Oil Shockwave
Peak oil is the radio sitting on the edge of the bathtub that Americans are soaking in (sorry, can’t take credit for that one – I read it in an old Tom Robbins novel, which covered a lot of the same ground as “The DaVinci Code” but had a lot more fun doing it). Who knows when the rude awakening is going to occur, but there is some foreshadowing of it in “Oil Shockwave”, a wargame recently concluded by the National Commission on Energy Policy (NCEP) and Securing America's Future Energy (SAFE). The story about it can be found at TPMCafé.
The wargame explored what would happen in the coming years resulting from minor disruptions in the global oil supply. The scenarios considered were “. . .absolutely not alarmist; they’re realistic.” These included ethnic unrest in Nigeria, an al-Qaeda attack on a natural gas facility in Saudi Arabia and at the oil terminal in Valdez, Alaska, and further attacks against expatriate workers in Saudi Arabia that results in a mass exodus, hamstringing oil production.
As the scenario played out, the price of a barrel of oil leapt to $80 a barrel then $100, then $150. Price per gallon broke $5, and the cost to fill up your mid-size SUV broke $100. The economic effects were devastating -- more than 2 million jobs lost in 2007 (largest single yearly loss since 1945), average annual gas costs per household spiking to $5,800 a year, a recession, and 28 percent drop in the S&P 500. Not a pretty picture.
The participants in this exercise, Republican and Democrat alike agreed that what’s needed is some real leadership to address this vulnerability to America’s well-being.
From my perspective, it’s ok if the President, Vice-President and all of their little neocon buddies want to be delusional about this issue and jump into the void of oil shock. But we don’t have to let them take us with them.
The oil wars are happening now, only they are being fought with financial statements rather than smart bombs. While it’s good that someone is talking about this issue, the NCEP’s recommendations for enhancing oil security are fairly pedestrian, including “increasing and diversifying world oil production while expanding the global network of strategic petroleum reserves”, strengthening automobile fuel efficiency standards, promoting diesel and hybrid vehicle production, and “developing non-petroleum transportation fuel alternatives, particularly ethanol and clean bio-diesel from waste products and biomass”.
NCEP estimates its recommendations could reduce U.S. oil consumption in 2025 by 10-15 percent or 3-5 million barrels per day. Whether or not that is meaningful remains to be seen. However, it’s flawed from a lifecycle perspective, overstating the potential benefits; for example, ethanol production from corn consumes natural gas in the form of fertilizer. Grain-produced ethanol fuel would probably flunk the sustainability test if it was evaluated fairly with lifecycle analysis. Higher natural gas consumption comes with its own set of problems. And, NCEP’s proposals had not a word about promoting urban mass transit or reversing sprawl.
More information on the oil shockwave exercise can be found here.