End of cheap oil: Growing prices, demand raise uncomfortable questions

Tag : Peak Oil

High fuel costs in the Triad caused a discount airline to fail,school buses to drain county coffers and companies to switch tofour-day work weeks.
All this before the average price of unleaded gasoline hit $4 agallon.
So what would Guilford County residents experience if fuel hit $8 agallon? Or $10?
Picture more bicycles on Greensboro's Battleground Avenue thancars. A dearth — for once — of "Made inChina" wares on store shelves. Weeds and "For Sale"signs in desolate subdivisions.
The world's thirst for oil might soon outstrip its capacity toproduce it — if it hasn't already — and theconsequences could be devastating.
A growing number of energy experts, investors and concernedcitizens worry about the country's lack of preparation for"peak oil," the point at which the amount of petroleumthat is economically feasible to extract and refine goes intodecline. Peak oil does not mean running out of oil. It signifiesthe end of the cheap-fuel era.
"I don't think there is the commitment to make the transitionin time for there not to be maximum economic hardship," saidLuddy Hayden, a Greensboro resident who worked in the oil industryfor more than 30 years. "I'm afraid that we are going to hit abump that people will look back upon as the most difficult economictime we've had."
Peak oil uncertainty
Americans depend heavily on petroleum to power their cars, growtheir food and heat their homes. Price spikes in the past coincidedwith economic recessions, and record prices this spring led toworldwide protests and economic pressures in the United States.
Many think the country should kick its oil addiction and switch toalternative fuels in an era of increased global competition fordeclining supplies, an initiative already under way. But Americansmust prepare 20 years ahead of the peak to avoid fuel scarcity,according to a 2005 report commissioned by the U.S. Department ofEnergy.
Some peak oil analysts believe it's already too late, that thedecline in production has begun. Optimists believe the peak isdecades away.
"The peak moment, I think, is going to come, and I don't thinkmany people are going to be prepared for it," said Megan QuinnBachman, outreach director for The Community Solution, a group inYellow Springs, Ohio, that educates people about fossil fueldepletion. "For some reason, it's a very difficult issue toget across."
The end of cheap oil?
For some Americans, the light bulb flickered in August 2005, whenHurricane Katrina damaged refineries on the Gulf Coast andtemporarily cut off supplies in some parts of the country. NorthCarolina, which imports 90 percent of its fuel from the Gulf Coast,saw supplies dry up for five days.
Hill Oil Co. of Lexington and Winston-Salem saw its fuel supply cutby 80 percent during the two months of market rationing that cameafter hurricanes Katrina and Rita. Walter Hill, who started workingfor the family-owned company in 1985, recalls being unnerved by theordeal and motivated to research the peak oil concept further.
"They pretty much booted the energy industry into the 21stcentury," Hill said about the hurricanes. "It was a realeye-opener for a lot of people."
With oil prices setting records almost daily over the past twomonths, Hill and his brother, Mayne, spend much of their workdaysin a wood-paneled office in Midway watching the televised wholesaleprice of fuel fluctuate. These days, the price per gallon ofgasoline can rise and fall several cents within hours.
"Gas prices wouldn't move 14 to 15 cents in a month (10 yearsago)," said Hill, who talks with a twang and wears a khaki hatwith "Soy Biodiesel" written across the front."Markets didn't move to the point where your whole retail(profit) margin could vanish within an hour."
The Hills don't pretend to know how to navigate rising fuel costsover the long term. The brothers cut back on recreational driving,and they figure the company will need to consolidate its 15 storesto save on operating costs and increase their percentage of biofuelsales.
Walter is desperately seeking an old diesel Volkswagen truck forhis horse-riding teenage daughter because of its efficient engine.Mayne of Davie County has cut out family trips to nearby Clemmonsfor ice cream.
He recalled driving down N.C. 801 one Sunday afternoon and seeingno traffic — a sign of the times.
North Carolinians must make changes, the brothers say.
"Being mad is all right," Walter Hill said. "But inorder to solve this deal, the general public is going to have tofigure out who to be mad at. It's getting up in the morning andsaying, 'I have seen the problem, and it is me.'"
Larry Shirley, director of the N.C. State Energy Office, said thestate needs to find alternatives to oil to prosper economically.Shirley described peak oil in a 2006 presentation as a"potential economic, political and social crisis."
"(Gasoline has) been priced below bottled water up until thispoint, and we've taken it for granted," Shirley said."Now we've got to stretch it as much as we can."
It happened before
America has faced its own peak in both oil discovery andproduction, lending credibility to predictions of a worldwideevent. Geologist M. King Hubbert predicted in 1956 that productionin the lower 48 states would peak by 1970.
The accuracy of his prediction is downright eerie. Federal energydata show the United States produced the most oil in one year— at 3.5 billion barrels — in 1970. The countryproduced almost 1.9 billion barrels in 2007, according to theEnergy Information Administration.
Global oil supply swelled in the 1980s after companies stepped upproduction in the North Sea and other areas, but it has sinceflattened to about 85 million barrels a day. Companies produced36,000 fewer barrels per day in 2007 than in 2005, according to theEnergy Information Administration, despite a 2.2 percent increasein consumption in the same time frame.
Energy consultant Mike Lynch attributes the current plateau totechnical challenges and dismisses the peak oil theory as a faultyinterpretation of oil supply data and production cycles.
In five years, people will laugh about the "end of oil"predictions, said Lynch, president of Strategic Energy &Economic Research in Winchester, Mass. Within 10 years, pricesshould drop to $40 per barrel once new oil supplies becomeavailable, he said.
The Energy Information Administration forecast in March that crudeoil would cost $68 per barrel in 2016 and $113 per barrel in 2030,based on new oil supplies and reduced domestic demand.
"It's kind of like people who see a recession or stock marketbubble, and they think it will last forever," Lynch said.
A call to action
But with crude oil prices setting records and regular, unleadedgasoline averaging $4.08 a gallon last week, the number of publicvoices extending the era of cheap oil dwindles.
Hayden, who worked in governmental affairs for Chevron Corp. beforeretiring last year, said he doubts future discoveries will beenough to offset production declines elsewhere. Even Shell Oil,which forecasts a gradual decline in oil supplies, says manyAmericans are out of touch.
A February company report said Shell found an "overwhelmingdisconnect between the perceptions of many consumers and the hardrealities of the energy picture. This is the crux of our dilemma asa country in determining an energy path forward — the beliefthat there are easy answers that are readily available, when inreality the choices we have to make will not come easily orswiftly."
Meanwhile, an undercurrent of discomfort flows in North Carolina.Pricey Harrison, a state legislator from Guilford County, expressedfrustration at the lack of discussion occurring in the GeneralAssembly and the focus on expanding highways over public transit.
"It's not something that's on people's radar, and a lot of thetimes, when it is, the answer is drilling in the Arctic NationalWildlife Refuge," she said.
Others are speaking out: At an April energy conference, DanielDouglas, director of the Raleigh Urban Design Center, listed peakoil as a reason to build pedestrian- and bicycle-friendly housingand commercial developments.
The Pittsboro-based Carolina Farm Stewardship Association educatesconventional farmers about the concept to motivate them to switchfrom petroleum-based to organic agricultural practices.
Roland McReynolds, the executive director, said farmers feel theimpact of more expensive animal feed, fertilizers and pesticides.
"Something is happening," he said. "We can see it onthe commodity exchange right now."
Bachman, of The Community Solution, spent almost a week inGreensboro in February educating people about peak oil. Her grouppromotes steps such as home gardening, retrofitting houses forenergy efficiency and car sharing.
"I think we are going to be living a lot more cooperatively atthe local level and not have a lot of these isolated, single-familyexistences," she said.
Bachman expressed hope to a group of 40 people at the PresbyterianChurch of the Covenant that the city could become a model ofsustainability in a post-peak-oil world.
"We need to recognize that if we don't choose a differentpath, then the choices will be made for us," she said.
Jason Hardin contributed to this story.
Contact Morgan Josey Glover at 373-7078 or morgan.josey@news-record.com