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The peak oil crisis: The silly season Is upon us

During the past week, the surge in oil prices continued with crude, gasoline and diesel prices all hitting new highs.

U.S. gasoline consumption may be down by a few tenths of a percent (which seems logical) or then again, it may be up a bit in recent weeks depending on which numbers you are reading. Our Presidential candidates, or at least their handlers, are beginning to grasp that we have a problem here and are beginning to make proposals.

We have clearly entered the silly season, for all three major candidates now have endorsed the notion that the U.S. should stop buying oil for its strategic reserve in order to force prices back down. This might sound sensible until you learn that the U.S. is only squirreling away eight ten-thousandths of the world’s production each day. The Republican candidate for President is now calling for a “holiday” that would suspend the 18.4 cent a gallon federal gas tax. This proposal of course will never pass, but if it should, the hoped-for jump in gasoline sales will quickly move gas prices higher. At a time when prices are rising about 5 cents a week, cutting taxes is unlikely to boost Hummer sales.

Up on Capitol Hill a lot of folks are worried, but as yet few have mustered the courage to propose realistic solutions. Some are beating on the oil companies and are calling for the umpteenth investigation of gas prices. Others want to yank the $18 billion annual tax break the oil industry gets and move the money to researching renewables. The rest just want to increase drilling for oil somewhere – usually in the Atlantic or Alaska -- without mentioning that at best it would take decades to produce the oil should some be found. No one wants to mention that our energy crisis now seems months, or perhaps less, away.

It is hard to really blame the politicians. As long as most of us cling to the hope that high gas prices will go away or that a painless silver bullet that will solve our energy problem is just around the corner, few candidates for public office are ready to propose what are thought to be “painful solutions” to our problems. They still shoot messengers.

The great irony in all this is that the problem is simple to understand. World crude oil production has been essentially flat for the last three years while 1.3 billion Chinese, 1.1 billion Indians, and another quarter billion or so living in oil exporting countries continue to increase their oil consumption at a prodigious pace. Incidentally, the Chinese just announced that their diesel imports during the first quarter of 2008 were up seven fold over 2007.

Currently, the real issue is how long it will take the American people to understand the seriousness of a problem that will require decades of pain, discomfort and inconvenience to mitigate. When gasoline and diesel prices go up a few more dollars a gallon, or when permanent shortages develop, everybody will get the message and media will start to talk coherently. Until then, understanding will be incremental and painfully slow

Every now and again, however, a voice of reason is beginning to appear in the mainstream media. On cable business news, every 500th guest now speaks of looming oil shortages in terms of inadequate supply to meet growing demand. This message is immediately drowned out by wave after wave of talking heads explaining that now is a great time to find bargains in the equity markets and high oil prices are caused by a temporary surge in speculation.

In general, there seems to be progress in that most, but not all, of the major national newspapers will now acknowledge that world oil production will peak some day. Rather than presenting imminent oil depletion as a fact, the major papers are writing “balanced” stories in which somebody says peak oil is imminent, somebody says it is 40 years away, and wise expert arbitrator splits the difference saying oil supply problems are 10 to 15 years out. The reader of course accepts all this, breathes a sigh of relief that he still has 15 years and goes about his business.

A poll of Congress, their staffs and senior government officials is likely to produce similar results – world oil production will indeed peak, but that day is not close enough that I have to risk public ire by proposing painful and unpopular solutions to my successor’s problem.

Unfortunately for the future of America, The Washington Post, which is read religiously by everyone of consequence in the federal government, has been among the slowest in acknowledging that a paradigm-changing worldwide oil shortage is imminent.

Last week, with oil pushing above $110 a barrel and gasoline prices setting new records each day, The Post felt impelled to say something about the issue. After telling us that prices are indeed going up and the Presidential candidates are coming up with inadequate solutions, The Post cites one of the many pronouncements by the CEO of Shell oil company, Jeroen van der Veer, to the effect that “The fundamentals are no problem.” “He blamed the lack of spare oil production and refining capacity, and tensions in the Middle East, for keeping prices high.”

The Post adds the coup de grace with “Shell's Van der Veer said he expects a crunch in energy markets in 10 or 15 years.” The rest of the story is taken up with how speculators and hedge funds fleeing the falling dollar are driving up oil above its “true” prices which is a few dollars above the cost of production. The Post suggests this “true” value could be anywhere from $10 to $60 a barrel, depending on which oil field it is coming from.

So there you have it. Our national leaders now know that the peak oil crisis is 10 or 15 years away and that speculation is largely responsible for your soon-to-be-$4 a gallon gasoline.

Editorial Notes: In Community Notes, the Falls Church News-Press has this item about peak oil journalist Tom Whipple:
TOM WHIPPLE, author of the News-Press’ wildly-popular weekly Peak Oil column, was treated to a party marking a special birthday in Arlington last weekend by his wife, State Sen. Mary Margaret Whipple. (News-Press photo)
Happy Birthday, Tom, and heartfelt thanks for the work that you've done in raising the issues and putting them in perspective. -BA

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