From the FT’s excellent Energy Source blog comes this interesting exchange with Jeff Rubin, former chief economist at the well-respected Canadian bank CIBC. Rubin thinks that oil prices are going to go much, much higher and that this will bring about some enormous changes in our collective behavior patterns–whether we’re interested in changing or not.
For instance, the globalized economy? Fuggedaboutit, says Rubin–at least in recent form:
It wasn’t that long ago - maybe four or five years - that today’s depressed [oil prices] would’ve been described as an all time high. If what was an all-time high only five years ago is where oil trades in a very deep recession, where does oil trade going forward?
Once we get into triple digit [oil] prices, what we find is it’s no longer compatible with a global economy… distance costs money, and things that we thought made a lot of sense–like importing food or steel from China–cease making sense. [...] We’ve already seen evidence that China was losing advantage in the North American steel market because it wasn’t economically feasible to ship it across.
If he’s right, all the debates in the US about changing behavior through gas taxes and other forms of driving taxation are going to look more and more perfunctory. You’ll remember that last time oil was in “three digit” territory–about a year ago–gas was over $4 a barrel. And America was coming unraveled. There was a flood of stories in magazines and newspapers about people who just couldn’t afford to commute anymore. Not incidentally, the housing market also simultaneously melted down in a lot of those places (like San Bernadino and Riverside counties in California).
That was all at $120/barrel. Here’s a question: What would $240/barrel look like in these United State? We will only venture to say, “Much different than today.” And with a lot, lot of pain involved.
Of course, Rubin might be wrong. But, given the stakes, our thought is that it probably makes more sense to plan for his scenario–one in which oil is increasingly scarce and becomes very expensive–and then enjoy our wonderful plethora of options if it turns out he was mistaken.
June 5th, 2009 at 12:50 am
A year ago, Rubin made this prediction in Newsweek:
“By Rubin’s reckoning, we’ve barely passed the halfway point on a steady march upward that will take gasoline to $7 a gallon and oil to $225 by 2012″ http://www.newsweek.com/id/141524 . So far we’re not moving towards that, but of course no one said it would be a smooth curve.
June 5th, 2009 at 8:23 am
My projection: We will see a true paradigm shift and the collective will to change our built environment and our travel patterns in this country only when the price of gas reaches $9 per gallon.
We will see gunfire exchanged at suburban gas stations when it reaches $6 or $7.
June 5th, 2009 at 9:51 am
That is also why allocating a portion of a gasoline tax towards transit is not recommended. When gasoline goes up as the price of crude goes up, less gasoline is bought and less revenue from any taxes on that gasoline will be received.
June 5th, 2009 at 12:16 pm
It’s all academic because this is a no win situation. Either gas prices stay low and we make only perfuntory gestures toward a sustainable redesign of our built environment due to shortsightedness and a universal lack of political will, or gas prices ramp up and we find ourselves unable too poor to do anything at all. Every time a LaHood or a Chu puts forth a vision or particular policies that could get us out of our “shock to trance” mode while there is still time to make a difference, they are quickly put in their place. Sucks all around.
June 6th, 2009 at 3:25 pm
Those of us in communities planning for the transition encourage everyone to get to know their neighbors well, share strategies, grow are much food sustainably as you can and encourage your farmers to do so as well. Those of use living in the southern Willamette valley in Oregon contend with the fact that although we have vast acres of farm land, most of it is used to grow grass seed. We are looking for incentives to encourage those farmers to grow more food such as modifying the tax structure. You may want to look where your own food comes from with your neighbors and see what needs and can be done to encourage more local food production. Our county only produces about 5% of what we eat here. That is going to really hurt as the oil prices rise. Unless we change it. Good luck to us all.
June 14th, 2009 at 10:05 am
It’s possible that gas will never reach $240 a barrel, because of demand destruction. In other words, re-read the comment from James, above - it’s entirely possible that what peak oil really looks like is a permanent recession. Don’t forget that when the price of a barrel of oil goes up, it affects the entire world. How much demand is eliminated at $100 a barrel in the U.S. versus the rest of the world? As long as we can afford to pay more for the stuff, the price may hover around a certain place on account of the rest of the world simply being unable to purchase it.
June 28th, 2009 at 8:39 am
I’ve read several different scenerios of what peak oil is going to do and have concluded that we simply do not know. Some paint a glowing picture of local farmers markets where everybody works withing a short walk of their happy home and others predict riots in the street. Still others say there will be a technological fix to it all. No one has any conclusive data to indicate their prediction is correct. All the more reason to plan for it now. I only wish the “stimulus” package were 100% invested in energy as the world will truly belong to the efficient in 20 years.
July 19th, 2009 at 9:01 pm
There are so many other forms of energy besides oil.
Look at GeoThermal energy. That alone could power the world for two centuries.
Solutions exist to keep the Global economy going. And the people who control our Global economy will eventually roll the changes out. But not until they are finished controlling the land that oil is extracted from, and of course selling oil.
December 27th, 2009 at 11:11 am
I’d suggest reading the book - it’s much better that way. Then, one can really understand why this last recession happened. How our economy is tied into oil is truly scary, yet most run around with their head in the sand, thinking that the oil one gets from Canada and Alaska is the same as from Texas. It is not. There’s no more “easy” oil anymore.
What is truly needed is an absolute change in mindset for most people. We Americans have been blessed with a lot of natural resources, which we haven’t hoarded, but have run through like a kid in a candy store.
Read the Book.