After cheap oil
Soaring energy costs are about to change everything
JASON KIRBY AND COLIN CAMPBELL | May 28, 2008 |
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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.
The world is now facing an oil crisis few predicted and even fewer are prepared for. It's impossible to understate how crucial cheap oil has become to our way of life. It's shaped how we get our food, what we buy, where we live, how we work, and the way we play. Cheap oil opened up the world to millions of travellers via discount airlines, allowed thousands to buy their first homes in sprawling suburbs, and enabled consumers to get their hands on ever cheaper goods, shipped just in time, from around the globe. Now economists say all of that is at risk. Exactly how the end of cheap oil will change our lives is still far from clear. But change them it will, in profound and dramatic ways. If the price of oil continues to climb to US$200 a barrel, it won't just be that people will have to drive a little bit less or skip the family trip to Disneyland. Across the board the cost of living will explode, not just for luxuries but basic necessities as well. To hear some experts tell it, we're headed for nothing short of Oilmageddon. At the very least, they say, the age of plenty is over.
The pain has already begun. Gasoline prices in Canada now stand at around $1.30 per litre, up 30 per cent over the past year. That jump has hit car sales. Ford Motor Co. is slashing production of SUVs and pickups, putting thousands of already struggling auto workers out of their jobs. A poll last week found half of Canadians have either cut back on how much they drive or are planning to. And with gas prices so rich, a wave of gasoline theft has swept the continent. Forget locking gas caps, thieves are crawling under cars with cordless drills to drain tanks of their liquid gold. The police, meanwhile, may have to chase down those criminals on foot. Rising prices have many police departments parking their cruisers. In Georgia, the state police have been ordered to cut back driving time by 25 per cent.
In the skies, the price crunch is even worse. The airline industry is grappling with a 95 per cent jump in the price of jet fuel and companies are passing those costs right along to passengers through fuel surcharges of as much as $130 for a round trip ticket. Air Canada and American Airlines have even started charging for checked bags, while AA slashed 1,300 flights last week to cut costs. Air Canada is thinking of similar cuts. Now, there are fears of bankruptcies akin to the industry's post-9/11 meltdown.
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.
James Howard Kunstler isn't one to mince words about what's coming. "The suburbs will turn to slums, salvage yards and ruins," says the author of the book The Long Emergency. "Expensive oil will thunder through the economic system cutting a wide swath of destruction." As Kunstler sees it, sometime during this decade half of the world's recoverable petroleum will have been extracted. From here on out, we'll be living on a dwindling supply of hard-to-reach fossil fuels. This is the cornerstone of the "peak oil" theory and Kuntsler foresees apocalyptic fallout. It will become unfeasible for people to drive from the burbs to distant jobs, and as the petroleum refugees flee their McMansions, the sprawling cul-de-sacs will turn to ghost towns. As the global supply chains collapse, major importers like Wal-Mart will go out of business.