What’s in your future as oil prices rise?

The ancient city of Pompeii was destroyed by the volcano Vesuvius in 79AD and the majority escaped.  But 3300 people died during the 24-hour eruption, even though there was ample time to flee.  Similarly, we see people staying in the path of hurricanes and dying.  Humans often fail to appreciate a dangerous situation, make a poor decision and perish.  Explaining some of the dangers that exist in our energy supply may help people make better decisions on their future.

About two years ago, my first columns looked at peak oil and the gradual decline of oil production that would be coming soon.  A shortage would raise prices dramatically and affect our ability to buy gas for our cars, heat our homes and have a job.  It’s not exactly the same urgency of Pompeii, but quite serious.  The author Jim Kunstler calls it “the long emergency”.

I remember discussing peak oil with the management of Saint John Energy.  Their response was similar to the average man in the street – denial, belief that more oil will be found, or that human ingenuity (technical solution) would conquer the problem.

Today peak oil is sending a few tremors through the economic system and while more people are aware, the majority are not. Many people sense we’re in trouble but haven’t connected the dots. I’m going out on a limb and make a few more predictions for the coming years. There is a range of outcomes, based on our response to the problem, which goes from bad to horrible.  If you don’t want to know, please turn the page and have a good life.

1) While we may see a short-term decline in price in 2008, the overall tendency will be prices rising to unbelievable levels within several years.  The price of oil has doubled as worldwide production capacity has virtually stalled.   A decline of capacity will soon start and perhaps be at 50% of present day levels by 2030 or by 2040 if we’re lucky.  Either way, it’s bad news.  Note that an oil decline of 1% equals a 1% decline in GDP.  You lose your oil and your economy contracts.

2) The price of food will rise significantly over the world on a continual basis.  The productivity of farmers (the green revolution) was related to its major inputs, which are oil and fertilizer.  With a decline in oil and fertilizer, we can expect food shortages and significant starvation related deaths in the next twenty years – Not necessarily in Canada as we have the means to avoid being priced out of the food market. Can the present industrial agriculture model be maintained without enough oil for farmers or transportation of that food to distant lands?

Based on the exhaustion of the resource base of our planet, whether it is fish, steel, coal, oil, or other commodities, it seems evident that the long-term carrying capacity of the earth is less than the present world population of 6.6 billion people.  The exact figure is a matter of some debate.  The expected shortage of food will kill billions of people.

3) The airline industry is in serious trouble.  The problem has long term roots in high cost fuel and it is not going away.  Worldwide, airlines expect to lose somewhere between $2.6 and $6 billion dollars in the current year.  Subsequent years will provide further grief with rising ticket prices, lower passenger volume, contracting schedules and bankruptcies throughout the industry. In the long term, perhaps beyond 2015 or 2020, air travel will be available only for the wealthy, government, military, and specialized high value cargo.  There may be a return to nationally owned carriers for small countries who don’t want to be totally isolated when commercial carriers go under.

IATA chief executive officer Giovanni Bisignani notes. “Skyrocketing oil prices are changing everything. The situation is desperate and potentially more destructive than our recent battles with all the horsemen of the apocalypse combined.”

The airline industry misery will spillover to the manufacturers of airplanes, like Airbus and Boeing, as orders are cancelled.  The airlines will need the more fuel-efficient planes but won’t be able to afford to purchase them.

4) The North American auto industry has hit a large pothole and is out of alignment.   GM announces closure of several auto plants featuring large vehicles virtually admitting that peak oil has arrived.  In the short term, people will be scrambling to find cars with the best mileage they can.  GM, Ford, and Chrysler will re-organize to provide cars with better mileage.  They may go bankrupt within several years.

Unfortunately, the best mileage cars are sold in Europe, not Canada.  For example, the Ford Focus diesel gets an average rating of 59 miles per gallon in Australia, the Philippines, Thailand and Europe but not Canada.  Isn’t that strange?

But enough predictions for today.  It’s too depressing.  The geologists and thinkers who believe that energy scarcity will dominate the agenda for the next 100 years were right on target while all of the government agencies and oil companies predicting no problems for the next 50 years had their heads in the sand.  It seems to be difficult politically to admit that oil is a huge problem and we’ve built a society based on a fuel that is disappearing.

Is there hope that we might see our three levels of government take control of the Titanic and change course?  The fog has lifted and the iceberg is before us.  There are things we could do.

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