Peak oil, part II

This post has been much delayed because of all the work at the shop and for my day job. But it is perhaps more important than ever, given that gas prices have been dropping.

Gas prices dropping makes a lot of people think, phew, the crisis is over. Now things will go back to normal.

Hardly.

There are two issues here. As I mentioned before, we are not running out of oil. But what is happening, is that as more and more countries are competing for this resource, and as it becomes increasingly hard to make more of it, the perceived value of oil goes up.

Take this example. Let's say I have a commodity like dried corn, stored in some silos in my backyard. Let's say I have a lot of silos (and hence a lot of corn). It seems like I will never run out. I sell it to my neighbors for cheap, because it is easy to extract from the silos, and I don't think I'll run out anytime soon.

But then one day, I check on the corn, and realize it is half gone. This induces a sudden mental shift. Now I am moving from a mode of thinking abundance, to one of thinking scarcity. I need to make sure to ration the corn so I don't run out too soon. Plus more and more neighbors are knocking on my door looking for corn. What is my response, to sell as much and as cheaply as I can, only to run out soon? Of course not. The rational response is to start raising prices and rationing how much I sell, to maximize both the profit and the length of time I still have corn available to sell.

This analogy applies to oil. Half of the world's oil is still left (if not a bit more). But suddenly, it is not so easy to just turn the taps to make ever more of it. Producers are realizing that they will run out, someday. And there are ever more countries knocking at the door for that oil. The rational response to this from the producers' perspective is to raise prices and ration the oil. And so they are. Blaming oil prices on "speculators" just ignores this basic fact of human nature. If there is perceived scarcity of a desirable resource, people will pay more for it, and its producers can ask more for it.

Now, for the folks in the USA, this is a double whammy. That's because of what we offer in trade for that oil. We offer debt. To the tune of 800 billion USD per year. And we offer printed money. Money that can now be created out of thin air.

What is that competing with? Well, the Chinese offer goods, like computers, bikes, and all sorts of stuff, in trade for the oil they get.

The end result is this puts further downward pressure on the dollar, making oil go up in price relative to the dollar.

Now, we've had a brief respite in oil prices. Looking at the numbers, it appears that we've had a slight strengthening of dollar value. A source of mine in China hinted that this is due to the Chinese stabilizing the dollar value for the Olympics (by buying dollars). Perhaps.

In any case, it would be foolish to expect it to last, and think things will "just get back to normal" soon.

One more point about this. The concept that oil and energy will get more and more expensive has many scary ramifications. But it also has some positive ones. Here are two examples. The first is a little article in Newsweek about a mom who was recently

forced to rediscover walking and biking as an alternative to driving the car

everywhere. As a bonus, she discovered how pleasant it can be to spend more relaxed time walking or biking to a destination, rather than zooming around in a hurry all the time. This is a sentiment that those of us who have bike commuted for a long time know well. I get angst ridden these days if I have to drive around town. Riding the bike is so much more peaceful.

The second note about this is from an intriguing blog post by Todd from

Clever Cycles

, about his family's recent bike/camping trip of 190 some odd miles. Here is a great quote

from the article

:

We parked our bikes at the door of our cabin, which led to quite a lot of curious loitering by other visitors to the springs. But we learned quickly to stop telling people that we had biked there with child from Portland because it stopped conversations cold, as either a greener-than-thou affront or just too freaky. “Who drove the support vehicle?” A Dutch family we met there on the last day found out as we were leaving. They were incredulous. I admit that made me proud: Dutch people think we’re hardcore. At the same time, I wish more people understood that biking needn’t be some kind of enviro-martyr stunt, sport, fundraising strategy either personal or institutional, etc.

This speaks about a culture in which cars are prevalent and cheap to operate, so that people think biking is crazy. But if when gas costs $10/gallon or more, people might reconsider that view. The reality is that biking that distance on a normal touring bike is limited to a few hardy folks who have the time and/or physical fitness for such a venture. But doing it on an electric bike is becoming increasingly feasible for a broad swath of people as the technology improves, particularly higher-capacity batteries. Todd and his family did this trip using Xtracycle-style longtail bikes, with their own Stokemonkey electric assist. With the right setup, nearly anyone, of any physical ability could do this. And if people want to be able to do leisure activities like this in the future, gas costs may cause many more folks to take this option seriously.

The second quote from his blog is more sobering:

Our mood took a big hit at Austin Hot Springs, which is right alongside the road. We thought we’d lunch there and maybe take a dip where the hot vents mingle with the cold river water. We rolled up to the river’s edge, between trucks, and beheld a sickening spectacle: trash, trash everywhere. Brawndo cans and Doritos bags, used tampons and condoms, excrement-smeared toilet paper, giant bean cans, inflatable water toys, cassette tape fluttering, cigarette butts and beer bottles, some broken. Green trees sawed down and dragged halfway into fire rings. And there in the clear water, some yahoos had submerged a large roll of carpet and weighted it down with rocks so bathers could avoid coming in contact with the riverbed. It was a crying Indian moment. Anger and shame drove us back to the road.

This is sad indeed. But it also speaks of a culture that does not value the gifts we've been given. The US has been the beneficiary of the biggest boost in wealth and prosperity for a broad swath of the populace in history. Part of this boost has been the result of cheap oil. This has allowed people to do things like joyride in their cars up to a hotspring, litter and pollute it, and joyride back home. Somehow I have a feeling that if getting there were a bit more difficult (like requiring a 4 hour bike ride), this wouldn't have happened. The people who would get there would be people who really appreciate the beauty and value of the place, and are willing to work to get to it. Drunken teens would be unlikely to make the trek, especially with a carpet in tow to throw in there. It is sad that our culture now takes for granted the great prosperity we have been lucky to have. Unfortunately or fortunately (depending on how you view it), this is changing. In the future, we as a society and country may be forced to start appreciating the gifts we have, since they're likely to not be so plentiful.

Now, in part I I promised to mention how Peak Oil led to a bike shop. That is coming, soon in Part III.

- Morgan