Gas Prices at the Tipping Point

Is the concept of peak oil just in the news cycle right now, or is it really a tipping point? Does making it onto the front page of USA Today make it a real issue? In case you want to chalk this up to environmentalist alarmism, it might be useful to note this story in the Financial Times.

According to the FT, oil importing countries will be encouraged to implement emergency oil-saving measures, if supplies dip by one to two millions barrels per day (characterized as a moderate supply disruption). This news comes from the International Energy Agency, who has published a review draft of a book titled: Saving Oil in a Hurry: Measures for Rapid Demand Restraint in Transport:

A core mission of the International Energy Agency (IEA) is energy supply security. Indeed, the Agreement on an International Energy Program (I.E.P.), the treaty signed by all IEA member countries, obliges IEA member countries to not only to maintain emergency oil reserves, but also to apply voluntary and mandatory measures for reducing oil consumption on very short notice during an oil supply disruption. As the transport sector in most OECD countries is the prime consumer of oil, this sector should be a central focus of IEA member countries’ emergency oil demand restraint programmes.

This book provides a new, quantitative assessment of the potential impacts and costs of oil demand restraint measures in transport, under the conditions of a supply disruption or other oil-related emergency. In short, there appear to be opportunities to achieve substantial reductions in transportation oil demand quickly and cheaply – if countries are prepared.

If countries are prepared is the operative phrase. Of course, with the Cato Institute telling us to stop whining because gas is cheaper now than in 1973, when adjusted for inflation, and Vice-President Cheney admonishing us that "[c]onservation may be a sign of personal virtue but it is not a sufficient basis for a sound, comprehensive energy policy," getting some people motivated to prepare for oil shocks may pose a bit of a problem. Despite the VP’s admonition, it may be worthwhile to pay attention to the advice from the IEA. After all, establishment of the IEA was prompted by 1973 oil embargo that followed the fourth Arab-Israeli war.

Keep in mind, what the IEA proposes are short-term measures to smooth out disruptions in supply. However, these could very well become ways of life for us because, before too long, $50 per barrel oil will be a thing of the past.

At least the air quality will start getting better, if we drive our cars less often.