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January was the “month in which, for the first time, more automobiles were sold in China than in the United States” (Harper’s Index, April 2009 issue). China passed the U.S. to become the second-largest automobile-manufacturing nation in 2008. Chevy-Chery photo by The Pocket.
It’s probably unfair to finger Rocky Twyman as the architect of the global recession, for a variety of reasons. All Twyman did was lead a mass movement to pray for lower oil prices. But as Ian Ayres asks so succinctly, “Did God reduce prices on the demand side or the supply side?” Apparently Twyman and his followers didn’t specify, and God in his wisdom chose the demand side, in the form of a global recession.
Out of the many lessons to be learned here, let’s focus on this: Twyman’s blithe request illustrates the danger we’re in if we don’t look at the full relationship of oil prices, supply, demand, and the oil production pipeline. This was taught really well by players in the World Without Oil game: at game’s end, when the crisis was apparently “over” and gas prices had stabilized once again (at $5.50/gal US), many players were horrified to see their neighbors fall right back into their old fuel-dependent habits. Which is what I see now all around: people believing that after a period of “false high prices” driven by “speculation,” fuel prices are now declining to their “natural levels” where they will remain, apparently, until the Second Coming.
What has actually happened is that the credit crisis has removed uncertainty from the oil market. Earlier this year, the oil market didn’t know if the oil coming out of the ground would be able to satisfy demand, so prices for oil futures went up. Now, however, it’s clear to the market that a global recession is here, and since the recession will precipitate a sudden drop in demand, it’s also clear that for the short term oil suppliers have too much oil in the pipeline. Thus the tumble in prices.
What this does NOT mean is that we have a lot of oil, or that uncertainty is gone from our oil future. Uncertainty is an indelible part of oil – for one thing, the people who control certainty are the same people that profit from uncertainty. Add to that the tendency for oil to create and maintain non-democratic nations, and the growing strategic importance of energy, and you’ve got an enduring situation where the only certainty is uncertainty.
Plus… as I’ve noted before, success in energy independence means lower oil prices. The people who buy hybrids and use alternate transit drive down the demand for oil, which drives down its price for a while. But the only way to keep the price down long term is to actively pursue alternatives, and not to be seduced by a low price today. As we all know all too well by now, that can change, and astonishingly quickly. Photo by ursonate via Flickr.
David Kirsch, an oil analyst at PFC Energy, said that if the most promising areas off Florida and California were opened for drilling, their peak production in a decade could be as little as 250,000 barrels a day — less than a quarter of what the gulf produces now. “It’s almost a desperate attempt to take advantage of the political climate brought on by high energy prices to steamroll through legislation that won’t fundamentally address those high energy prices,” Mr. Kirsch said. (As reported in the New York Times)
250,000 barrels a day – to put this number in perspective, it’s the amount that the Cantarell oilfield in Mexico declined in the last six months (and its decline will continue).
It’s the amount that North Sea oil fields declined in the last year (and their decline will continue). It’s the amount taken offline recently when rebels in speedboats attacked an oil rig off the coast of Nigeria. It’s a little over 1% of our current oil consumption and maybe a third of a percent of the world’s. It’s spit in the bucket.
Meanwhile, conservation methods offer us a way to reduce our dependence on oil by as much as one-third. That would be 28 times as great an effect. Twenty-eight times. We wouldn’t have to spend anything, or spoil anything, to do it. We could start right away, rather than waiting 10 years. And perhaps most tellingly, it would be a benefit that actually accrued to squeezed U.S. citizens, rather than a benefit that accrued to oil companies and whoever will bid the highest for the offshore oil.
It’s what the other developed nations of the world have done. Maybe we should take advantage of the research they’ve done in this area? Or must we live through the World Without Oil scenario first?
The mainstream media is catching up to World Without Oil’s vision for an oil-challenged future. Experts are “shuddering at the inflation-fueled chaos” and “foreseeing fundamental shifts in the way we work, where we live and how we spend our free time.” “You’d have massive changes going on throughout the economy,” said Robert Wescott, president of Keybridge Research. “Some activities are just plain going to be shut down.” Push prices up fast enough, said Michael Woo, a Los Angeles Planning Commissioner, and “it would be the urban-planning equivalent of an earthquake.” And S. David Freeman, president of the L.A. Board of Harbor Commissioners, said “The purchasing power of the American people would be kicked in the teeth so darned hard that they won’t have the ability to buy much of anything.” Do you remember the abandoned cars in WWO? Experts support this and offer a rough number: 10 million abandoned cars.
Read all about it in this LA Times article by Martin Zimmerman. Graphic from the article.
People in the U.S. are starting to talk about drilling again – in ANWR, off the coasts, anywhere – and that always makes me think of Frank Sinatra. Or more precisely, his performance as a heroin addict in the movie The Man With The Golden Arm.
People who want to drill for more oil are like the addict who in desperation steals his child’s piggy bank to get a fix. This is almost a perfect analogy. Except that the addict who steals his child’s money to get a fix actually gets the fix. People who push for more drilling probably won’t. If they would only examine the reality of that future:
1. No oil will actually be produced for about 10 years.
2. When it is produced, it will be sold at market rate to the highest bidder.
3. When it is produced, it will be a trickle meandering through a mostly dry riverbed. The world will be running on 20% to 50% less oil than it is today, and the new oil won’t even offset the continuing slide.
So the perfect analogy would be the drug addict who steals his child’s piggy bank to pay a runner who will go off for ten years then return with a tiny bag of dope which he will sell to the person who can best afford his astronomical price. Someone who can afford to pay multiple times what we are paying now.
So I can understand why owners of private jets are all for drilling, because they have a huge sum invested in their jets and you’ll never fly a jet on alternative power. And of course Big Oil is pushing for it (played by Darrin McGavin in the movie). But for the average person, drilling makes no sense. But then, neither does addiction.
Alert reader Cathy sent me the link to this article by Damien Cave which begins: “Higher fuel prices are forcing cities across the country to cut public services, limit driving by employees and expand public transportation in what has become a sprawling movement to conserve energy.” The article goes on to cite that 90% of 132 cities surveyed are altering operations in response to higher fuel costs. This forced cutback in public services was a big item in the WWO game: almost every service a city offers consumes fuel, and cities draw up their budgets in advance, so sudden increases catch them flatfooted (as we’re seeing now).
But the article goes on to quote the mayors at the conference: “some of them also acknowledged that higher gasoline prices could eventually make their cities bigger, better and richer.” The mayors are reporting transit use is up, the movement to resettle pedestrian-friendly downtown is accelerating, and new interest in bike lanes.
In Newsweek, Robert J Samuelson acknowledges that the equivalent of Peak Oil is here – demand has outstripped supply – and quotes economist of CIBC World Markets as saying that this will help U.S. manufacturing: no longer can jobs go overseas with such impunity. Relocalization works for manufacturing as well as food. Indeed, I’ve already read of a case where IKEA moved a manufacturing plant to the U.S. for this reason – it was cheaper to build bookcases here than to ship them in from elsewhere.
Samuelson can’t see past the current infrastructure, unfortunately, but the Economist can. In their most recent issue, entitled “The Future of Energy,” the editors cite this “failure of imagination” as the key to our problem with energy. They put forward instead ideas for “a world where, at one level, things will have changed beyond recognition, but at another will have stayed comfortably the same, and may even have got better.”
What patently doesn’t work is to cling to a wasteful system that’s loaded with problems and is incontrovertibly beginning the decline of its useful life. To quote the out-of-game “addiction” teaser for World Without Oil: “You know that it’s bad for you. You’ll cut back someday.” More drilling and more wars are the addict’s groping for one more fix: they solve nothing and don’t change the fundamental forces at work.
As the effects of high fuel prices play out around the world, many people are commenting on the predictive power of the World Without Oil game – and it is remarkably eerie to see the events described by WWO players appear in real-life headlines and news stories.
But the real power of the game, I feel, goes beyond anticipating external events – i.e., telling the external truth of our relationship with oil. The real power is in activating internal truth: enabling people to see events and understand their connection to petroenergy. To pirate an old saying, telling external truths is giving people a fish, i.e. feeding them for a day; enabling internal truthtelling is teaching them how to fish, i.e., feeding them for life.
As an example, let’s look at a comment to the previous post by WWO player PeakProphet: he relates his experience trying to find a home for two abandoned puppies. This is not a story that on its face has anything to do with oil. But once he scratches the surface we see it has everything to do with oil: $4.50 gasoline has really impacted people in rural areas; many families are seriously stretched; pets are expendable. And PeakProphet knows from the WWO game that the oil crisis burden will not fall equally, that alas it will fall mostly on anyone less able to scramble out from under it: the poor, the sick, the stretched, and yes, the defenseless family pet. From two half-starved puppies we come to see an entire region overloaded with abandoned pets, and thus we begin to apprehend the ways in which our oil crisis has already kicked the legs out from under so much that we take for granted. “Tiny Little Kitten” by TrekkyAndy via Flickr.
….possible within two years, says Sachs Goldman via Bloomberg and widely reported. Folks, less than a year ago “$200 a barrel” was shorthand for catastrophe. Witness our fellow simulation, OilShockwave, which in September 2007 posited a global geopolitical crisis precipitated by oil at $150 a barrel.
Suddenly everyone’s talking about it: rice rationing in the USA. Coming seemingly from nowhere, although that’s just a bit of American myopia. The faulty rationales behind food-based fuel have been apparent to some from the start, and WWO player GailTheActuary laid them out pretty clearly in this post back during the game. But it’s still strange to see this sort of unintuited ramification of oil addiction burst onto the scene – it’s in eerie parallel to the World Without Oil game itself, when this sort of thing occurred every day. As we approach the first anniversary of the start of the oil shock, it’s preja-vu all over again. (Thanks Marie)
Revealing AP article today by John Wilen, highlighting the trouble that US consumers find themselves in today: gas prices are going up, no matter what. And increasing fuel costs mean that the price of everything goes up, no matter what. Under price pressure from all sides, US consumers are “combining errands, sharing rides, eliminating pleasure trips and using public transit more” in an effort to control the cost of fuel on their budgets. But what’s not happening is any decrease in fuel prices commensurate with the decline in fuel usage. Gas usage is off by 1% in the past 8 weeks, instead of its usual 1.5% growth (to keep up with population growth). But gas prices have only retreated by a few cents in recent days. The result: a father in Pleasanton, CA, is considering cutting swim lessons for his kids. Which may not seem like much, unless you’ve played World Without Oil and recognize that this is how it all begins.
Not discussed in the article: the Tata Motor Company, which seems set to buy Jaguar and Land Rover from Ford. Tata is famous these days for the Tata Nano, a marvelously inexpensive car that seems destined to escalate India’s oil consumption at a rate commensurate with its economic growth. Why would cutting oil demand in the US reduce prices, when demand is increasing elsewhere? World oil consumption is expected to grow by 1.3 million barrels a day in both 2008 and 2009, according to the EIA update of March 11. (photo by goatopolis)
It’s a sign that investors think that crude oil prices “will keep climbing despite evidence of plentiful supplies and falling demand,” says John Wilen of AP. He goes on to say, “The fact that there was no overriding reason for such a price spike could be a bad omen for consumers already bearing the burdens of high heating costs and falling real estate values.” The reason: investors are moving to the oil futures market, driving up prices, as a hedge against the falling dollar. (And let’s not forget: demand from China and India continues to forge ahead, even as the U.S. economy sputters.) The Energy Department said that it expects gasoline prices to peak this spring well above the record – $3.227 a gallon average – set last May when the WWO game was going on. When, it should be noted, oil prices were “only” $65 a barrel.
“Oil futures rose Thursday after the government reported larger-than-expected declines in crude and heating oil inventories… Inventories of distillates (heating oil, diesel fuel) fell by 3.3 million barrels, more than the .8 million expected… Oil supplies have declined more than expected for several weeks running, exacerbating a perception that supplies may be inadequate to meet winter demand… ‘Stocks are just plunging’…” Pre-echoes of WWO as reported in today’s San Jose Mercury News.
“Looking for lift: Airlines cut growth targets to deal with rising fuel costs.” The article’s first sentence: “Several major airlines outlined plans Tuesday to slow their growth and cut costs to deal with higher fuel prices and the prospect of an economic slowdown that could hurt air travel.” And: “Huge demand for tiny car” – “Thousands of motorists want to be among the first owners of the fuel-sipping Smart car in the United States, demand that is racing past production capacity, Daimler AG executives said Tuesday.” In the San Jose Mercury News.
As player Warnwood told us, “the war is in words” – and here’s Michael T. Klare to parse the latest word stratagem from the U.S. Department of Energy. Be sure to read down to the part where it may become necessary for the U.S. to create “more investment-friendly environments” in oil-producing nations. As we have in Iraq?
Or so Time magazine predicts, right here.
Take a look at the preview of this article in the WSJ (subscription needed to read the whole thing, but the gist of it is freely available here). This is essentially a validation of the formative assumptions of WWO: that oil demand is strong and getting stronger, while oil production is weak and getting weaker. What force is there to prevent a rupture between the two?