Most people not living under a rock for the last few decades have
at some point heard the term "peak oil." This describes a state of
affairs when demand for oil outpaces the supply, leading to an oil
shortage and a spike in prices. For many decades now, doomsayers have
been warning about the coming catastrophe this crisis would bring. The
most eccentric among them have predicted a Mad-Max type state of affairs
with riots and murders outside of gas stations, global unrest, and
nations going to war against each other over oil.
Obviously, this apocalyptic scenario hasn't unfolded yet. But in 2 crucial ways, we've already reached peak oil.
1. The oil wars.
Considering the U.S. military intervened in oil-rich Iraq and Libya, but yet completely ignores the much more serious civil war in oil-less Syria, I think it's safe to say that concerns over the world's oil supply have already prompted military action. The U.S. is also funding small-scale military power-plays in oil-rich nations in Africa that might soon become oil exporters. (Shush! You're not supposed to know about that.)
2. Peak oil, slumping economy.
A far greater problem is how fluctuations in oil prices can impact the overall economy. Skeptics of peak oil love to pretend that the world's supply of petroleum is inexhaustible, as if there's a magical dragon at the bottom of the earth that poops light sweet crude. And it is true that companies continue to make new oil discoveries. They've also gotten better at extracting the oil that's there. The U.S. is currently enjoying an energy revival thanks to a large part to fracking. (The very real environmental concerns about fracking are a topic for a different article.)
The problem, as many industry insiders put it, is that "the easy oil is gone." Many of these new extractions techniques are much more expensive. Fracking old wells is more costly than straight drilling, and drilling in 4 miles of deepwater in the open ocean can be a feat rivaling space exploration. Not to mention a venture where things sometimes go wrong, as the BP Deepwater Horizon disaster showed us.
Extracting the oil also becomes more energy intensive. For example, mining, extracting, and refining tar sands in Canada just to get that oil to a useable state requires an enormous amount of energy. Some estimate it takes as much as three barrels of equivalent energy to produce every 5 barrels of oil that are extracted from the tar sands. These options are only available so long as the price of oil stays above a certain threshold, making the economics of such extraction techniques feasible. The end of easy oil also means the end of cheap oil.
How oil price fluctuations can hinder economic activity.
This reality spells potential problems for world economies. As the price of a barrel of oil fluctuates between $100 and $120 per barrel, as it has from time to time over the last several years, the price of everything from gasoline to electricity to consumers' plastics - anything that uses oil in its production - also rises. This serves almost like an invisible tax on every person and business, dragging down activity throughout the rest of the economy. This leads to an economic slump.
For example, let's say your vehicle has a 20 gallon tank, and you fill it once a week. If gas prices are $3.00 a gallon, it costs you $60 a week to keep gas in your car. But if oil prices spike and gas rises to $4.00 a gallon, it now costs you $80 a week to fill your tank. Which means that on a monthly basis you (and everyone else around you) has $80 less to spend on the larger economy. Businesses suffer from this invisible tax, and it can spend the economy into a slump or even a recession.
Many economists are predicting that because of this, we've entered a cycle in which oil prices will forever restrict growth of the world's economies. As business booms, oil prices rise in response to demand. As oil prices rise, both businesses and consumers have their wallets stretched thin. With less money to spend, the previously booming economy then contracts. As the economy contracts, demand slumps and oil prices fall back down, until the cycle starts all over again. We've hit a glass ceiling in terms of economic growth, and it's made of oil.
This is a fundamental problem in any economy that is over-reliant on a single form of energy, especially when that energy is a finite resource that is mined from the ground. It means you and your kids may inherit a bipolar economy over the coming decades - one in which spurts of activity then retract, and growth is held captive by the price of oil.
Obviously, this apocalyptic scenario hasn't unfolded yet. But in 2 crucial ways, we've already reached peak oil.
1. The oil wars.
Considering the U.S. military intervened in oil-rich Iraq and Libya, but yet completely ignores the much more serious civil war in oil-less Syria, I think it's safe to say that concerns over the world's oil supply have already prompted military action. The U.S. is also funding small-scale military power-plays in oil-rich nations in Africa that might soon become oil exporters. (Shush! You're not supposed to know about that.)
2. Peak oil, slumping economy.
A far greater problem is how fluctuations in oil prices can impact the overall economy. Skeptics of peak oil love to pretend that the world's supply of petroleum is inexhaustible, as if there's a magical dragon at the bottom of the earth that poops light sweet crude. And it is true that companies continue to make new oil discoveries. They've also gotten better at extracting the oil that's there. The U.S. is currently enjoying an energy revival thanks to a large part to fracking. (The very real environmental concerns about fracking are a topic for a different article.)
The problem, as many industry insiders put it, is that "the easy oil is gone." Many of these new extractions techniques are much more expensive. Fracking old wells is more costly than straight drilling, and drilling in 4 miles of deepwater in the open ocean can be a feat rivaling space exploration. Not to mention a venture where things sometimes go wrong, as the BP Deepwater Horizon disaster showed us.
Extracting the oil also becomes more energy intensive. For example, mining, extracting, and refining tar sands in Canada just to get that oil to a useable state requires an enormous amount of energy. Some estimate it takes as much as three barrels of equivalent energy to produce every 5 barrels of oil that are extracted from the tar sands. These options are only available so long as the price of oil stays above a certain threshold, making the economics of such extraction techniques feasible. The end of easy oil also means the end of cheap oil.
How oil price fluctuations can hinder economic activity.
This reality spells potential problems for world economies. As the price of a barrel of oil fluctuates between $100 and $120 per barrel, as it has from time to time over the last several years, the price of everything from gasoline to electricity to consumers' plastics - anything that uses oil in its production - also rises. This serves almost like an invisible tax on every person and business, dragging down activity throughout the rest of the economy. This leads to an economic slump.
For example, let's say your vehicle has a 20 gallon tank, and you fill it once a week. If gas prices are $3.00 a gallon, it costs you $60 a week to keep gas in your car. But if oil prices spike and gas rises to $4.00 a gallon, it now costs you $80 a week to fill your tank. Which means that on a monthly basis you (and everyone else around you) has $80 less to spend on the larger economy. Businesses suffer from this invisible tax, and it can spend the economy into a slump or even a recession.
Many economists are predicting that because of this, we've entered a cycle in which oil prices will forever restrict growth of the world's economies. As business booms, oil prices rise in response to demand. As oil prices rise, both businesses and consumers have their wallets stretched thin. With less money to spend, the previously booming economy then contracts. As the economy contracts, demand slumps and oil prices fall back down, until the cycle starts all over again. We've hit a glass ceiling in terms of economic growth, and it's made of oil.
This is a fundamental problem in any economy that is over-reliant on a single form of energy, especially when that energy is a finite resource that is mined from the ground. It means you and your kids may inherit a bipolar economy over the coming decades - one in which spurts of activity then retract, and growth is held captive by the price of oil.
