Peak Oil Choices

Life is choices. Choices must be made. Those we do not make, those we choose not to make, those we opt to ignore, those of which we unaware, often for reasons of chosen ignorance, are often made for us, by default. Those choices we choose not to make we have no control over. The outcome is decided by someone or something else. It's like an election. The old saying is - and I am not trying to quote but to paraphrase - if you choose not to vote don't complain about the results. Your vote is your entry fee for the right to complain. You get the government you don't bother voting for.

The approach of peak oil has brought with it a wide array of choices that had to and have to be made. Most of us in the peak oil movement are well aware of many of these choices, are making them at the personal level, are involving ourselves with the process of making them at the local community level. Through key web sites and organizations like ASPO we are attempting to get those national and international choices made. But it is a tremendously difficult task, like changing the course of a runaway ocean liner or stopping a runaway train. The end result of the inaction is that many of those choices are being made by default, by nature.

The biggest problem is getting decision makers - those who have to make the right choices - to understand what peak oil really is and what the implications of peak oil are on our global society. Peak oil is many things but it is not about running out of oil. The mainstream media seem to, for some reason, be very slow (unwilling?) to understand this. They continue to define peak oil as running out of oil and, as a result, characterize peak oil pundits as fringe wackos. If, indeed, peak oilers were defining peak oil as running out of oil that would be a fair criticism. Lew Rockwell, for another example, defines peak oil as the point where all of the oil has been found and irreversible decline starts. That's a little closer but still not a clear understanding of peak oil. All in the peak oil movement understand that discoveries will continue well after peak oil but that those discoveries will be fewer, smaller and far more difficult and expensive to process. The reality is we will probably never run out of oil.

Peak oil is not about your cost of gasoline as such. We will reach a point where whatever oil is left is so energy-expensive to extract and process that it will take more energy to turn it into fuel than the energy we get from the fuel produced. At that point it will simply be left in the ground.

Peak oil is about the rate at which what oil, in its various forms, does remain can be extracted and processed. The global human population currently uses somewhat more than 86m barrels of oil or other liquid hydrocarbon fuel every day. We do not extract that amount of oil and have not done so for over three years. The difference between what oil is being extracted and what liquid hydrocarbons are being used is being made up from alternative sources such as; tar sands, oil sands, coal to liquid, gas to liquid, methane to liquid, bio-fuels and from drawing down strategic petroleum reserves.

At the moment there is still a small buffer in all liquids, being liquid crude and the alternatives listed above. But that buffer is paper thin and global consumption has, for these past three years, been growing faster than the alternatives can fill the gap. That problem has been masked so far by a small amount of demand destruction as more and more "users" are priced out of using petroleum products by the rapid run-up in prices over these past three years. This demand destruction has been most apparent and most damaging in poor third world countries, many of which can no longer afford the importation of any gasoline. A thriving black market has developed in many of these situations where fuel is smuggled into the country and sold at ridiculously high prices to those few customers who are still prepared or need to buy fuel at whatever price.

But spot shortages are starting to occur in the rich, developed countries as well, including U.S., Britain, Germany, France, Japan, Canada, Australia and more. Gasoline shortages in developing nations such as China and India are also common occurrences as growth in demand far outstrips the development of the infrastructure needed to satisfy this demand. The frequency of shortages will undoubtedly increase. The global liquid fuels supply, because of the paper thin buffer, is susceptible to significant disruption from previously insignificant events. Every hiccup in Nigeria, Qatar, Venezuela or any other producing and exporting nation, the falling off the exporter list by countries like Indonesia, Mexico, possibly Venezuela, Russia and others throws a major monkey wrench into the global oil market and sees a major up-tick in spot market prices which may, over the course of a week, climb by more than what the average global price of oil oil was ten years ago or less.

One of the most economically disruptive impacts of the choices not made in the face of peak oil - more often exactly the wrong choices made - will be the death of globalization. Globalization has been the driver behind economic growth and expansion throughout the developed and developing world over these past several decades. China, India and other Tiger economies have been, much to the chagrin of a large portion of the population in the older economies of the "developed" world, the greatest beneficiaries of globalization. While the older economies have remained relatively static - these economies have seen a shift from a production to a service economy rather than real growth - with "real" growth (when there is growth at all) of only a couple of percentage points, the economies of China, India and other developing economies have grown at double digit rates, often exceeding twenty percent in good years.

But the mechanics of globalization are driven by cheap oil and its derivative fuels. It depends on the massive and rapid movement of goods over thousands of miles by ships, airlines, trains and trucks, all of which run on liquid fuels derived from oil. All of these forms of transport are under serious threat from rapidly rising oil prices. Airline companies are having to take a number for the line-up at bankruptcy court. Trans-oceanic shipping is teetering on the brink with shipping costs doubling or more because of fuel costs, especially for the long list of products where energy and shipping cost are a major cost component (in many cases more than 25% of the overall product cost before the price run-ups began). Rail lines and carriers, particularly in North America, have been shrinking and consolidating for years and no longer have the financial vitality to absorb these rapidly rising fuel prices. Independent truckers, which now represents the bulk of overland transport in North America, has absorbed so much of the cost of rising fuel costs that they can no longer stay on the road (as they slide ever closer and ever quicker toward bankruptcy), even if they could charge surcharges for fuel costs.

As I detailed in Peak Oil, Deglobalization and Ecolomics many outsourced industries that are being hit hardest by rising fuel prices are beginning to repatriate their operations closer to their markets. U.S. steel imports from China have, over the past year, declined by 20% while U.S. domestic steel production is ramping back up and has increased by 10% during the same period. Much of the production and assembly of goods that had been outsourced to China and other Tiger economies is being repatriated and ramped up in Mexico, the closest source of cheap labour for the manufacture of goods for the American consumer.

But these simplified repatriation decisions that may seem to make good economic sense in a business-as-usual scenario are not, as I detailed in the above article, are not good decision or choices in the face of peak oil. They simply move the energy consumption of the manufacturing processes from one location to another but are still built around an unchanged model of centralized production of goods moved by a hopefully-viable distribution system to the markets and consumers. Moving production to Mexico is definitely not wise in the long term. Mexico's domestic oil production is plummeting, by as much as 20% or more each year, and that poor country will soon find itself a net importer of oil if there is much effort to move outsourced American industry from China to Mexico.

Repatriating outsourced industries from the developing world to the developed world and doing so without redesigning the processes to be less energy-intensive and converted to decentralized processes that produce right in the consuming market, wherever it may be, simply defers the eventual and necessary industrial response to peak oil. Very soon there will not be enough liquid fuels being produced globally, from whatever source, to satisfy total global demand. Very soon the industrial model is going to have to be changed, choices - correct choices - are going to have to be made, to cope with the reality that there is not enough fuel being produced globally to support the present model that relies on centralized, mechanized production and long distance distribution by liquid-fuel-dependant transport infrastructure.

The choices we have neglected to make, for whatever wrong-headed reason, have been made for us. We are no longer in control of the rules of the game. that's the price of choices not made.