Peak Oil = Urban Ruin

I have often been reminded of a Chinese saying that basically translates into something like this: Long is not forever. In other words, everything comes to an end; it doesn't matter how long it takes. I've been covering the oil industry for a long time and I often talk with many economists about the status of the market. They are a very optimistic lot. That's good because they deal with issues of wealth creation, except that when they let unreasonable optimism color their thinking in such a sway that their only concern is the short-term financial benefit, they run the risk of losing their credibility.

I say that because something new is happening in the modern world. For a long time, we've been used to classical economics championed by the likes of Milton Friedman. But there is a new breed of what one might call renegade economists whose focus is not based merely on competition alone, but also on community good. These economists, just like scientists, are now debating the consequences of a world with reduced petroleum supplies. They are asking, "Why can't we start preparing for the time when we probably won't have it?" Like geologists who are now calling our attention to an oil peak, these skeptics think the oil industry is taking itself for a ride by being overly optimistic that natural resources will stay abundant. Very soon, we shall see a shift in mainstream economic thinking from unbridled, red-hot free markets to something grayish.

Which brings us to the debate about peak oil. Let's just assume that world oil production peaks in about 15 years. What will that mean to us, in concrete terms? It won't mean we'll run out of oil right away. It only means that net oil availability will decline at an annual rate of about 2 percent thereafter, and we should expect that supply will be down by 20 percent by about 2035, when world population will be doubled, along with fuel consumption. This is still speculative and things might turn out differently, including development of new technologies that would make life a little easier, but it's going to a huge problem. It's safe to say that the general progression of events points to a scary future.

In the last two years we have already seen a preview of this movie, in the form of oil supply not being able to keep up with demand. The result has been high fuel prices and a dent in the economy and in consumer confidence. It's important to remember that current high fuel costs aren't bad compared to what we should expect in the future. It will be a crisis when supply is so drastically reduced that it won't matter whether you have the money to pay for the fuel. As anyone knows, when money loses meaning because there's nothing you can buy with it, what you are left with is primordial existence.

It's going to be tough to deal with the impact on transportation, health, agriculture, and other development issues. In the event of a general power outage, think of what would become of our metropolitan subways, our hospitals, our farms, our offices, and our houses. Our economy depends so much on fossil fuel that a lack of oil without any alternative fuel sources would lead not only to a virtual crash of the economy but to total chaos. As James Howard Kunstler points out in his book, "The Long Emergency: Surviving the Converging Catastrophes of the Twenty-First Century," the U.S. economy has gradually evolved from the use of solar energy to the artificial patterns of living subsidized by cheap fossil fuel.

I'm typically an optimist and my view is that living off oil may not be as artificial as Kunstler puts it, but I have to appreciate his central point. He says that we depend on computers for work, for learning, and for shopping. That we are used to microwaving our food and using gas to cook is not in doubt. The systems we have developed in the West, he argues -- systems that are supposed to improve efficiency -- can't survive without some kind of energy, mostly fossil fuel energy.