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Despite today’s news that the price of oil dropped below $126 a barrel, summer vacationers are undoubtedly still worried that they’ll be paying $4 for a gallon of gas before the season is over—if they aren’t already. Even if speculation that the current oil market “may have peaked” is correct, however, there is a more ominous peak looming. Increasingly, energy experts and journalists are starting to talk about what will happen when the rate of petroleum production tops out and begins to slide toward zero. It is uncertain when that apex will come and how quickly the ensuing decline would play out. CJR contributor Katherine Bagley invited two journalists who have covered the “peak oil” question to debate how the press should approach this contentious issue. This is the first of a four-question series that will be posted this week.
Lisa Margonelli is an Irvine fellow at the New America Foundation and writes about the global culture and economy of energy. Her book about the oil supply chain, Oil On the Brain: Petroleum’s Long Strange Trip to Your Tank, was published by Nan Talese/Doubleday in 2007. Recognized as one of the 25 Notable Books of 2007 by the American Library Association, Oil On the Brain also won a 2008 Northern California Book Award for general nonfiction. Margonelli’s work has appeared in The Atlantic, The New York Times online, The Washington Post, the Los Angeles Times, Wired, and Discover, among other publications.
Ed Wallace holds a Gerald R. Loeb Award for business journalism, bestowed by the Anderson School of Business at UCLA. His column heads the Sunday Drive section of the Fort Worth Star-Telegram, and he is a member of the American Historical Society. The automotive expert for KDFW Fox 4 in Dallas, Wallace hosts the top-rated talk show Wheels, Saturdays from 8 a.m. to 1 p.m. on 570 KLIF AM in Dallas.
Katherine Bagley: Should peak oil influence the energy-related decisions of politicians, businesspeople, and consumers today — why or why not?
LM: NO. If you buy the argument that the world’s production of conventional oil is at or very near peak, then the most sensible immediate response is to push unconventional supplies—like oil from tar sands or liquid fuels produced from coal or even corn ethanol (which is really an inefficient way to convert natural gas to an inferior gasoline substitute—turn natural gas into fertilizer, mix with diesel fuel, water, and soil to grow corn, and then treat with more natural gas to make ethanol; sprinkle money liberally on corn belt). All of these options are ridiculously expensive economically and even more expensive environmentally and they buy mainly time, rather than solutions to problems with greenhouse gases, energy infrastructure, or economic competitiveness.
And what about Peak Oil? According to BP, the Middle East had 61.5 percent of the world’s oil reserves in 2006. The U.S. has about 3 percent. We long ago passed our peak, and more recently so have the North Sea and many of the non-OPEC oil fields that stepped into the lurch in the 1980s to flood the market with cheap oil, diminishing OPEC’s power. So what about fields in the Middle East, Russia, and Africa, are they near their peaks? That information is jealously guarded by the governments that own the fields, if they know it themselves. We just don’t know. When oil producing countries let the price run up into the super stratosphere and don’t care whether demand slacks off—then we’ll know. We may be one year from the peak or ten or twenty-five years from the peak. That’s serious—but it’s only one factor among many obvious gnarly oil issues that we need to plan for.
We should base policies on the idea of “Difficult Oil.” The times when supplies of easy, cheap, relatively politically stable oil are ending, and the era of difficult oil—expensive (both in terms of price and volatility), geologically and technologically challenging, environmentally unsustainable oil is upon us. Leaving aside the morality of using oil that’s involved in cycles of poverty, civil war, corruption, and human rights violations in the states where it comes from, the stuff just isn’t that easy to get anymore because developing countries are competing for it too. The market’s perception of this difficulty is part of the reason—not all—for today’s amazingly high oil prices. Even if we could get our hands on more cheap oil, our fuel delivery infrastructure was built in our grandparent’s time, and it’s straining to hold our increasing demand. What’s more, our global competitiveness is severely limited by the fact that our energy productivity (ability to turn fuel into GDP) is the lowest in the developed world [according to a report by consulting giant McKinsey & Company].
Meanwhile, today Americans are shelling out $800 million more for gasoline per day than we were five years ago. Inattention to the realities of difficult oil has left us in a bad spot. On a personal and national level we need to remodel our lives and economy to use less energy, and in particular less oil, while making things (or at least ideas) that the world wants to buy.
EW: Let’s dismiss the McKinsey study on U.S. oil usage against expanded GDP. Much is made of America’s use of 25 percent of the world’s oil output, but always in contrast to our population’s percentage of the world’s: the direct comparison is that the U.S. uses 25 percent of the world’s oil and creates 25 percent of the world’s GDP. Further, by improving energy efficiency America has doubled its GDP per barrel of oil since the seventies.
We would be wise to start thinking of oil as what it really is, a replacement for other forms of labor. Consider this: a single trucker can load 50,000 pounds of goods in Los Angeles and drive it 1,400 miles to Dallas using approximately 289 gallons of diesel, or one gallon for every 173 pounds of goods delivered. Without oil, how many drivers, horses, and wagons would it take to deliver those goods? How many humans would it take, carrying the goods on their backs? It is the extremely concentrated energy stored in oil that makes it so valuable. As consumers, we focus only on how much per gallon gas costs, not on how much in costly labor it saves.
The search for alternative fuels and energy should be considered key to long-term growth. But we have been searching since the dawn of the Oil Century, and yet even at today’s prices no substitute has been found with an equally low cost of production and equally high-energy output. Until that cost/benefit line can be crossed, oil it is.
LM: Dismiss the issue of American competitiveness? Give a gallon of oil to Japan and they’ll turn it into twice as much GDP as we do, even though we’re all paying the same price for the oil on the international market—that puts us at a disadvantage. (If we were as productive as Japan we’d be producing well more than 25 percent of the world’s GDP.) I don’t have the figures for your hypothetical trucker, but let’s say we’ve got a hard-working organ donation institute employee who needs to drive coolers around in a car. Her European counterpart will use 37 percent less oil to go the same number of miles, which means she can deliver a third more organs, and generate more GDP.
Oil may be “it” at the moment, but our overwhelming dependence on it for transportation—while other economies make more use of railroads or water—and our relatively poor productivity are hurting us. Independent truckers are feeling the pain already. And the rest of us are paying more for everything on those trucks—from baby lettuce to FedEx to deck chairs from China. Precisely because oil is “it” at the moment we need to use it more efficiently, and look for substitutes. Natural gas, in Utah at least, is already a far cheaper auto and truck fuel than oil. It’s also much cleaner. Biogas, made from manure, could also fit that niche profitably because its flow is steady and its cost fixed—both advantages when prices of natural gas are volatile.
Tomorrow’s debate question: Does the media hype, underreport, or adequately cover peak oil?
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