February 14, 2012 by David K. Sutton
Can We Afford $5 Gas? What Happens When It’s $10? Or Worse?
In an article on The Washington Post’s Wonkblog, Brad Plumer asks, “Many analysts are predicting $4-per-gallon gas or higher by May. Is this survivable?” Yes, I think $4 is survivable. We’ve already been there before. Some people are predicting $5-per-gallon gas this summer. Is that survivable? Again, I say yes. Will it have an impact on the economy? No question about it. Whether it will be enough to stall economic growth remains to be seen.
But I think these are all relatively trivial questions, which will raise a few eyebrows I’m sure. I think a more important long-term concern is whether we can afford to keep playing a game of Russian roulette with the economy and our way of life because of something looming on the horizon that nobody wants to talk about. What am I referring to?
Peak oil is the point in time when the maximum rate of global extraction is reached, after which the rate of production enters terminal decline.
This concept is derived from the Hubbert curve, and has been shown to be applicable to the sum of a nation’s domestic production rate, and is similarly applied to the global rate of petroleum production.
Peak oil is often confused with oil depletion; peak oil is the point of maximum production while depletion refers to a period of falling reserves and supply.
The concept of peak oil was explained in 1956 by M. King Hubbert who – as it turns out – accurately predicted oil production in the United States would peak between 1965 and 1970. Peak oil can be charted as a bell curve, known as Hubbert’s peak or Hubbert’s curve, with peak oil occurring at the apex. Hubbert’s curve has successfully predicted peak oil in other countries in the years since.
As noted by the Wikipedia definition, peak oil is not synonymous with oil depletion. Most people agree there is plenty of oil still in the ground. Some of the rosiest estimates that I’ve read say there could be as much (or more) undiscovered oil in the ground compared to the combination of known oil reserves and all oil consumed to date. If this is true it seems we have nothing to worry about, right? The problem, even if this optimistic projection is true, is that much of the remaining oil that is in the ground is in hard to reach places. We have discovered and tapped all the cheap oil which means much of what remains in the ground will cost much more per barrel to extract and refine.
Higher cost per barrel oil will lead to higher cost per gallon gas, but potentially more devastating will be the decline in extraction rates. This is where the peak oil concept comes into play. We might be able to extract oil from the ground for centuries but the rate of extraction will likely continue to decrease as it becomes increasingly difficult to find and extract what’s left. Not only will the rate of extraction decrease, it will coincide with greater demand from India and China. This could potentially hyper-inflate the cost of oil. Say goodbye to $5-per-gallon gas. Say hello to $10-per-gallon, or $20-per-gallon, or much worse.
Make no mistake about it, this is not a conspiracy theory. Oil (petroleum) is a finite resource. It’s not a question of “if” we will hit peak oil, it’s simply a question of “when”. Some believe we may have already hit peak oil within the past decade because world oil production has barely increased since 2005 after years of steady, and sometimes rapid, increase. But nobody can say for sure because peak oil can only be confirmed in hindsight.
Are you beginning to form a clearer understanding of the importance of this issue? It’s beyond more fuel-efficient cars. We must demand alternative energy sources to petroleum. Instead, it seems most people are acting like we can keep operating as we always have. From consumers to business to government, the world is operating like there is an unlimited supply of oil in the ground. There is not.
Unfortunately this story doesn’t end with the fuel we use for our cars. Oil (petroleum) is involved in almost everything we interact with each day. If it’s not made by petroleum it’s shipped by a truck or a ship that burned petroleum to get it to your door. If the cost of oil rapidly increases, so to will the cost of the products we buy. Petroleum is what has made the industrial age – and for that matter, modern capitalism – possible. Are the implications of peak oil starting to sink in now?
Can we survive $10-per-gallon gas? Or worse?
Can we survive shortages of supply in a peak oil world?
Can we support our way of life in a world of decreasing oil extraction when we know oil is what has driven our economy for well over a century?
It makes $4 and $5 gas seem trivial indeed.