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Peak Oil: The End of Cheap Oil

by: Gordon Owen

Since corporations and governments are staffed by human beings, it's no surprise that corporate and governmental decisions are marked by the same shortsightedness that we've been warned of ever since Aesop told the tale of the grasshopper and the ant; i.e., tactical decisions for the near term rather than strategic decisions for the long term. True, some Asian corporations try to look five years into the future and certain European governments require new construction to include energy-related features that just don't pencil out at current energy prices, but those two cases are exceptions to the rule that decisions are made based upon the next quarterly statement and the most recent poll or -- in the best case -- the current fiscal year and the next election.

Faced with a tightening of oil supply (only "the beginning of the end of cheap oil"), one might hope that the US government would invest 3 or 4 years and a few tens of billions of dollars in cash or tax incentives on strategic effort to reduce/eliminate dependence on foreign energy sources:
* most importantly, establish sufficient grain production and distillery capability to be able to use alcohol rather than gasoline for our internal combustion engines. (Most people don't know that when US forces took the Phillipines during WWII, all those barrels of aviation fuel and truck fuel left behind by the Japanese were of no use because our engines ran on fuel produced by Standard Oil rather than by farmers.)
* distributed across agricultural areas, set up facilities for anaerobic composting of crop residues and manure. These produce methane (CH4), the active ingredient of natural gas and 88 to 90% of its volume. In addition to its use in heating homes and generating electricity, natural gas can also be compressed and used to fuel our vehicles.
* again distributed but across desert areas, set up photovoltaic facilities to tap solar energy with the electricity used directly or to electrolyze water into oxygen and hydrogen. High tech version would be two-pronged: (1) on-orbit facilities with power beamed to receiving antennas in those same desert areas and (2) with expensive solar panels at 16% efficiency and super expensive ones approaching 20%, we'd implement a Manhatten style project to put our best and brightest at work coming up with a cheap photovoltaic film of maybe 3 or 4% efficiency that could be squeegeed onto flat surfaces across thousands of acres of sunlit desert.
* possibly pursue similar efforts to tap wind, geothermal, and tidal energy sources.
These efforts would lead toward a future where a world population measured in billions comes to adopt the Western mindset that light comes from flipping a switch, drinking water comes from twisting a faucet tap, and to go faster you just push down on the pedal. They might even lead to a future where a kid born in Iowa could hope to go where no man has gone before.

But gasoline packs more BTUs per cubic inch than any of the alternatives so even if/when oil goes to $100 per barrel none of these efforts can show a profit this quarter or this year or even before the next election. What's worse, they don't fit with the unspoken assumption that what's good for the "awl bidness" is good for the USA. So, instead of those tens of billions being strategically invested over the next few years we got a short term tactical decision based on what's good for the oil business. With Saudia Arabia (the #1 oil source) already on board as one of the best friends that money can buy, with the Taliban unwilling to have a new pipeline across Afghanistan, and with Saddam (the #2 oil source) threatening to price oil in Euros rather than dollars, we chose to spend a year (2003) and $84 billion to assure "the free flow of oil at market prices." Which also assures that Japan, Germany, and other non- oil producers will continue to have to swap their currency for dollars in order to buy oil. It turns out that pursuing the free flow of oil takes more than a year and a lot more than $84 billion even though no oil flows from Iraq and even though Saudi pipelines are now under attack, but there's no indication of reversing course no matter who resides at 1600 Pennsylvania Avenue.

Cheap oil means cheap food. As gasoline and diesel fuel pass four or five dollars per gallon (and gold passes $1,500 per ounce), the biggest change in North America will be that wholesale food markets in urban areas will no longer see trucks arriving with loads of vegetables from California, fruit from Chile, or wine and cheese from Europe. In the first place, fertilizers and pesticides are oil based so food will no longer be cheap even at the source. And whether paying the freight for a ship from South America or a truck from California, our current food sources will become prohibitively expensive compared to eating what grows within several miles of your kitchen.

Cheap oil also means cheap heat and cheap transportation. When North Americans can no longer afford to heat their atrium-entried McMansions or commute from suburbia to their urban jobs, we'll see a initial period of workers sleeping in the parking lot and commuting once a week to join their families in huddling around the woodburning stove they installed in the family room after putting up plastic sheeting to separate that area from the rest of their unheated house. During this initial period, when it gets warm they'll be planting vegetables in the back yard and hoping their drafted son lives to come back from Venezuela. Depending on how long it takes for them to realize that the pension they've thought they were earning is imaginary (or will be so diluted by inflation as to be meaningless), they may or may not harvest that first backyard crop before they quit going to work and simply begin trying to survive. The words "social disorder" don't begin to describe what life will be like as gold goes from two or three thousand dollars per ounce to being recognized as a store of value not to be measured in dollars.

When the dust settles (maybe two years after what's left of US central government gives up on pursuing what's good for the "awl bidness"), the North American economy will be the same as the rest of the world:
* local populations using mostly local resources
* worldwide population the same as in 1850 plus however many more can be supported by the extent to which local populations succeed in (a) recreating the age of the coal-fired steam engine and (b) establishing alternative renewable energy resources
* an ounce of gold approximates the annual wage of a skilled worker.

The above paints a glum picture. But note that it's the outcome of shortsighted decisions made by organizations, both corporate and governmental. At the level of the individual, there's nothing to prohibit each of us from heeding the lesson Aesop taught more than two thousand years ago. Be an ant rather than a grasshopper. Instead of doing what feels good today, do what's smart for tomorrow. Put away some food for the coming economic "winter." Learn some useful skills and acquire the tools to go with them. Consider moving to an area where your new neighbors will already have such skills. With less than one ounce of gold per person on the planet, buy a few ounces of real wealth instead of that plasma television. Finally, if you like flush plumbing, look into having a couple solar panels and a 24-volt pump in your well.

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