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Peak Oil: Why Gas Prices are Never Coming Down

“There are few problems which have greater potential to quickly unsettle the North American public and strain essential services than suddenly being denied access to fuel.” ~ Rick Munroe

Imagine, if you can, that there is a resource everyone likes to use.  They like to use it for convenience: it lets them go places, have neat things, eat the foods they want no matter what time of year it is…  And imagine this item was in total abundance, as if the world might never run out of it.  Imagine how fast people would use this resource…  Probably as fast as they possibly could, right?  And imagine it was really easy to access it, and that in certain parts of the world you could simply drill a hole in the ground and this resource would flow right to you.  Life would be fantastic!

Now imagine, if you can, that this resource begins to become scarce.  Imagine that the world could not discover any new supplies of this resource, nor could they produce it any faster.  Imagine this was because the “easy” supplies had already been used, and now the more difficult to reach supplies were economically disadvantageous to access…  What would happen to the supply of this resource?  It would dwindle.  And what would happen to all the items that were made from it?  They would rise in price.  And what would happen if the resource became so scarce that not everyone could have it?  How would people react?  Would they adapt and move on with their lives?  Would they go to war to protect their resource?  Would there be civil unrest when people couldn’t afford the resource or have the things they wanted?

While those questions may seem difficult to answer in the abstract, we are currently being treated to a real-life experiment along these very lines.  That is because such a resource exists today in the form of oil, and we are watching the world decide what to do about the reality that less oil is available for more of us every day.  The concept of “peak oil”–that the world is now beyond the peak of oil discovery and production–is one that few of us have been treated to, but is probably the most important economic and geopolitical problem facing us in 2012.

Once again, we will turn to Chris Martenson and his Crash Course video series.  This is where the concept was explained to me, and if you want to get it, no one explains it better.  This is Chapter 17a (yes, there a lot of chapters) on Peak Oil:

If you weren’t able to watch the whole 18 minutes at once, I understand.  Please come back to it–this is a really powerful concept.

For those of you who want the down-and-dirty version, here goes:

  1.  Global oil discoveries peaked about 40 years ago.  Since then, no major new high-energy oil or oil-based sources have been discovered (I know, I know, tar sands–those are in the low-energy-return category).
  2. Global oil production peaked within the last few years.  We now produce less oil every year than the year before for the first time since oil was discovered in the 1850s.
  3. Global oil demand continues to climb every year.  Countries like China and India are witnessing massive oil demand as their middle classes grow and the desire for gasoline powered vehicles and creature comforts like electronics, CDs, etc., increases.  Also, energy demand for electrified homes and heat is continuing to climb.
  4. Nations who were recently exporters of oil are also seeing increased domestic demand for oil, and are quickly becoming net importers of energy.  This concept is REALLY important.  For example, Mexico, the U.S.’ third largest oil supplier, is about to begin importing oil to meet its own energy demands.  When that happens, the United States will lose its third-largest oil supplier and then begin competing with Mexico for the dwindling global oil supply.
  5. The sources of oil and oil-based energy we continue to use (including tar sands) cost more to produce and offer less energy per unit.  In other words, we have already extracted and used the cheap, high-energy stuff.  We are now using the expensive, low-energy stuff.
  6. All this to say that between lower supply, higher demand, more nations competing for less oil, and higher production cost per energy unit produced, the cost of oil-based energy (and every other form of energy when you consider that less oil means greater demand for every other way we make energy, including solar, wind, water, LNG, coal, etc.) is going to continue to climb, probably exponentially.

So what?  This is problematic on two levels.  The first level is very obvious.  More of my paycheck going to heat my home and get to work, not to mention buy my groceries (which are shipped by truck) and clothes (ditto), is going to push America’s fragile economy to the brink of Depression (in my opinion, we’re already there, but that’s another post).  What good is a payroll tax cut of 2% when energy costs go up 20%?  The second level is far more disturbing.  Consider the massive, exponential growth of every yardstick by which we measure human development: industrial output, standard of living, quality of life, access to technology, access to communication, GDP, etc.  Consider that these rapid advancements have coincided–although it is not coincidental–with the availability of oil.  If you saw a timeline on a chalkboard that covered the last 200 years, and were asked to mark the board with a line signifying when you believed American society was “at its peak,” meaning at its best, its most prosperous, its most balanced and its happiest, where would you mark it?  I would venture to say that many of us, if we are mature and honest enough to handle this exercise appropriately, would look at the period of the late 1950s to early 1960s and say, “oh yeah, those were the good years.”  And I would agree with you.  If you feel that way, consider how little stood in America’s way during that time.  Sure, we were in the midst of a heightening Cold War, but domestically, the world was our oyster, and development and growth were commonplace and rampant.  And it is my assertion that this period of prosperity was due almost entirely to the abundance and availability of inexpensive, high-yield oil-based energy products.  When there is a ton of oil, and you can get it for almost nothing, any country can be great.  It is, as Chris says, the lifeblood of a developed economy.  With it, a nation can take on all comers and grow its industrial, commercial, and technological sectors with abandon.

However, without a cheap and abundant supply of oil, I am afraid our nation is headed for difficult times.  Could it really get that bad, and how bad would it be?  That is what Peak Oil is all about.  I’ve thrown the term at you, now you get to go learn more, if you choose.

In another post I hope to explore Zbigniew Brzezinski’s important work, The Grand Chessboard.  This book, written post-Cold War, explained the importance of the United States both a) maintaining control of the Middle East for resource purposes and b) not allowing a “Eurasian challenger” to grow powerful enough to threaten American global hegemony.  I think that is an area where the Peak Oil discussion becomes relevant, and I think combining Brzezinski’s work with a post-peak production would goes a long way to explain why we are about to go to war with Iran.  But that, as I like to say, is for another post.

~ DS AmericanEndGame

9 Comments on "Peak Oil: Why Gas Prices are Never Coming Down"

  1. DC on Sat, 25th Feb 2012 4:02 pm 

    Why do amerikans keep ghashing their teeth over ‘saveing’ the corproate fossil-fuel life-style in the 1st place? All those clothes transported by FF trucks, are made from oil, designed to fray and fall apart quickly, and are are vastly overpriced for what you get. Same idea with food. Toxic, suger and salt, heavily processed in distant, corporate factories whoes operations are as secretive as the miltary. That ‘product’ in turn, is often delivered to MNC big box stores, that destroy local business and foster even more dependency on corporate control.

    So the real question should, why save it? Humanity, (and amerikans too) should be glad high gas is comeing. Its the only thing that help topple this corrupt system. Only when we realize we can no longer afford it, will we finally start to at alternatives. Our leaders wont do it, be they national or local, we dont have any. They all work for corporations now, have for some time. Thats why local mayors and city councils court big-box stores or clear the way for them, why they encourage the destruction of farm-land so more strip-malls and mega-stores can be built. Think about it, can you recall the last time any local mayor or councl told a corporation thanks but no thanks? OR said no more strip-malls or suburban ‘developments’?

    Eliminate the the alternatives. Till the the fuel runs out-then well find out what REALLY up the creek is all about.

  2. Gale Whitaker on Sat, 25th Feb 2012 4:52 pm 

    These high gas prices are great. The only way the greedy fools that think that the world economy can grow forever can be brought down is to give them a taste of resource scarcity. I have noticed that the network “experts” never talk about peak oil or depletion when asked to explain high gasoline prices. The truth is they don’t have a clue about what’s going on in the world of supply and demand.

  3. Beery on Sat, 25th Feb 2012 5:17 pm 

    Let’s face facts for a moment. Peak Oil and its repercussions are all factual, but the article seems to assume that the results are all going to happen overnight. But they’re not. We’re not going to wake up one morning unable to afford to go to the grocery store. In reality, we’re talking about a process that is going to take years to play out, and society will have time to compensate and reduce its energy needs. This is already happening – car use is in decline, local farms are beginning to enjoy a resurgence. The idea that Peak Oil is going to destroy modern society is nonsense. Society will not fail – it will change and adapt to the new reality. It will involve changes in habits that many don’t want, but they will have to adapt. Over time (decades), it will even result in famine in some areas, but it will not result in the societal apocalypse that some doomsayers are predicting.

  4. John Smith on Sat, 25th Feb 2012 5:45 pm 

    I don’t think the piece was saying that modern society was going to be destroyed, nor does it assume that oil will cease being available tomorrow. In fact, the article leaves how badly society will be affected by peak oil as an open question in the second-to-last paragraph. My point, the point I’m building toward in all my work at, is that society is going to have to change, and this change will be difficult for some people because, no, they will not have all the creature comforts that we are used to now. Ultimately, our society will adapt, but the question is whether it will continue to progress or if it will revert to a simpler time with less material possessions. I think that is an open and a fair question to ask.


  5. Isaiah on Sat, 25th Feb 2012 6:09 pm 

    Beery, I appreciate your insight. That is exactly the constant dissonance that is in my head: Will it be a gradual decline or sudden collapse? I’m curious as to how you arrived at the “gradual decline” conclusion. Could you please elaborate, please? I’m afraid that the US Dollar will inevitably spiral into hyperinflation when economic growth is stymied by declining net energy, leading to a sudden collapse.

  6. Isaiah on Sat, 25th Feb 2012 6:11 pm 

    assuming that the Federal Reserve decides to keep printing out Dollars to “stimulate” the economy.

  7. dsula on Sun, 26th Feb 2012 1:44 am 

    >> When there is a ton of oil, and you can get it for almost nothing, any country can be great.

    Why are almost all oil exporting nation such a shit-holes?

  8. BillT on Sun, 26th Feb 2012 2:52 am 

    Some fallacies in the article, but generally correct. I don’t see the slope down being gentle or long. I see it being bumpy and steep. Perhaps even a cliff. What if the US suddenly had to live on the oil it pumps in the lower 48? Maybe 1/4 of our daily use? Not possible? Think about it.

    How does our oil get to the lower 48? Pipelines vulnerable to disruption. How does it get to our shore from other countries? By vulnerable oil tankers over thousands of miles of oceans.

    What would a truly global world war means to our oil supplies when we could not cover all the possibilities 24/7/365? Could we even manufacture enough toilet paper for our citizens?

    Americans have not had a real war on their shores and in their country since the Revolution. But, it may be coming. Then this discussion will be moot as survival will be the number one item on every mind, not wealth or electro toys.

    After all, Russia and China CAN reach our heartland. “terrorist” cells ARE in our 50 states even now, I am sure. And in WW3, even nukes will fly if a country is losing that has them.

  9. Kenz300 on Sun, 26th Feb 2012 9:49 pm 

    Great 6 point summary. Too bad the talking heads on TV do not read it and explain it to the public.

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