Friday, December 05, 2008

For those of you who think,,,

...that just because the price of gasoline has dropped that peak oil has somehow "gone away," I offer this November 12, 2008 Hi-Def PDF presentation given by Matthew Simmons, Council on Foreign Relations, Analyst and Investment Banker for the Oil Industry.

The Era of Cheap Oil is Over

Or, if you prefer, here's the printer friendly version.

For a list of all the speeches and papers Mr. Simmons has done lately, go to this page.

Now is not the time to suffer from an attack of complacency - now is the time to position yourselves for the real deal. This little foretaste we had for the last two years was just a mild preview to finale.

The price of oil has declined these last six months due to simple demand destruction, as we have previously discussed. Demand destruction is exactly what you think it is - so many people (all over the world, especially, but also here in the US) have been priced out of the market or have become unemployed and no longer need to drive to work every day that usage of gasoline has declined quite a bit. As soon as people find jobs or make them (I'm very much in favor of cottage industry of every kind), even if they're not very good jobs, they will still increase gasoline usage. Right now, the real unemployment rate in this country is 16% or so. That may increase in the near future as more and more white collar jobs are lost (catching up finally with the blue collar ones they destroyed previously). But no matter how arrogant or smug a former "knowledge industry" worker or former investment banker or financier is now, his unemployment benefits will run out, and family will have to eat eventually, and he'll have to take a job - any job. And so usage will creep back up, slowly but surely, due to either legitimate or black market employment rising (or both).

Another issue is the housing situation - most people live no where near where they work and have little chance of ever doing so. Ideally, relocalization will make job opportunities closer to home for many, but still not perhaps within walking or biking distance of their homes. With so few suburbs, neighborhoods and communities having had the foresight to provide electric streetcars, trolleys, trams, commuter rail, and so on for their citizens, gasoline costs will continue to be an albatross around everyone's neck. So in the short term analysis, most people are stuck with private automobiles for now, and few people can afford financing for a new electric car - even if enough electric cars were available for everyone to buy, which they obviously aren't and aren't going to be (since the auto industry makes a huge percentage of its profit in after-the-fact sales and service of parts needed for combustion engines, and electric cars have few of these profitable wear-and-tear aging issues).

The Big 3 are liable to go bankrupt and out of business long before switching over to making all-electric cars or re-tooling to make passenger rail cars, trolleys, etc. Even if they tried to do so, it would be a decade or more before production of electric cars could be in full swing. It would only take one supertanker being blown up by pirates to make gasoline unaffordable for the average family long before then. And, of course, with globalization continuing to erode the real inflation-adjusted wages, it's not likely most families will be able to qualify for financing and buy an electric or hybrid car anyway - something that is only going to get worse, not better.

Your only real options are to: re-position yourself so that you are near existing mass transit, re-position yourself so that you are within walking and biking distance of the main breadwinner's job, obtain an all-electric vehicle, or prepare to lower your other spending to accommodate in your budget the inevitable rise in the cost of gasoline. Some combination of these things will help you, if you can do them.

For many people, however, it's probably already too late.

No comments: