Beating the Post Oil Drum

Source: Philadelphia Inquirer
[May 20, 2006]

SYNOPSIS: Who you calling a nut, Mister Hughes?

THE "PEAK oil" debate is populated by a cult of nuts who are easy to dismiss. But with oil prices over $70 a barrel, with no Katrina and no coup in Saudi Arabia, it starts to look plausible.

"Peak oil" refers to the point after which the world's oil supply begins to decline permanently toward zero. No one argues whether peak oil will actually happen. Everyone seems to agree that the U.S. supply peaked in 1970. Oil is a finite resource.

The real debate is over when the world peak will hit. On one side, people like Princeton geologist Ken Deffeyes and Houston investment banker Matthew Simmons estimate that peak oil already happened in 2005. On the other side, Cambridge Energy Research Associates in Boston sees "no evidence to suggest a peak before 2020" and the U.S. Geological Survey in Washington estimates that any peak would occur after 2030.

It isn't reassuring that the "don't worry" side of this debate claims we have until 2020 or 2030. Even if they're right, don't we still have a problem in less than 25 years?

The world wasn't so different 25 years ago. To count on technology to usher in a "Jetsons"-like future and solve a problem that we ignore or deny is a fool's errand. We won't even raise taxes to pay for a current war, so why think we'll muster the resources to confront the post-oil challenge?

I haven't learned anything the smart money doesn't already know.

In March 2005, Goldman Sachs warned its customers about the possibility of a "super-spike" in the price of oil in 2006. In December 2004, Deutsche Bank warned "the signs are mounting that a physical scarcity of mineral oil must be expected much sooner than anticipated," perhaps by "the end of this decade."

In March 2005, even the Bush Energy Department released a report stating that "previous energy transitions were gradual and evolutionary. Oil peaking will be abrupt and revolutionary... pervasive not temporary."

No oil company has built a refinery in 30 years, not because of the power of environmentalists (dream on!) but because they know liquid oil will be depleted before a new refinery would pay off.

And before you start listing miracle cures like ethanol and oil shale, slow down. All the "alternatives" are really oil derivatives.

It takes huge amounts of oil above our current consumption to build any serious capacity from these new sources. Perversely, it takes more oil to make ethanol than gasoline. The RAND Corp. estimates it'll take at least 30 years to start producing enough from oil shale to replace just 5 percent of current production. Another estimate says it'd take 1,000 new nuclear reactors to replace gasoline with batteries for autos, and the reactors and batteries themselves would all take oil to construct.

When the average food item in America travels 1,500 miles, peak oil changes everything, especially for cities. Saving farmland from sprawl, for example, goes from being nostalgic to strategic.

Cities like Chicago (20 percent of its energy will come from renewable sources in five years) and San Francisco (the largest solar energy project in the country) and Minneapolis (advertising the cost of commuting from distant suburbs to educate homebuyers) are rising to the challenge.

And mindless congressional pandering notwithstanding, the single best national policy would be a big increase in the gas tax.

That lowers the relative costs of alternatives and attracts more investment in them, reduces consumption through price-based conservation (rather than rationing or shortages) and extends the period to invent or build alternatives, and it diverts resources from oil-company profits into funds for U.S. energy independence.

Peak oil may feel like panic-mongering. But the fact is, even under the rosiest scenarios, most of us will live to see the complete end of oil and all its derivatives, from gasoline to plastics to pesticides. Rather than invest in gold and buy a gun, I'd prefer to work together as neighbors and citizens.