Tuesday, March 11, 2008

Bad News at the Pump
Commentary: The $100-plus barrel of oil and what it means.
By Michael T. Klare, TomDispatch
March 11, 2008

...Three factors, in particular, are responsible for the current surge [in oil prices]: intensifying competition for oil between the older industrial powers and rising economic dynamos like China and India; the inability of the global energy industry to expand supplies to keep pace with growing demand; and intensifying instability in the major oil-producing areas...

...This shows little sign of lessening, which means we face an unprecedented surge in the total demand for oil. According to the DoE, combined world oil consumption, which reached 83.7 million barrels per day in 2006, is projected to hit 90.7 million barrels in 2010 and 103.7 million in 2020. We're talking about an increase of 20 million barrels per day in just 15 years. To achieve this would require a mammoth, unbelievably costly effort on the part of the world's giant oil companies (and their lenders and government backers), and even then it might not be possible...

...American consumers, facing gas-pump hell, are, at the moment, being further punished by the fact that most global oil transactions are denominated in dollars. Given the declining value of the dollar relative to other currencies, we wind up paying more per barrel than competitors who can convert their euros, yen, or other strong currencies into dollars before bidding against us on the international energy market. Global investors, sensing the trend, are dumping the dollar for these other currencies or buying oil futures, only adding to the slide of the U.S. currency and the rising price of crude...

...So here's the bad news at the pump: The inability of the global energy industry to keep pace with rising demand is only likely to become more pronounced as, in the years ahead, the world reaches maximum sustainable daily petroleum output and commences what just about all energy experts now agree will be an irreversible decline. No one can be sure when exactly this will occur, but a growing chorus of specialists believes that we are moving ever closer to that moment of "peak" oil output—with some specialists placing it as soon as 2010-12...


And some say peak production hit back in 2006. Either way, things will never go back to the way they were before.

...The bottom line: Oil prices are high today not, as in 1980, due to a temporary disruption in the global flow of petroleum but for systemic reasons that are, if anything, becoming more pronounced. This means news headlines with the phrase "record oil price" are likely to be commonplace for a long time to come. The only good news may lie in just how bad the news really is. Sooner or later, ever rising energy costs are likely to push the United States and other oil-consuming nations into deep recession, thus depressing demand and possibly beginning to bring energy prices down. But this is hardly a recipe for lower prices that anyone would voluntarily choose.

What, then, will be the lasting consequences of higher energy costs? For the ordinary American consumer the answer is simple, if grim: A diminished quality of life, as discretionary expenses disappear in the face of higher costs for transportation, home heating, and electricity, not to speak of basics like food (for which, from fertilizers to packaging, oil is a necessity). For the poor and elderly, the implications are dire: In some cases, it will undoubtedly mean choosing among heat in winter, adequate nutrition, and medicine...


And we have absolutely known this since the 70s, as the recent post on Limits to Growth showed, if not the 50s, when geologists first pondered the problem. Yet we have done NOTHING to prepare, and act as if hopping into the car and driving 10 miles to the nearest grocery, then another 3 miles to the kid's school to pick them up, and then back home again are some sort of right to which we are eternally entitled. And even better, the gedolim want us to turn off the TV and the Internet and act as if nothing going on in the world has anything to do with us. It's insanity, class. A total denial of reality.

But reality doesn't go away when you ignore it, class. Not at all.

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