[CENTER]"Won't the Market and the Laws of
Supply and Demand Address This [running out of oil]?"
Not enough to prevent an economic meltdown.
As economist Andrew Mckillop explains in a recent article entitled, "Why Oil Prices Are Barreling Up
," oil is nowhere near as "elastic" as most commodities:
One of the biggest problems facing the IEA, the EIA and a host of analysts and "experts" who claim that "high prices cut demand" either directly or by dampening economic growth is that this does not happen in the real world.
Since early 1999, oil prices have risen about 350%. Oil demand growth in 2004 at nearly 4% was the highest in 25 years. These are simple facts that clearly conflict with received notions about "price elasticity". World oil demand, for a host of easily-described reasons, tends to be bolstered by "high" oil and gas prices until and unless "extreme" prices are attained.
As mentioned previously, this is exactly what happened during the oil shocks of the 1970s - shortfalls in supply as little as 5% drove the price of oil up near 400%. Demand did not fall until the world was mired in the most severe economic slowdown since the Great Depression.
While many analysts claim the market will take care of this for us, they forget that neoclassic economic theory is besieged by several fundamental flaws that will prevent the market from appropriately reacting to Peak Oil until it is too late. To illustrate, as of April 2005, a barrel of oil costs about $55. The amount of energy contained in that barrel of oil would cost between $100-$250* dollars to derive from alternative sources of energy. Thus, the market won't signal energy companies to begin aggressively pursuing alternative sources of energy until oil reaches the $100-$250 mark.
*This does not even account for the amount of money it would take to locate and refine the raw materials necessary for a large scale conversion, the construction and deployment of the alternatives, and finally the retrofitting of the world's $45 trillion dollar infrastructure to run on these alternative sources.
Once they do begin aggressively pursuing these alternatives, there will be a 25-to-50 year lag time between the initial heavy-duty research into these alternatives and their wide-scale industrial implementation.
However, in order to finance an aggressive implementation of alternative energies, we need a tremendous amount of investment capital - in addition to affordable energy and raw materials - that we absolutely will not have once oil prices are permanently lodged in the $200 per barrel neighborhood.
While we need 25-to-50 years to retrofit our economy to run on alternative sources of energy, we may only get 25-to-50 days once oil production peaks.
Within a few months of global oil production hitting its peak, it will become impossible to dismiss the decline in supply as a merely transitory event. Once this occurs, you can expect traders on Wall Street to quickly bid the price up to, and possibly over, the $200 per barrel range as they realize the world is now in an era of permanent oil scarcity.
With oil at or above $200 per barrel, gas prices will reach $10 per gallon inside of a few weeks. This will cause a rapid breakdown of trucking industries and transportation networks. Importation and distribution of food, medicine, and consumer goods will grind to a halt.
The effects of this will be frightening. As Jan Lundberg, founder of the Lundberg Survey, aka "the bible of the oil industry" recently pointed out:
The scenario I foresee is that market-based panic will, within a few days, drive prices up skyward. And as supplies can no longer slake daily world demand of over 80 million barrels a day, the market will become paralyzed at prices too high for the wheels of commerce and even daily living in "advanced" societies. There may be an event that appears to trigger this final energy crash, but the overall cause will be the huge consumption on a finite planet.
The trucks will no longer pull into Wal-Mart. Or Safeway or other food stores. The freighters bringing packaged techno -toys and whatnot from China will have no fuel. There will be fuel in many places, but hoarding and uncertainty will trigger outages, violence and chaos. For only a short time will the police and military be able to maintain order, if at all.
Once the seriousness of situation is generally acknowledged, a panic will spread on the markets and bring down the entire house of cards even if production hasn't actually peaked. For this reason, the mainstream media cannot discuss this issue without largely whitewashing the truly dire consequences for the average person. If they told the truth, people would panic and the markets would crash.
In summary, we are a prisoner of our own dilemma:
1.Right now, we have no economically scalable alternatives to oil. (Emphasis placed on economic scalability, not technical viability.)
2.We won't get motivated to aggressively pursue economically scalable alternatives until oil prices are sky high;
3.Once oil prices are sky-high, our economy will be shattered, and we won't be able to finance an aggressive switch-over to whatever modest alternatives are available to us.
4.An aggressive conservation program will bring down the price of oil, thereby removing the incentive to pursue alternatives until it is too late.
5.The raw materials (silicon, copper, platinum) necessary for many sources of alternative energy are already in short supply. Any attempt to secure enough of these resources to power a large scale transition to alternative energies is likely to be met with fierce competition, if not outright warfare, with China.
6.The media and government can't tell the public the truth without creating a panic and crash of the Stock Market.
7.Most of the steps we need to take to deal with this, such as driving less, would severely hurt large sectors of the US economy. For instance, an aggressive fuel conservation program would lower the demand for new vehicles as people would be driving less, thereby increasing the life of their vehicles. One out of every six jobs in the US is either directly or indirectly dependent on the automobile manufacturing sector. With GM and Ford already on the ropes, any aggressive program of conservation would likely send them spiraling into bankruptcy. While some interests may rejoice at the notion of "Big Auto" going bankrupt, this is only because they don't realize the devastating effects a GM and/or Ford bankruptcy would have on all of us, regardless of our political affiliations.
[CENTER]"What About All the Various Alternatives
to Oil? Can't We Find Replacements
Many politicians and economists insist that there are alternatives to oil and that we can "invent our way out of this."
Physicists and geologists tell us an entirely different story.
The politicians and economists are selling us 30-year old economic and political fantasies, while the physicists and geologists are telling us scientific and mathematical truth. Rather than accept the high-tech myths proposed by the politicians and economists, its time for you to start asking critical questions about the so called "alternatives to oil" and facing some hard truths about energy.
While there are many technologically viable alternatives to oil, there are none (or combination thereof) that can supply us with anywhere near the amount of net-energy required by our modern monetary system and industrial infrastructure.
People tend to think of alternatives to oil as somehow independent from oil. In reality, the alternatives to oil are more accurately described as "derivatives of oil." It takes massive amounts of oil and other scarce resources to locate and mine the raw materials (silver, copper, platinum, uranium, etc.) necessary to build solar panels, windmills, and nuclear power plants. It takes more oil to construct these alternatives and even more oil to distribute them, maintain them, and adapt current infrastructure to run on them.
Each of the alternatives is besieged by numerous fundamental physical shortcomings that have, thus far, received little attention: