Energy shock and oil myths

Will soaring prices crush globalization? Don’t bet on it.

Energy shock and oil mythsJeff Rubin was, for years, a lonely voice among economists when it came to predicting the price of oil. In 2007—when crude began the year at a relatively modest $50 a barrel—Rubin, then the chief economist at CIBC, all but staked his reputation on a prediction that oil was about to hit triple-digit prices and never look back. In his reports, speeches and even addresses to skeptical oil executives, he preached the end of the era of cheap fossil fuels. “The bottom line is, we’re in the bottom of the ninth inning of the hydrocarbon age,” he declared at a conference that year. Like any economic soothsayer, he had flubbed some calls in the past, but this, it seemed, was different. Oil prices kept rising just as he said they would until last summer, when the big spike hit and oil surged to over $140 a barrel. Rubin’s star rose right along with the price of crude.

This concept became Rubin’s preoccupation, and in his spare time—unbeknownst to his bosses at CIBC—he started writing a book about how the era of soaring oil prices would change the world profoundly and forever. This winter, Rubin told CIBC about the project and his plans to promote it, and the two decided to part ways. “I don’t think the message of this book is necessarily a message that any particular investment bank would want to be associated with,” said Rubin in an interview.

It’s easy to see why. Oil has since fallen back to about $60 a barrel, but Rubin is as certain as ever about the future of fossil fuels. In Why Your World is About to Get a Whole Lot Smaller, he argues that the current cool-down in prices is merely a brief respite before the next, even more severe spike. When the recession ends, “demand is likely to pop back up like a jack-in-the-box,” he writes. And, because “our whole way of life depends on the price at the pumps,” the disappearance of cheap oil could mark the end of life as we know it. Rubin subscribes to the notion of “peak oil”—a long-held hypothesis that production will soon max out and begin a long, slow descent, one that will bring about the end of cheap food, air travel, car culture, the potential disintegration of our tolerant society, and most importantly, the breakdown of the system of globalization.

But there is a problem with the premise to which Rubin has attached his career and his reputation: a growing number of economists, and even environmentalists, say this dark scenario is flat-out wrong. It obsesses with counting how many barrels of oil are left in the ground. It also oversimplifies the powerful force of globalization, all the while ignoring some dramatic changes now unfolding; changes that could significantly reduce the world’s reliance on oil. New technologies, new forms of energy, and a new focus on conservation and efficiency are shifting us onto a dramatically different energy path. Your world is not about to get smaller, they say, but it is about to get a whole lot leaner.

Two years ago, Peter Tertzakian, the chief energy economist for ARC Financial Corp., appeared as a guest on The Daily Show with Jon Stewart. Talking about a future energy crisis, Stewart posed one of his trademark, over-the-top questions: “How long do we have before masked madmen roam the cities with AK-47s, Mad Max style?” Tertzakian, who looks like a brainy version of Stewart with glasses and flecks of grey hair, cracked a lopsided smile. “It may not come to that,” he deadpanned. “The good news is that although these transition periods in energy are uncomfortable, usually we come out for the better.” Just as whale oil was replaced by kerosene, which was eventually replaced by today’s fossil fuels, another shift will come.

In his latest book, The End of Energy Obesity, Tertzakian goes even farther, arguing that escaping the energy trap may not be as difficult as it’s made out to be. Some relatively painless changes in our everyday behaviour could radically, and quickly, reduce the amount of oil we need, he says. Many of Tertzakian’s arguments actually closely parallel Rubin’s. Both authors trace the same historical problems with society’s oil addiction and how closely energy consumption has always been tied to wealth creation. And both see problems with past efforts to create energy efficiencies—ironically, past gains have only prompted people to use more energy. But Tertzakian sees the world heading off on a very different trajectory than Rubin.

Too often, says Tertzakian, writers and economists who subscribe to the doomsday scenarios are “trapped into thinking about energy in the energy realm.” He argues you first need to flip the problem on its head. The amount of energy we use is actually much less than the amount that’s extracted at the source, he says. For instance, of every 100 barrels of oil produced at the wellhead, only 15 barrels are ultimately used by the consumer. All the rest—85 barrels worth—is frittered away, whether in the refining process or in gas engines (where most of the fuel is burned off as heat, not power). The losses are even more dismal when it comes to electricity. For every 100 lb. of coal used to produce electricity, only two per cent reaches the light bulb in your house—98 lb. are lost, either escaping as heat in power lines and transfer stations, or wasted by inefficient appliances. That means small changes in behaviour to limit the amount of energy we use (or waste) ripple up through the system exponentially. “For every unit I don’t use at the wheel, I don’t have to find six units at the wellhead,” says Tertzakian. And for every unit of electricity that isn’t used, there’s a 50-times savings at the power plant. These inefficiencies are “our biggest failing when it comes to energy, but also our biggest opportunity,” he says.

Of course, the idea of cutting back energy use has long implied cutting back on our standard of living. But for the first time ever, that may no longer be true. New technologies emerging, not from the energy business, but out of California’s Silicon Valley, could make all the difference, says Tertzakian. Take Cisco’s new virtualization technology—a kind of futuristic version of Skype—that could dramatically reduce the need for people to travel and commute in the near future. Or “intelligent buildings” that can automatically monitor where people are and cut back unnecessary energy use. Other technologies have already started to change our habits, from the way we buy music to the way we get our news. These “very small changes in the way we live, work and play can amplify up into big changes in not needing energy at the source,” says Tertzakian.

Oil demand is already falling. The International Energy Agency said demand this year will fall by over 2.5 million barrels per day, the steepest drop since the early 1980s. Much of that is because of the recession—business is cutting production and people are buying less and therefore we’re consuming less energy. But there is also some evidence of these early technological changes at work, argues Tertzakian.

The Rocky Mountain Institute, an NGO led by the energy scientist Amory Lovins, has been advocating for several years that not only is it possible to wean ourselves off of oil in the next few decades, but that it can be done almost entirely through changes in transportation. Some of the biggest savings can be found simply by making cars lighter and continuing the shift toward hybrids and electrics, says Lionel Bony, a director at the institute. “You can probably get rid of about half the oil we need through efficiency” and do it in the next 20 years, he says.

That such savings can be found within the current energy system is crucial in an age when big bets are being made on new technologies like electric cars. Those like Rubin are quick to pour cold water on the idea that we can wean ourselves off of gas-powered vehicles and switch over to electric power. Big cities, like Toronto, barely have enough power to keep air conditioners running all summer, he points out. But energy officials say a shortage of generating capacity isn’t the obstacle it once was. This spring, the chairman of the U.S. Federal Energy Regulatory Commission, Jon Wellinghoff, said the U.S. may not need any more nuclear or coal plants “ever,” adding that wind, solar and biomass could supply enough energy to meet demand. The technology is all there to make a much more efficient power grid, he said.

Besides, ending the dependency on oil doesn’t mean replacing every car on the road with an electric vehicle, but just enough to cool demand for crude. We may be nearing that point already. Last month, Exxon Mobil said that the U.S. consumption of gasoline has peaked, and predicted that demand for auto fuel will shrink by more than 20 per cent by 2030. Companies like the California-based Better Place are already building the necessary electric car infrastructure. Last month, it unveiled the first station where drivers can drop off exhausted batteries and grab charged ones in the time it would take to fill a tank of gas. “It’s not that big a hurdle,” says Sean Harrington, who manages the company’s Canadian arm. “It can be done.”

Like Rubin, Tertzakian sees another oil spike on the horizon as the economy recovers—likely a return to triple-digit oil prices. But he argues that spike will be the next important catalyst that leads some of these new technologies to be even more widely adopted. Tertzakian points out the speed with which technologies like the Apple iPhone have been snapped up—one million were sold in the first three months it was on the market. Today’s energy-saving technologies are a lot like colour TVs in the 1950s, he says. They exist, but people don’t have a compelling reason to rush out and buy them—at least not yet.

When oil prices soared last summer it was hard to be optimistic about our ability to cut our addiction to cheap fuel. Almost overnight, siphoning gas from parked cars became the crime du jour. People were suddenly spending more on gas than groceries. It was during this crisis that Rubin was constructing his thesis and the warning that this was just a taste of what lies ahead.

High oil prices don’t just hit you in the pocketbook, he explains. They threaten to unravel an entire economic system that relies on shipping goods around the world. Those cheap electronics you buy at Walmart are only cheap because they’re made in China and hauled across the ocean in massive container ships. When the cost of shipping those goods more than doubles, as it did last year, then this system starts to look very vulnerable. At the very least, high oil prices will turn the clocks back 40 years to a time when nations lay “safely cocooned within huge tariff walls,” says Rubin.

It’s a terrifying scenario, if for no other reason than the fact that globalization has spread economic benefits around the world. Erasing 40 years of that kind of progress would be a catastrophe. By Rubin’s definition, globalization is little more than a “fancy word” for “moving your factory to the cheapest labour market in the world.” But that’s just one element of a much more diverse system, says Karl Moore, the co-author of The Origins of Globalization. “It’s not just economics,” he says. “It’s also how interlinked we are as societies.” More than cheap consumer goods, globalization has underwritten unprecedented improvements in the standard of living the world over, fuelled massive amounts of immigration, driven political change, as well as advances in technology and the spread of ideas. Does such a vast global system really teeter, like an upsidedown pyramid, on oil prices?

Moore says globalization simply isn’t that fragile. It will not get thrown into reverse, but it will continue to evolve, as it always has. “Twenty years ago we didn’t talk about [outsourcing to] China or India very much at all. If you had said those are two big trends, we would have scratched our heads and said, ‘I don’t see it.’ ” Short of truly extreme oil prices (in the range of $500 a barrel), globalization will “continue to go in new and surprising directions,” he says.

Alarmists tend to portray affordable oil as the precondition for global trade, when it is really just one variable among many. Jagdish Bhagwati is a professor of economics at Columbia University and the author of In Defense of Globalization. He says there is a basic flaw in this end-of-globalization argument. It assumes that rising oil prices will affect only transportation costs. But that’s not the case, he says. Oil prices also affect the production costs of traded goods. If those production costs go up more in the importing countries than exporting ones, that makes trading more profitable, which offsets the added transportation costs, explains Bhagwati.

Fears of China’s rising energy demand pushing up oil prices—and wrecking globalization—also tend to be overstated, argues Lovins, the head of the Rocky Mountain Institute. Much has been said about U.S. President Barack Obama’s ambitious new energy scheme, but already China is on pace to become the world leader in fuel cell technology and electric motors and has far surpassed the U.S. when it comes to developing and building cleaner coal plants. “China’s leadership is deathly afraid of falling into the oil trap that we did,” said Lovins, speaking at a recent conference on energy security.

As fuel costs eventually begin to rise again, some trade will inevitably dry up. Indeed, as Rubin outlines, that’s already happened with steel shipments from China to North America and the trade of bulky furniture. But for all the panic of last year’s oil spike, the changes it prompted haven’t been overly dramatic. It turns out there’s a lot of low-hanging fruit that can be picked off by rising oil prices before society starts to crumble. Rubin highlights a few, from lamb shipped from New Zealand to salmon that’s caught off the coast of Norway, shipped to China for processing, then finally to North America for consumption.

Rubin argues that if you add up enough of these seemingly minor changes, the world will eventually be unrecognizable. But this isn’t necessarily a bad thing, he says. “I don’t think this book is apocalyptic in any sense,” he says. There are upsides to the story: manufacturing jobs will come home, far-flung suburbs will be reclaimed by farms for local food production, he argues. And while Rubin disagrees that the world will be able to sidestep future oil spikes through new energy policies and new technologies, he doesn’t completely buy the dark prophecies of the peak oil theorists. “We may be energy poor, but we are innovation rich and necessity is the mother of invention,” he writes in the book’s conclusion. “I wouldn’t write off our economies just yet.” Luckily for the doomsday set, the people now shaping our energy system have not.

Energy shock and oil myths

  1. "he doesn't completely buy the dark prophecies of the peak oil theorists"
    If you know maths you'll know peak oil is more than a theory, it as a mathematical existence. And lots of people aware of peak oil think energy contraction is not a dark prophecy, it is a bright view of how we may escape climate change and escape energy wars.
    If believing in democracy, peace, urbanization, localization is a dark prophecy, i'm glad i am a dark prophet.

  2. I tend to think that the reality might be somewhere in between Rubins and Peters forecast. Its a well written article, I have not read Peters new book (I read his last book) but I must mention something of an important counterpoint to Peters idea: Jevons Paradox. Simply put Jevons Paradox points out that as we improve efficiency we actually tend to use more energy. Rather like the way people drive faster when they have airbags. Smart buildings which manage energy, Hybrid car technology – they are all ways of trying to maintain the status quo – and if they work, they will do just that – and merely enable people to continue to waste energy. Hybrid cars will just enable people to live even FURTHER from work.

    Obviously thats a simplification, but you see the point.

    • How does Jevon's Paradox apply in the case of a restricted supply of something?

  3. My parents went from oil lamps, to kerosene to electricity. I have been lucky enough to live with people which did not have any electricity. Its possible. Implying though that, the mass transition, from life without electricity to a life with electricity, is comparable in any way with the mass transition, from our modern addiction to energy, to a life with considerably less, is not just unrtealistic- its very simply stupid.

  4. Where Tertzakian goes wrong – as reported – is his understanding of the time we have to make any changes: none. The conservative International Energy Agency has finally changed it's tune. They are now forecasting record-high oil prices as soon as 2010. They are also forecasting shortages in 2013.

    Recall, if you can, the effect that the last round of record-high prices had on the economy. Airlines cancelled routes and laid off employees; Municipal gov'ts didn't have enough money for services and sent employees home one day a week; Sales of cars plummeted and bankrupted the big 3 automakers; the price of container shipping skyrocketed and on and on and on. All this with no shortages.

    Now imagine what happens when there are actual shortages that drive the price even higher leading to more economic misery.
    continued…

  5. continued from previous post

    There may be large efficiencies to be had but how are we to pay for it in the midst of the current recession or the next oil-induced recession? If you've been paying attention you know that oil sands projects have been delayed or cancelled due to the current recession.

    At the G8 Energy Ministers' conference held in Rome just a week ago the IEA noted that 6.2 million barrels/day in new capacity had been delayed, deferred or cancelled. There's absolutely no way to ramp up that kind of energy production from new sources or efficiency measures before demand outstrips supply.

    What we're facing is a never-ending downward spiral as the substance that fuels the global economy – cheap, abundant energy – simply disappears.

    The math is simple: less in = less out.
    We've missed our chance to adapt.

    continued…

  6. continued from previous post

    Don't believe me? Fine. Believe these guys:

    On 29th October 2008 at The London Stock Exchange, eight leading UK companies launched a report, The Oil Crunch: Securing the UK's energy future, warning that a peak in cheap, easily available oil production is likely to hit by 2013, posing a grave risk to the UK and world economy. The warning comes from a broad spectrum of industry (Arup, FirstGroup, Foster + Partners, Scottish and Southern Energy, Solarcentury, Stagecoach Group, Virgin Group, Yahoo).

    peakoiltaskforce.net

  7. This article does not challenge the fact of peak oil at all. Rather, it says that the adoption of green technologies (efficency and renewables) will outpace the depletion of oil and other fossil fuels. Fossil fuels are 80%+ of our energy mix and most of the additional energy is nuclear and hydro. All renewables together are still are 1-2% of the mix. IF what this article says is going to come true, we have an unbelievable amount of investment in efficiency and renewables, of trains, bikes, and local food to make happen. Governments had better get serious… the commitments they have made thus far pale to what will be necessary to cover the 40% of energy provided by oil, and its complete dominance of transportation uses… cars, buses, trains, ships and airplanes.

    I have yet to see an electric commercial airplane! The disappearance of oil WILL change our futures dramatically. Perhaps dirigibles are due for a comeback.

    • I suspect the disappearance of oil will actually change or lives less than some might imagine.

      Also, there will still be air travel and it likely won't be by dirigible or an electrically driven airliner. Mr/Mrs RFS (a few posts below) talks about hydrogen, and I'm pretty sure that mankind will figure out a way to drive airplanes with hydrogen.

      • …our lives, not or lives…

  8. Another lame attempt by the establishment to keep consumers irrationally optimistic and spending. Bet on it.

  9. "My vote is to find the way to keep us mobile."

    What makes you think the coming energy decline is going to be determined by democratic processes?

    John Michael Greer decries our approach to the coming energy decline as if it were a if it were a "problem" with a "solution." But rather, it is a "predicament" that has no solution; the best we can hope for are coping strategies.

    Our coping strategies include growing as much food as you can, producing as much of your own energy as you can, and having multiple income streams to make up for an increasingly unstable job market.

    RFS, if you're 55, and you "want to see this beautiful world before you die," you'd better get started. Only the very rich will be travelling not too long from now.

  10. RFS,

    Don't waste your money travelling the world. You'll need it as this economic crisis deepens further. You can see the world after you pass away. It'll be a hell of a lot cheaper!

    Anyway, if you must travel, don't miss Marrekesh!

  11. Peak Oil is real. If society is going to survive we need to change the way that we've been living. Build mass transit, and develop localized economies.

    As far as Globalization ending, that is entirely plausible. Peak Oil aside, we are likely to see the fracturing of the global economy into regional blocs anyway. Look at the Geopolitics going on right now, securing access/control of resources is probably the main driver right now.

    A race against time. We can offset some of the depletion with alternatives, but I have serious concern that it will be sufficient, or in time not to cause serious disruptions. I have no problem with critics of Peak Oil, but I do have a problem with people who ignore the facts about the situation. The Alternative energy, as now exists isn't anywhere near capable of supporting the Cheap oil lifestyle that we've all been living. Critics say, "oh look, oil plunged, so much for Peak Oil" perhaps the worst economic downturn since the 1930's had something do with this.

    Recently Nouriel Roubini wrote that we can't rule out the possiblilty of a perfect storm in 2010, with high oil prices, and increasing inflation. Everyone knows that the Oil is going to skyrocket once global demand picks up, Are the alternatives going to fill the gap? Perhaps, but for how long. How much biofuel can be grown in North America before it starts to increase the price of grain, and corn etc. These are absolutely legit concerns looking out.

    I think we can avert alot of catastrophe from this, but we are running out of time. As an American I was hoping Obama's stimulus would include rebuilding America rail system, indeed provided the biggest stimulus to rail in U.S. history, unfortunatley it isn't anywhere close to enough, it amounts to basic repairs on a third world rail system.

  12. The Jevons Paradox is as dead as Edison (and even older). I don't think that if someone gets 40 miles a gallon in a hybrid they will drive longer than in their 20 mpg car: why waste all that time?
    And how would the paradox work when 60 watt incandescents are replaced by 1.5 watt LEDs? I don't see myself adding 40 extra bulbs to replace one. Peter is exactly right: we need to go on an energy diet. We could do it the stupid way and cut off a couple of limbs. Or we can do it the Weight Watchers way: a little bit at a time and a long boring slog, but in the end it works!

    • The Jevons Paradox doesn't care about YOUR 60W bulbs. Making lighting more efficient makes it cheaper for everyone. Therefore people other than yourself (who might live in other countries), who could not afford any/as much electric lighting before, now go out and get some bulbs. Aggregate demand for electricity therefore goes up because of a development that reduces your individual requirement for electricity.

  13. Hydrogen isn't really a fuel source; it is more accurate to think of it as an energy carrier. You need to supply energy (electricity) to water to release the hydrogen and you can claim some of that energy when the hydrogen combines with oxygen to form water again. Still, hydrogen will almost certainly be a part of our energy future, and quite possibly a very significant part.

    • I don't doubt that hydrogen could play a big part in the future, but I do doubt that we're going to be able to build the necessary infrastructure on whatever cheap energy is left!

      Think of how different delivery systems need to be. We have found no way to store hydrogen with any reasonable efficiency yet. I think the best is 5% by weight — and this is a fuel with lower heat value per unit weight than hydrocarbons. So your gas tank that will take you 600 km on about 50 kg will now only take you perhaps 400 km, but using twenty times as much weight! You'll need a metric ton of hydrogen-plus-tare to get what consumers are used to having in driving range!

      Now imagine filling stations. Yea, I know they have them. <a href="http://lmgtfy.com?q=hydrogen%20filling%20stations">You know where to find out. But how do you get the fuel to them? Via tanker trucks that weigh 20 times as much as petrochemical tanker trucks do now.

      "What about pipelines?" you might ask. Keep in mind that hydrogen is the teeniest, tiniest element in the known universe. It easily slips through the slightest gap, a gap that even methane (principle constituent of nat gas) can't breech. This means entirely new pipe technology that has never been manufactured in any scale.

      Then there's the safety issue. Every now and then, you hear of a house blowing up from a nat gas leak. Now imagine than three hundred million such houses and all their plumbing are hurtling at each other at a combined rate of as much as 200 km/hr. You think there aren't going to be any spectacular crashes?

      (Oh, by the way, we'll have to completely replace that fleet of 300 million vehicles to maintain our transportation-intensive life-style.)

      Hydrogen as a mass fuel that will allow our current life-style to continue is an illusion. But that won't stop people from making tons of money off it.

    • I don't doubt that hydrogen could play a big part in the future, but I do doubt that we're going to be able to build the necessary infrastructure on whatever cheap energy is left!

      Think of how different delivery systems need to be. We have found no way to store hydrogen with any reasonable efficiency yet. I think the best is 5% by weight — and this is a fuel with lower heat value per unit weight than hydrocarbons. So your gas tank that will take you 600 km on about 50 kg will now only take you perhaps 400 km, but using twenty times as much weight! You'll need a metric ton of hydrogen-plus-tare to get what consumers are used to having in driving range!

      Now imagine filling stations. Yea, I know they have them. <a href="http://lmgtfy.com?q=hydrogen+filling+stations">You know where to find out. But how do you get the fuel to them? Via tanker trucks that weigh 20 times as much as petrochemical tanker trucks do now.

      "What about pipelines?" you might ask. Keep in mind that hydrogen is the teeniest, tiniest element in the known universe. It easily slips through the slightest gap, a gap that even methane (principle constituent of nat gas) can't breech. This means entirely new pipe technology that has never been manufactured in any scale.

      Then there's the safety issue. Every now and then, you hear of a house blowing up from a nat gas leak. Now imagine than three hundred million such houses and all their plumbing are hurtling at each other at a combined rate of as much as 200 km/hr. You think there aren't going to be any spectacular crashes?

      (Oh, by the way, we'll have to completely replace that fleet of 300 million vehicles to maintain our transportation-intensive life-style.)

      Hydrogen as a mass fuel that will allow our current life-style to continue is an illusion. But that won't stop people from making tons of money off it.

      • Haha, your logic is a bit flawed, sir. It's silly to say that a hypothetical technology won't support our current lifestyle — it won't have to! People and governments will adapt to the changing economic conditions. If oil gets expensive, maybe the American need to own a car will wilt and people will start demanding better mass transit.

        Seriously, everything will be fine.

  14. I don't doubt that hydrogen could play a big part in the future, but I do doubt that we're going to be able to build the necessary infrastructure on whatever cheap energy is left!

    Think of how different delivery systems need to be. We have found no way to store hydrogen with any reasonable efficiency yet. I think the best is 5% by weight — and this is a fuel with lower heat value per unit weight than hydrocarbons. So your gas tank that will take you 600 km on about 50 kg will now only take you perhaps 400 km, but using twenty times as much weight! You'll need a metric ton of hydrogen-plus-tare to get what consumers are used to having in driving range!

    Now imagine filling stations. Yea, I know they have them. <a href="http://lmgtfy.com?q=hydrogen+filling+stations">You know where to find out. But how do you get the fuel to them? Via tanker trucks that weigh 20 times as much as petrochemical tanker trucks do now.

    "What about pipelines?" you might ask. Keep in mind that hydrogen is the teeniest, tiniest element in the known universe. It easily slips through the slightest gap, a gap that even methane (principle constituent of nat gas) can't breech. This means entirely new pipe technology that has never been manufactured in any scale.

    Then there's the safety issue. Every now and then, you hear of a house blowing up from a nat gas leak. Now imagine than three hundred million such houses and all their plumbing are hurtling at each other at a combined rate of as much as 200 km/hr. You think there aren't going to be any spectacular crashes?

    (Oh, by the way, we'll have to completely replace that fleet of 300 million vehicles to maintain our transportation-intensive life-style.)

    Hydrogen as a mass fuel that will allow our current life-style to continue is an illusion. But that won't stop people from making tons of money off it.

  15. sigh. At the beginning of the 1900s, people talked about how in the houses of the future, an electric axe would chop the wood and milk would come out of the tap. It is difficult for people to see the direction that future technologies will take us. We tend to simply take what we know and make it more "futuristic".

    The massive oil spikes last year were caused by more speculation than actual increases in demand. Do you think that we ended up using three times as much oil in only a couple years? No matter what happens, we'll adapt and grow as a society. If oil gets pricier, than previously uneconomic technologies suddenly become worthwhile again. When oil gets expensive, prices go up for oil-guzzling tech, which reduces demand, and lets the price of oil go down again.

    Seriously, if you think the end of the world is coming, go buy your gold ingots and your ammunition. The rest of us will be living our lives as usual.

    • Is that life "with US unemployment at 9.2% even before bond issuance starts failing later this year crashing the dollar and spiking oil back over $100" as usual?

      Also, your rhetorical question, "Do you think that we ended up using three times as much oil in only a couple years?" betrays a fundamental lack of understanding of how commodity prices operate. Of course there was a lot of speculation in the price. But it had to get leverage on something, which was a significant fall in spare capacity because demand and supply were closing fast.

      As for substitution, oil is the densest and most versatile form of fossil energy. Any 'previously uneconomic' technology or energy source you use instead will, by definition, be both more expensive and less effective. So the more you use of the alternative, the worse off you will be.

      That's just what is happening as the amount of oil coming on to the market diminishes in relation to the amount of demand that would exist for it if there was no slowdown in supply. Whatever new technologies or alternatives people put in its place will not allow the same way of life/standard of living/expectation of future growth that was previously delivered by the presence of much concentrated fossil sunshine as we could get our hands on.

      So life 'as usual' won't be 'as usual.' It will be a bit thinner. A bit harder. No cheap credit. High downpayments on mortgages and cars. People losing their jobs as firms cut costs because of high energy prices but not being rehired when oil prices fall because employers have experienced the increasingly fast up and down yo-yo effect on prices that comes with an absence of spare production capacity.

      Think about it. If oil gets scarce and expensive all the time (except for during recessions), the permanent state of the economy will be energy conservation. Sure, that will make the imperative to move to other forms of energy more obvious but, at the same time, there will be far less energy available than today (in the form of investment funding) to create the alternative infrastructure.

  16. No need to 'artifically' limit Alberta's tar sands. With an energy return of 3:1 (compared to Saudi oil at 100:1) and only enough natural gas and water in the region to convert a max of five million very expensive barrels a day, that's your lot as they say. Tupi field in Brazil is thought to be 5-8 billion barrels – annual world usage is 30 billion barrels so that won't exactly ride to the rescue either.

    Wake up people, the global warming deniers can't even count.

  17. Reading articles such as this is a bit of a waste of time. The article is written as an entertainment piece with lots of debunking of Rubin's rather mild scenarios counter balanced with the likes of Lovins, who's been in la-la land for decades. The reason I say this is that hydrocarbons are 86% of primary energy consumption (nuclear and large hydro being most of the rest). The whole analysis lacks the understanding of scale, and that whatever Tertzakian says about the wonders of technology to reduce consumption in our society, which is true, we have 5.7 billion people in the developing world with per capita consumption levels of less than one eighth of North American levels that aspire to first world standards of living.

  18. Hope is a drug that numbs people to the obvious, which is that we must get with the picture and systematically plan for greatly reduced consumption in the first world while allowing some expansion in the developing world. Both Rubin and Tertzakian are economists, and hats off to them for going as far as they have, but the whole issue of the enormous differences in scale with alternatives and present hydrocarbon inputs are glossed over for happy endings, which may help to sell books and fodder comfy feelings for us Canadians at the top of the energy food chain, but is ultimately clouding the real picture in representing the scope of the energy issues we face.

  19. "Just as whale oil was replaced by kerosene, which was eventually replaced by today's fossil fuels, another shift will come."
    This is the essence of Colin's angle if you can call it that.
    Forget "leaner" globalization, if another shift doesn't come, we are
    so royally screwed you have no idea. And so far, scientists agree, we
    have no viable options that can replace the overwhelming dependence on oil. So when oil climbs to never before seen heights,
    and actually starts to peak or peak, it's a whole new ballgame.
    Rubin's book is a stab at it, but until we're actually in it deep, it is all
    so much conjecture.

  20. So if I read you right here, we might find all kind sof new oil, and regardless, it just needs to buy us enough time to
    discover the miracle newer form of energy that can replace oil. It's simply a variation on a theme here – "we're not as
    screwed as they make it out to be, but even if we are, we will find a solution like we always have" So all of it boils
    down to our great society making yet another great discovery that will allow us all to continue our hedonistic hell-raiser of a party. So forget science, forget reason, forget what is already painfully in front of our collective eyes, because we will be saved – like Moses back from the mountain top, a discovery that will make it all better. Thanks Arctic Front. I feel a lot better now.

  21. As far as Globalization ending, that is entirely plausible. Peak Oil aside, we are likely to see the fracturing of the global economy into regional blocs anyway. Look at the Geopolitics going on right now, securing access/control of resources is probably the main driver right now.

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