The Peak Oil Crisis: Storm of the Century
by Tom Whipple
Falls Church News Press (December 27 2007)
A "Perfect storm" refers to the simultaneous occurrence of events which,
taken individually, would be far less powerful than the result of their
chance combination. Such occurrences are rare by their very nature. --
Wikipedia
In recent weeks we have been bombarded with reports of perturbations in
the mortgage/liquidity crisis that is creating havoc in the financial world.
The travails of the "financial industry", as it is called these days,
are affecting oil prices at least as much as the normal forces of supply
and demand.
Commentary on what is about to befall us is becoming scarier with each
passing day. Learned professors are writing in the New York Times that
our financial system is in danger of coming unglued. The general thesis
is that America's financial institutions are only capitalized at $1.1
trillion yet they are supporting $11 trillion worth of mortgages. Home
prices are going to have to fall by thirty to fifty percent before most
people can afford to buy homes again. When this drop in housing value is
over, some twenty million homes will be mortgaged for far more than they
are worth and a fair portion is likely to be abandoned. Some think the
banking system is in for some very hard times. Others have dubbed the
burgeoning financial crisis "peak money".
But there is more: global warming seems to be causing unprecedented
droughts and glacial melting which in turn are leading to lower food
production and empty reservoirs and a substantial drop in hydro-electric
production around the world.
Welcome to "peak climate", "peak food", "peak water", "peak
electricity", or as some people are putting it, "peak everything".
Some parts of the world are pumping so much fossil fuel emissions into
the air that they can barely breathe. Perhaps they are reaching "peak
air"? Then there are worries about the world's carrying capacity - "peak
people"?
There is no question that a lot of bad things are about to happen - more
or less simultaneously. If some "peaks" we can see looming ahead occur
at the same time, they will reinforce each other leading to a far more
serious situation than if they occurred decades apart where they could
be dealt with separately. Simultaneous shortages of fuel and water in
the same area would have serious consequences as large resources would
have to be devoted to providing life-sustaining water supplies, putting
additional pressure on oil supplies and prices. If the drought in the
Southeastern US continues much longer, Atlanta may be the first large
city in the US to experience this phenomenon.
Other peak situations cut both ways and may have unforeseen and
unintended consequences. Food grain-based biofuels (peak oil vs peak
food) should in theory help to mitigate the peak oil situation but is
contributing significantly to peak food and higher food prices. The
amount of corn-based ethanol being produced today is making a minimal
contribution to keeping down oil prices while resulting in much higher
food prices. Increases in fuel and food prices are starting to result in
significant inflation which in turn is complicating efforts to deal with
peak money.
The timing of the various peaks will have a lot do with how they
interact with each other. Serious consequences from global warming (peak
climate) is usually thought of as being many years ahead, but if the
Georgia drought turns out to be a consequence of global warming then
massive economic damage from global warming may be closer than many imagine.
Keeping in mind that as yet unimagined interactions and consequences of
the various peaks may arise, at the minute it seems that a major
financial crisis and peak oil will set in during the next few years. The
interaction of these phenomena will be complicated. At times they will
mitigate each other and at times will reinforce the troubles. Currently
the consensus of the global market is that as prospects for a recession
improve, oil prices deserve to go down based on an eventual drop in
demand. In recent weeks, we have seen nearly every governmental attempt
to deal with the liquidity crisis in the US and Europe resulting in
surges in oil prices in hopes they will be successful.
The interaction of declining oil supplies and a world monetary situation
out of control would seem to have the most potential for serious trouble
in the immediate future. Newspapers, magazines and the cybersphere are
filling with stories by credentialed and knowledgeable people saying
that a financial meltdown has already started and that the situation
will get much worse in the next year.
Current evidence suggests that at least in the US, Europe and China the
demand for oil will continue to remain high until completely overwhelmed
by economic difficulties. With the world's population increasing by 76
million each year, the demand for food is unlikely to subside and prices
are likely to increase - food-based biofuels production or not.
Thirty years ago when inflation grew and the economies sagged, we called
it "stagflation". This time the term may be too mild to encompass what
seems about to happen. Within the next year our liquidity problems,
unsatisfied demand for oil, growing food and water shortages, and other
consequences of overindulgence appear likely to merge into an
unprecedented economic storm. In the midst of this storm, which could
continue for years, world oil production is likely to decline forever
and the resources to mitigate the storm are likely to become very scarce.
Someday the events we are all going to live through in the next decade
may become known as the century's most perfect storm.
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