George W. Bush, who proclaimed America’s “oil addiction,” in his January State of the Union address, exhibited a classic symptom of addiction Tuesday: denial.
As the price of a gallon of gas heads for (and beyond) three dollars, Mr. Bush proposed a truly meaningless agenda, asking oil companies to invest some of their outrageous profits in alternative energy and pledging to stop adding to the national petroleum reserve, for now. (Mr. Bush can afford to wait until prices come down, unlike the rest of us.)
Congress and state legislatures (like Vermont’s) are looking into potential prosecution of price gouging by oil dealers large and small and are considering windfall profits taxes for oil companies. That’s all fair and good, because – contrary to the full-page ads the oil industry is running in various newspapers – we are being ripped off at the pump.
The problem is, it’s not just that oil companies are ripping us off, we’re running out of oil. This is what the early phase of post-peak oil society looks like. Not very pretty, is it? It only gets worse.
The mainstream media does not include post-peak oil in its analyses of the current oil market. Major news outlets live and die by official sources and there is no official source willing to discuss the issue. According to the oil companies or the oil-producing nations or government officials charged with energy policy, the current round of problems all stem from:
a) India and China’s growing economies (In China, subsidized gas goes for around $2.12 a gallon. China takes dollars from its trade surplus with the U.S., and subsidizes energy, which makes Chinese products more competitive and increases the trade imbalance some more.)
b) Uncertainty over Iran and its nuclear ambitions (Actually, from international uncertainty that Mr. Bush is crazy enough to start another war)
c) The Iraqi civil war (Tuesday’s Washington Post reports Shi’ite militias are moving into Kurd-controlled Kirkuk, hoping for a piece of the oil action)
d) Unrest in Nigeria (Decades of Shell Oil’s thuggery coming back to haunt it.) and
e) Venezuela’s anti-American attitude (Decades of U.S. foreign policy ditto.)
All true, but similar situations have been true in the past without $73-dollar-per-barrel oil. The difference is that in the past, the world had a “swing producer.” A “swing producer” is a supplier with an enormous stockpile of a given commodity on hand. When prices of the commodity get too high and threaten to trigger economic chaos, the swing producer floods the market, bringing prices down and restoring economic stability. For decades, Saudi Arabia was the world’s swing oil producer – until last year. The Saudis said they would no longer act as swing producer, not – they said – because they were running short on oil, but because they didn’t feel it was in their best interest to continue. It would be in everyone’s best interest if a swing producer arrived on the scene, because continued high oil prices may very well set off a chain reaction that takes down the overextended U.S. economy – and severely damages the world economy.
Princeton geologist and peak oil poet laureate Ken Deffeyes predicted world oil production would peak on Thanksgiving Day 2005. He later revised that estimate, but not by much. Now he says we went over the top two weeks later, on Dec. 16. Some respite. Data from the Department of Energy show world oil production hit an all-time high in December 2005, then fell by a half-billion barrels per day in January 2006.
The first industry to feel the crunch in a big way is the airlines. The price of gas increases the cost of going to see grandma in Michigan for Thanksgiving, so fewer people go see grandma, which reduces the airlines’ volume, which increase airlines’ costs, so ticket prices go up, so business travelers decide to do meetings by video conference, so ticket prices go up and the cycle begins to spin out of control.
On the front page of Tuesday’s New York Times a story said Airbus is trying to convince Asian airlines to install standing “seats” on planes to cut costs by saving space. Wide-body planes increasingly have nine, rather than eight, seats in a row for the same reason. The business section of Wednesday’s Times reports JetBlue Airways, which had been considered a scrappy up-and-comer, reported a first-quarter loss of $32 million, attributed to high fuel costs. Don’t worry, JetBlue, George Bush is encouraging the oil companies to “do the right thing.”
© Mark Floegel, 2006
Department of Energy Oil Supply Data: