BIKE: The energy crisis; transportation, economics, and politics

[Roger Baker]

"Clearly oil is getting more expensive, but adjusted for inflation we  
have a long ways to go to even reach the oil shocks of the 1970s. When  
Roger throws around the words "crisis", the assumption is that we'll be  
at LEAST that badly off.

In today's dollars, that's about 80 bucks a barrel.

Like I say: not there yet."   -- Mike Dahmus



For some reason that escapes me, Mike Dahmus does not believe that we  
are facing an energy crisis unless the price of oil exceeds the highest  
price of oil (adjusted for inflation) during the period of 1980-1981  
when it spiked to $80 a barrel in current dollars. For longer periods  
of the generally acknowledged energy crisis of the 1970's, it was lower  
than that frequently-cited price peak.

In my opinion, the real issue is the cause and how fast and how well  
our economy can respond. Probably not fast enough to prevent economic  
turmoil since the demand side of the problem is built into in our  
American lifestyle. I think the recent video "The end of Suburbia" is  
the best way for the average person to understand the historical causes  
and probable seriousness of the energy crisis we face now.

What is going on that would cause oil prices to rise so rapidly over  
the last year and when will they start going down again?

The situation now is that world oil production is on a bumpy plateau  
(roughly level) while world oil demand is rapidly increasing -- roughly  
3% per year, largely due to soaring Chinese demand. Obviously if demand  
is increasing due to a booming world economy while oil production is  
flat, this implies a widening gap that is resulting in the current  
worldwide price increase. But production will probably not remain flat  
for very long before it begins to decline at an accelerating pace,  
whereas demand will tends to keep increasing even more rapidly due to  
economic growth pressure and a lack of alternatives. Oil is  
irreplaceable as the energy basis for nearly all aspects of  
transportation in the world economy.

A number of experts, like Mr. Bakhtiari (who has written on world oil  
supply forecasts in the industry bible, the Oil and Gas Journal) are  
beginning to converge on prediction of a world oil production peak  
about 2006 or 2007. Richard Heinberg, Colin Campbell, and Kenneth  
Deffeyes are all thinking in similar terms. It should be noted that Mr.  
Bakhtiari correctly predicted in April that oil would hit $50 a barrel  
by the end of this year. An article describing this situation and the  
reason for his prediction is reposted below.

Over the short run, oil demand in rich countries like the USA tends to  
be inelastic because driving and winter heating habits tend to stay  
pretty constant. Over time, however, such demand can become more  
elastic; demand can become more responsive to price as people learn  
over time to keep only part of the house warm with fuel oil, or live  
closer to work, or make fewer non-necessary car trips, or buy bikes and  
smaller cars. This was the pattern seen in response to price increases  
during the energy crisis of the 1970's. A major problem here is the  
insufficient time required to adopt.

Bush and the corporate world and the oil companies would rather steal  
oil and deny the problem.  This only aggravates the problem, which can  
only be repressed for so long. Of course a world depression could  
temporarily reduce oil demand and lower its price, but this cure is as  
bad as the disease.

Given the key role of oil to the world economy, and how rapidly a peak  
in world oil production is approaching on the basis of expert opinion,  
I think TxDOT's current toll road building frenzy will be widely  
regarded (even much more widely than now) as an enormous mistake within  
only a few years -- likely coinciding with the peak in world oil  
production.

For similar reasons, I think that Mike Dahmus' and Patrick Goetz's  
current opposition to even a modest commuter rail start (largely on the  
grounds that one modest initial rail start doesn't solve that many  
problems linked to our current transportation behavior and thinking)  
will soon enough be regarded as an inappropriate political stance  
closely related to our currently widespread denial of cheap oil  
addiction. We'll know soon.

-- Roger


             ****************************************************

http://english.aljazeera.net/NR/exeres/351FD000-D263-46D8-BE9D- 
C17E9D5CEB84.htm

Ali Bakhtiari:  The man who foresaw skyrocketing oil prices

By  Adam Porter

Thursday 30 September 2004

In a world dominated by self-censorship, only the brave speak out. But  
in a world running on cheap energy, with all the consequences that it  
brings, only those who value their integrity above their wallet are  
worth listening to.

Back in April one man, Iranian oil and energy analyst and expert Ali  
Bakhtiari did just that. He stood up and made a prediction that could  
have seen him ridiculed.

"By the end of the year we will see oil at $50 a barrel," he told an  
audience at the annual gathering of the Association for the Study of  
Peak Oil (ASPO) in Berlin.

To make a prediction that takes in record high prices is one thing. To  
name the price is another altogether. But now, while OPEC, the major  
industrial nations and Saudi Arabia chant their mantra that there is  
"no problem", Bakhtiari seems more vindicated than ever.

"That is what I said in April, that we would get to fifty dollars by  
the end of the year. And we have arrived three months early," he says  
with a chuckle.  "I think that was really quite a good prediction you  
know."

Out of control

Trouble is, the rise of oil's price range is an undoubted economic  
threat. Not to the super rich, the top 1% of global earners, or the  
super poor, the 50% of the world's people who live on less than $2 a  
day, but to everyone else. Around three billion of us.

Oil's real value was rather low until the recent pricing collapse "I am  
afraid I think the price will go higher," says Bakhtiari worryingly. "I  
had hoped it would stay in the $40 range. I think, at that level,  
economies could start to cope, but now the price of oil is out of  
anyone's control."

The argument goes that instead of planning a structure for using oil,  
it has been left to the market fundamentalists to determine the future  
of these valuable biological assets.

The collapse of oil pricing in the 1990s, as well as the weakness of  
the dollar, had meant that the real value of oil was incredibly low.

As a result no oil majors or producer nations were interested in  
spending billions of dollars in new investment, because there was no  
short-term profit.

Growing appetite

No one was interested in spending billions on fuel efficiency because  
there was no short-term profit. Why no one was interested in spending  
billions in solar, wind or hydrogen energy is anybody's guess.

"The big economies are just starting to get used to the idea of $40 a  
barrel. We have passed that financial and psychological barrier, but if  
we moved straight into the $50 range, then that is not good at all"

Ali Bakhtiari, Iranian oil and energy expert

The same train of thought says that as well as these factors, oil has  
been physically guzzled up like there is no tomorrow.

Ironically, it is that very appetite, growing at an exponential rate  
due to demand in the USA, China and India, that could exacerbate the  
problem.

Bakhtiari says, "I hope that we don't move into a fifty-dollar range.  
The big economies, and by that I mean the US, the EU, China, India and  
Japan, are just starting to get used to the idea of $40 a barrel. We  
have passed that financial and psychological barrier, but if we moved  
straight into the $50 range, then that is not good at all."

However, he does not see the forty-, or fifty-dollar, range as  
something that will last forever. Indeed not even for very long at all.  
Instead, he says the price is being driven by something far more  
fundamental.

Peak oil syndrome?

"No one can restrain the price any more. For example, everyone thought  
that it would be OPEC who could manage demand. But that is now in the  
past.

Now it is really peak oil that is behind the wheel of the car. Peak oil  
is driving the rise in price and demand is not the real question. We  
are entering a new era, but we are only at the very beginning of it."

Repeated attacks on refineries in  Iraq have added to market woes
The idea behind "peak oil" is this. That, as the planet reaches the  
halfway point of consuming all its available oil, then a combination of  
bullish demand, slowing fields and insurmountable supply bottlenecks  
will create brutal price shocks. Almost certainly slicing the head  
clean off the world economy in the process.

This peak in oil supply will act as an economic guillotine. Yet the  
thread suspending the blade above our heads will be released without  
warning.

Politicians, producer countries, major oil companies and consumer  
states are not about to announce their own demise. It would not be good  
for business, or re-election, or both.

Unstoppable

Peak production by OPEC nations has failed to calm the markets. "If  
there was nothing to be worried about, then there would be no price  
increases," explains Bakhtiari.

"If there is no reason to worry, because there is plenty of oil and  
OPEC or Yukos or whoever can simply pump some more, then there would be  
no problems and no rises in price. The market would not be worried at  
all."

Whilst Bakhtiari admits predictions are fraught with danger, his own  
research, so far extremely accurate, says peak oil has yet to arrive.  
Like Hurricane Ivan blowing in from the ocean, we may only be  
experiencing the first stormy gusts.

"I think the peak will arrive around 2006, 2007. But, this is only 15  
months away. That is all. At that point, no one can say what is going  
to happen. Except the price is going to go up. And no one will be able  
to stop it."

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