Deffeyes, author of “Hubbert’s Peak,” predicted that Thanksgiving Day 2005 would mark the peak in world oil production. When he made the prediction, in January the year before, his tongue was only slightly in his cheek. And he wasn’t far off. Current data put the peak (so far, at least) 6 months earlier or 8 months later, depending on how you measure it.
A peak in world oil production means that about half the recoverable oil has been used, and the rest will be harder (and more expensive) to extract. Oil fields don’t run out of oil the way a car runs out of gas, chugging along at 55 mph one moment, coasting to a stop with a stalled engine the next. Oil production in fields or sets of fields reaches a peak, often when about half the recoverable oil has been pumped up, and then declines.
U.S. oil production peaked in about 1971, and oil production in at least 33 of the world’s 48 oil-producing countries is in decline now.
So while Thanksgiving Day is not, in fact, the anniversary of peak oil, we can still give thanks in the way that Deffeyes encouraged us to do so that year: Thanks for the services of the first half of recoverable world oil. Thanks for the automobile, the airplane, diesel trains and ships, two-lane blacktop, warm houses, plastics, nylon and polyester, and a huge range of petrochemicals. The Thanksgiving dinner itself was produced with fertilizers, tractor fuel, pesticides, and transportation provided by oil and natural gas. And 38 million of us in the United States will use oil to travel 50 miles or more to eat that Thanksgiving dinner.
What’s in store for us after the peak? A decline in oil supply, and even higher oil prices. In fact, I see three possible roads to higher oil prices:
1. Oil supply continues to plateau or declines, while demand remains the same or increases. This is the projection of Deffeyes, oil billionaire T. Boone Pickens, the German think tank Energy Watch Group, oil investment banker Matthew Simmons and many others in the industry.
2. Oil production increases, but it is outstripped by demand increases. This is the view of the previously optimistic International Energy Agency, the Paris-based organization that serves 26 oil exporting countries. The IEA disagrees with Deffeyes and others and believes world oil production can still be increased — just not as fast as demand. The IEA World Energy Outlook issued earlier this month says, “Rising global energy demand (particularly from India and China) poses a real and growing threat to the world’s energy security.” This would mean, at a minimum, sustained high oil prices and increased vulnerability to short-term supply crises and price spikes.
My reading is that the consensus among everyone in the oil industry is that the next five years will see demand outstripping supply and thereby forcing up prices, whether the supply increases or not. And a growing number of people believe that supply will continue to be flat or start a noticeable decline.
Regardless of whether either of the above scenarios is accurate, the bite of high oil prices could hurt us even more than it does now if:
3. The dollar continues to weaken. While major currencies have uniformly seen an increase in the price of oil this year, a portion of the recent rise in oil prices is due to the weak dollar. For example, in the halcyon days of last month, when oil was around $80 a barrel, it cost about the same in Canadian dollars as it did in the summer of 2005. Yet in U.S. dollars, oil cost over 20 percent more than its summer 2005 price. Increasing consequences from the sub-prime mortgage meltdown, a decision by OPEC to sell oil in some other currency than dollars, or any number of other factors could further weaken the dollar and thereby additionally jack up the price of oil for those of us who get paid in dollars.
Is there anything that could bring down the price of oil in the near future? Price is set by the interaction of supply and demand, and supply doesn’t look to be growing very fast, if at all. The only way left to reduce prices is to decrease demand. In the short term, that means a recession that hits most of the world’s economies. It would need to hit the United States, the world’s largest consumer of oil. And China, which is growing so fast that it is projected to surpass U.S. energy consumption in a few years. And India, where a $2,500 car is about to be manufactured in a market with 1 billion people.
If a recession does hit the major economies, the large numbers of people out of work are unlikely to give thanks for lower oil prices. The need for food shelves, weatherization and heating assistance, and universal health care will only increase.
In the end, though, it’s our oil bills that matter to us, not how much oil costs. We cannot control oil supply, but we can control how much each of us demands. If you want to lower your gasoline bill, drive a more efficient car and drive less (carpool, walk, take the bus, consolidate trips, etc.). If you want to lower your heating bill, put on a sweater, keep the thermostat down, and get your house better insulated.
Lowering heating bills was one of the goals behind the Energy Affordability and Climate Change bill that the Legislature passed earlier this year and Gov. James Douglas vetoed. The idea was to invest in an all-fuels efficiency utility to help Vermonters keep their heating bills down in the face of rising oil prices. If Douglas decides next year that he is in favor of lowering heating bills for Vermonters and agrees to sign an Energy Affordability and Climate Change bill, we will all have something more to give thanks for.
Carl Etnier, director of Peak Oil Awareness, blogs at vtcommons.org/blog and hosts the weekly radio show Relocalizing Vermont on WGDR, 91.1 FM Plainfield.
