq as a conspiracy to make oil profits.

However, that explanation is too simple. The Middle East does confront us with certain dilemmas. For example, Saddam Hussein's goal in invading Kuwait in 1990 was to increase his market power, thereby raising oil prices. The world cannot allow any one country to take control of other oil-producing countries, because that would lead to a monopoly situation and further reduce oil supplies and increase oil prices. We are going to have an oil price shock soon as it is due to the world's oil production reaching a peak. Therefore, it is all the more important that the major five oil producers in the Middle East keep their borders' integrity.

We cannot afford to have a worldwide oil peak and simultaneously have an invasion of one oil producer by another. That would exacerbate the peak in oil production and create an even larger oil price shock.

In general though, the movie confronts our societal love of the automobile. It shows that we need to start thinking more seriously about resource shortages, especially oil, and how to handle them on a personal level. It suggests that the solution to adapting to such a crisis is for each local region to start creating alternative transportation and living arrangements.

I agree with this idea. I think that it is important for our borough to consider preparing for high oil prices and the types of infrastructure we will need (more busses, more well-kept bicycle paths, and the greater use of firewood and coal for heating). On the other hand, markets will also help: As oil prices get higher, people will naturally find ways to adapt. This is one reason that I ride my bike to work every day, even in the winter.

Doug Reynolds is an associate professor of oil and energy economics at the University of Alaska Fairbanks and author of "Scarcity and Growth Considering Oil and Energy", and "Alaska and North Slope Natural Gas." His e-mail address is ffdbr@uaf.edu.

What do you think? Leave a comment below.

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