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The GAO report

Last week the Government Accountability Office released its long-awaited report on peak oil. This report is clearly a milestone on our journey through the oil age for it is the first time the staff of a major government agency has looked at the issue and concluded that peak oil is real and, if it occurs soon, could cause a world-wide recession. Even more notable is that the Departments of Energy and Interior generally agreed with the conclusions.

There is little in the report those following the peak oil story do not already know:

  • The US, as the world’s biggest consumer of oil, is the most vulnerable to the consequences of peaking;

  • Sixty percent of the world’s oil reserves now are controlled by unstable countries;
  • At best, the US could only hope to replace about 4 percent of its liquid fuel consumption with alternatives by 2015;
  • A hydrogen-based economy is not in the immediate cards;
  • And, most importantly, the US government had better get its act together soon to do something about all this.

Now we all know that the key question about peak oil is “when will it happen,” and its corollary, “when will the economic troubles begin?” For those of you who understand American football, the GAO simply punted by concluding that peak production come anywhere between now and 2040 thereby removing any sense of urgency from the issue. If it comes soon, peak oil could have serious consequences. If it comes later, things might not be so bad.

By adopting this rather ingenious position, the GAO staff saved themselves a lot of grief and a lot of controversy, but got everybody on board – the Departments of Energy and Interior, the EIA, the IAE, and maybe even ExxonMobil and its anti-peak oil friends over at Cambridge Energy Research.

Judging from the blogs, most people following and writing about peak oil are outraged at the preposterous judgment that the most that can be said about the timing of peak oil is “sometime in the next 33 years.” The evidence for an imminent peak is much better than the GAO makes out.

However, let’s turn the story around for a minute. Suppose the GAO staff really had studied and debated the evidence and concluded, as others have, that world oil production has already plateaued if not peaked. Suppose, they went on to say it is unlikely that world oil production will ever again increase significantly and that when you throw in all geopolitical factors – wars, insurgencies, expropriations, bad governments – the amount of oil available for importing countries is likely to drop sharply very soon.

If they were in a candid mood, the GAO could have added “and by the way, kiss any expectations of robust economic growth you might have goodbye.” It simply is not going to happen for a long, long while.

The GAO could make an even bigger splash by convincing the president to go on prime time tell the American people that all available evidence leads to the conclusion that, soon, gasoline will be too expensive for them to afford. They should immediately sell their gas guzzlers, put their over-mortgaged houses on the market, stop using credit cards, dump all their stocks, and plant a garden.

For obvious reasons no president will ever make such a speech. Despite quiet preparations for peak oil in many countries around the world, no national leader has as yet said anything similar – the consequences are simply too unpredictable.

For equally obvious reasons, no responsible government agency will ever officially conclude that serious economic problems are coming soon for the immediate consequences could be needlessly severe. Those who had hoped the GAO report would once and for all confirm that peak oil theory was right and that world oil production was hovering at the edge of a collapse were bound to be disappointed.

It is more likely that the world will muddle its way into the era of peak oil in much the way it has muddled into global warming. Various segments of the population will catch on to the problem at various times amidst much fussing, fuming, and denial.

Thus, the real dilemma of coping peak oil, for a while at least, is really quite simple. If the government should lay out the full ramifications of peaking in hopes of rallying the people to make preparations, the most immediate consequence is likely to be serious economic setback triggered by an unambiguous announcement itself.

The alternative is to remain silent. Leave the future a bit murky with room for hope. Don’t panic anybody into selling assets or husbanding their money with talk of an unaffordable future. Talk about reducing dependence of foreign oil instead. This carries the implication that the foreign oil will always be there in an emergency and that reducing dependence will be a matter of patriotic choice not necessity.

As no responsible government wants to see economic troubles start any sooner than absolutely necessary, there will probably never be a strong, clear, unambiguous, widely disseminated report on the timing of peak oil. The National Petroleum Council is poised to pronounce on the issue in the next few months. It would not be surprising if they come up with a formulation similar to the GAO’s. If governments have their way, we will stumble into peak oil over a period of years during which gasoline prices cycle inexorably upwards and various compensating actions are take.

So there you have it. The GAO did their job by warning the Congress that peak oil might just be a very serious problem very soon, and the DOW is still going up. Sometimes government agencies are not that dumb after all!

Editorial Notes: I agree with Tom. Peak oil represents a massive cultural shift, which will only come step-by-step. Part of presenting a case to the public is building up a set of credible sources. The GAO report is a very positive step -- now it's up to others to build on what they've done. More on the GAO report from EB. -BA

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