Tuesday, June 03, 2008

For our canadian friends: nothing different.

Macleans.ca
After cheap oil
Soaring energy costs are about to change everything
JASON KIRBY AND COLIN CAMPBELL | May 28, 2008 |

Back in the 1990s, when Osama bin Laden was still giving interviews to journalists and didn't have a $50-million bounty on his head, one of his biggest grievances with the West was over the price of oil. At around US$30 a barrel, it was far too cheap, he reasoned. The Western world was ruthlessly bleeding the Middle East by not paying fair market value for oil. It had to be stopped. A more appropriate price? At least US$100 a barrel, he once said, maybe even US$200.

Mission accomplished. Suddenly a world in which oil costs well over US$100 a barrel isn't just the dream of a terrorist bent on destroying the United States and its allies. It is reality. Oil recently hit US$135 a barrel, more than double where it was a year ago. And the once unimaginable prospect of oil at US$200 a barrel is gaining currency among the world's most respected oil watchers. Jeff Rubin, chief economist with CIBC World Markets, predicts oil will rocket to that level by 2012. Goldman Sachs figures we'll get there even sooner. Other analysts, meanwhile, have begun to float more startling figures, of oil at US$250, even US$300 a barrel...

...It seems every day companies announce another round of price hikes, for everything from beer and vinyl siding to Starbucks coffee and diapers. Even then, rising energy prices take time to filter their way into the economy. Experts say we're only now feeling the effects of US$100 oil, and with no sign of a return to the carefree days of double-digit crude, the real storm has just begun to gather. Should oil hit US$200 in the next few years, the world will be scarcely recognizable...

...The agony that's been felt at the pumps so far is nothing compared to what will transpire if oil keeps marching higher, and the repercussions will ripple out from there. More than 60 per cent of the oil consumed in North America goes to fuel transportation, with the largest amount used to power passenger vehicles and transport trucks. By some estimates, eight out of 10 Americans rely on cars to get back and forth to work. (In cities like Toronto, that figure is more like 55 per cent, according to Statistics Canada.) If oil tops US$200 a barrel, Rubin at CIBC World Markets has said the average price of gasoline could reach $2.25 per litre, a 75 per cent jump over what it is today. At that price, it would cost $135 to fill up the average gas tank; $180 for those with deep enough pockets to still be driving SUVs (double that for the two-car garage suburban set)...

...Experts see two separate real estate markets forming — neighbourhoods that offer easy access by bicycle and public transit, and those accessible only by car. "They're going to be the losers in the next economic downturn," says Anthony Perl, director of Urban Studies at Simon Fraser University. "Those people who didn't think it mattered where you lived and felt transportation would always be cheap made the wrong bet. They probably didn't even know they were betting."

Regardless of whether people live downtown or in the burbs, the soaring cost of heating residences through the chilly winter months will affect everyone. The price of home heating oil, at $1.29 per litre, has already jumped 115 per cent since 2004, gaining 30 per cent so far this year, according to data from MJ Ervin. Roughly 10 per cent of Canadians heat their homes with oil, particularly those in rural communities who must already contend with sky high gasoline prices. The annual bill to heat an older home with an old oil furnace has, in some cases, reached $4,000 a year...

...The idea of a 21st-century oil spike is by no means new. Back in the early 1980s it was widely believed that by the year 2000 oil supplies would falter and prices would hit US$100 a barrel. But throughout the 1990s, prices remained amazingly stable around the US$30 a barrel mark. By the turn of the century, oil was hitting 30-year lows and those dire predictions seemed downright crazy. Turns out they were just a few years off. Last week, the International Energy Agency said it will re-examine the oil supply in 400 major oil fields around the world — a sobering acknowledgement that there may be even less oil than once thought. Even industry insiders are waking to the idea that the world is nearing the supply wall. Last year, former U.S. energy secretary James Schlesinger declared, "the battle is over, the peakists have won." Peak oil theory isn't about the world running out of oil — that won't happen anytime soon. It simply describes the point at which the supply of oil can no longer keep up with the world's growing demand, which these days is coming more and more from the fast-growing economies of China and India. When supplies run short oil prices don't just go up, they skyrocket. A 2005 U.S. government report concluded that a four per cent shortfall would result in a 177 per cent increase in oil prices. It is possible that new reserves, like Alberta's tar sands, will help temper that jump in prices. But there's no avoiding the fact that the world has entered a whole new realm....

...Unfortunately, failing to act in a timely way is precisely what we seem to be doing. "You can't replace hundreds of millions of private automobiles throughout the U.S. overnight. You can't even do it in five years," says Daniel Lerch, author of Post Carbon Cities. Public policy — from decisions to invest in multi-billion-dollar freeway projects to airport expansions — remains stubbornly rooted in the idea that oil will be available and affordable far into the future, says Lerch.

The cost of oil, however, is beginning to hit public purses. If filling your SUV up with gas has you feeling queasy, think how the U.S. military must feel. It buys about 340,000 barrels of fuel a day. Its bill last year was US$13.6 billion — a nearly 25 per cent jump from the previous year. It is now trying to cut its oil use and experiment with alternative fuels, but the widespread use of such alternatives is at least a decade away — probably too far for politicians in search of a quick policy fix...

All signs suggest that planning for real change won't come until it's too late. "People don't wake up until things are flying apart," says Matt Savinar, a California lawyer who runs the website Lifeaftertheoilcrash.net. Savinar is the kind of observer who not long ago would have been considered a dooms-day prophet. Nowadays, he says he feels more frustrated than he does vindicated by the surging oil prices. Everything that he's been preaching is coming true, but still no one is listening. "I bet that once we get within a few years of oil production peaking you'll see the U.S. invade the last large deposits. Oh wait, that already happened. You'll see rising food prices. Oh wait, that already happened. You'll see sky rocketing oil prices. Oh wait, that already happened. If you imagine your worst nightmare, we're right on track for that to come true. Just look at the news."


Not to mention that using up our limited arable land for car fuel instead of people food is just stupid from the get-go. Sigh.

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