"Your books and articles are excellent resources for stimulating lively and insightful class discussions, and also give our students exposure to international issues that directly impact their lives." -Keith Cooper, Dean of Research, Cook College, Rutgers University
Chapter 2. Beyond the Oil Peak: The World After Oil Peaks
Peak oil is described as the point where oil production stops rising and begins its unavoidable long-term decline. In the face of fast-growing demand, this means rising oil prices. But even if oil production growth simply slows or plateaus, the resulting tightening in supplies will still drive the price of oil upward, albeit less rapidly.
Few countries are planning a reduction in their use of oil. Indeed, the projections of oil use by both the International Energy Agency and the U.S. Department of Energy show world oil consumption going from roughly 84 million barrels a day at present to 120 million barrels a day by 2030. According to these analyses, oil consumption in individual countries will be increasing on average by nearly half over the next 20 years. How did they come up with these “rosy” forecasts? To quote Thomas Wheeler again, are many analysts and leaders simply “oblivious to the flashing red light on the earth’s fuel gauge?” 59
Even though peak oil may be imminent, most countries are counting on much higher oil consumption in the decades ahead. Indeed, they are building automobile assembly plants, roads, highways, parking lots, and suburban housing developments as though cheap oil will last forever. New airliners are being delivered with the expectation that air travel and freight will expand indefinitely. Yet in a world of declining oil production, no country can use more oil except at the expense of others. 60
Some segments of the global economy will be affected more than others simply because some are more oil-intensive. Among these are the automobile, food, and airline industries. Stresses within the U.S. auto industry were already evident before oil prices started climbing in mid-2004. Now General Motors and Ford, both trapped with their heavy reliance on sales of gas-hogging sport utility vehicles, have seen Standard and Poors lower their credit ratings, reducing their corporate bonds to junk bond status. In June 2005, General Motors announced that it planned to cut its U.S. workforce of 110,000 by 25,000 workers in 2007. 61
Although it is the troubled automobile manufacturers that appear in the headlines as oil prices rise, their affiliated industries will also be affected, including auto parts and tire manufacturers.
The food sector will be affected in two ways. Food will become more costly as higher oil prices drive up production costs. As oil costs rise, diets will be altered as people move down the food chain and as they consume more local, seasonally produced food. Diets will thus become more closely attuned to local products and more seasonal in nature.
At the same time, rising oil prices will also be drawing agricultural resources into the production of fuel crops, either ethanol or biodiesel. Higher oil prices are thus setting up competition between affluent motorists and low-income food consumers for food resources, presenting the world with a complex new ethical issue.
Airlines, both passenger travel and freight, will continue to suffer as jet fuel prices climb, simply because fuel is their biggest operating expense. Although industry projections show air passenger travel growing by some 5 percent a year for the next decade, this seems highly unlikely. Cheap airfares may soon become history. 62
Air freight may be hit even harder, perhaps leading to an absolute decline. One of the early casualties of rising oil prices could be the use of jumbo jets to transport fresh produce from the southern hemisphere to industrial countries during the northern winter. The price of fresh produce out of season may simply become prohibitive.
During the century of cheap oil, an enormous automobile infrastructure was built in industrial countries that requires large amounts of energy to maintain. The United States, for example, has 2.6 million miles of paved roads, covered mostly with asphalt, and 1.4 million miles of unpaved roads to maintain even if world oil production is falling. Higher energy prices may create a maintenance crisis. 63
In addition to needing to use oil more efficiently, the world is also looking to other sources of energy. Although nuclear power has been getting some press attention as an alternative to fossil fuels, electricity from nuclear power plants is costly. On a level playing field with no taxpayer subsidies, nuclear power is dead. If utilities pay the full costs of nuclear waste disposal, of insurance against an accident, and of decommissioning plants that are worn out, the expense of nuclear power will take it out of the running. And with international terrorism on the rise, the vulnerability of nuclear power plants to attack combined with their use by countries as a steppingstone to the acquisition of nuclear weapons virtually eliminates nuclear fission as a future energy source. 64
The relative abundance of coal makes it an attractive energy source in some quarters, but it is likely to soon become a victim of mounting public concern about climate change. This means a future of renewable sources of energy, including wind energy, solar cells, solar thermal panels, solar thermal power plants, geothermal energy, hydropower, wave power, and biofuels.
In the coming energy transition, there will be winners and losers. Countries that fail to plan ahead, that lag in investing in more oil-efficient technologies and new energy sources, may experience a decline in living standards. The inability of national governments to manage the energy transition could lead to a failure of confidence in leaders and to failed states.
National political leaders seem reluctant to face the coming downturn in oil and to plan for it even though it will become one of the great fault lines not only in recent economic history but in the history of civilization. Trends now taken for granted, such as urbanization and globalization, could be reversed almost overnight as oil becomes scarce and costly.
Developing countries will be hit doubly hard as still-expanding populations combine with a shrinking oil supply to steadily reduce oil use per person. Such a decline could quickly translate into a fall in living standards. If the United States, the world’s largest oil consumer and importer, can sharply reduce its use of oil, it can buy the world time for a smoother transition to the post-petroleum era. What the world needs today is not more oil, but more leadership.
59. Jad Mouawad, “Production Trends Point to Reliance on Imported Oil,” New York Times, 3 January 2005; Ball, op. cit. note 2; Vidal, op. cit. note 1; Klare, op. cit. note 7.
60. BTS, “Table 1–12: U.S. Sales or Deliveries of New Aircraft, Vehicles, Vessels, and Other Conveyances,” National Transportation Statistics 2005 (Washington, DC: 2005).
61. Oliver Prichard, “SUV Drivers Reconsider,” Philadelphia Inquirer, 1 June 2005; Danny Hakim and Jonathan Fuerbringer, “Fitch Cuts G.M. to Junk, Citing Poor S.U.V. Sales,” New York Times, 24 May 2005; Danny Hakim, “G.M. Will Reduce Hourly Workers In U.S. By 25,000,” New York Times, 8 June 2005.
62. Micheline Maynard, “Surging Fuel Prices Catch Most Airlines Unprepared, Adding to the Industry’s Gloom,” New York Times, 26 April 2005; “Revealed: The Real Cost of Air Travel,” The Independent (London), 29 May 2005; Federal Aviation Administration (FAA), “Commercial Forecast Reports Eighth Consecutive Year of Aviation Growth—‘Aviation Enjoyed One of its Best, If Not the Best, Decade Ever,’” press release (Washington, DC: 7 March 2000); FAA, “FAA Forecasts Passenger Levels to Top One Billion in the Next Decade,” press release (Washington, DC: 17 March 2005); U.S. Department of Transportation and FAA, FAA Aerospace Forecasts—Fiscal Years 2005–2016 (Washington, DC: 2005), p. I-25.
63. BTS, “Table 1–4: Public Road and Street Mileage in the United States by Type of Surface,” National Transportation Statistics 2005 (Washington, DC: 2005); U.S. Department of Transportation, Federal Highway Administration, Highway Statistics (Washington, DC: Annual Issues).
64. Nicholas Lenssen, “Nuclear Power Inches Up,” in Worldwatch Institute, Vital Signs 2001 (New York: W.W. Norton & Company, 2001), pp. 42–43.
Copyright © 2006 Earth Policy Institute