As we pass the point of global peak production of oil, now is a good time consider just how addicted you and your business are to oil and your exposure to increased oil prices.
The end of ‘easy oil’
Almost every year for 150 years, the oil industry has produced more than it did the year before and demand for oil increases at 2 per cent per year. For all practical purposes oil is a finite, fast-diminishing and, perhaps more importantly, unique resource that no amount of so-called alternatives can replace. Many experts now warn that we have passed the point of global peak production. The issue at hand is the long downward slope that opens on the other side of peak production.
The end of ‘cheap oil’
Statistics New Zealand reports of more volatility in petrol prices since 1999: Some of the factors contributing to this volatility have been concerns about security of supply caused by political uncertainty in the Middle East and growing demand from China and India to name but a few factors. At the time of writing, September 2007, the price of standard crude oil was at historic high of US$83.90/barrel, which is a dramatic increase compared to the long-term average of around US$25/barrel.
Oil to burn and oil to build
Consumers tend to think of oil largely as a fuel that powers cars and airplanes, fuels industry or heats homes. But oil and natural gas is also used as a raw material for manufactured goods including carpets, PVC pipes and window frames and plastic boxes that use a blend of chemicals from oil and natural gas and foam cups and nylon, which are largely made from oil-based chemicals. In other words, with a global decline in oil production the cost of everything from travel, transport, heating, agriculture, trade, and anything made of plastic will rise.
Strategies to adapt
Instead of a take-make-waste approach the end of cheap and easy oil will inevitably drive us to re-evaluate our use of oil-based products. Just as scrap metal can be more economical than newly mined and smelted material, scrap plastic comes into its own as the price of oil and gas for fresh plastic climbs.
For transport there are substitutes to fossil fuels in the form of biofuels or electric vehicles, which is particularly sensible in NZ if demand can be matched met with clean electricity supply from hydropower.
Price sensitivity may be a motivator enough to reduce private and business dependence on oil, but environmental and equity concerns are equally valid considerations. Environmentally, carbon dioxide and methane from production and burning of oil and gas are major contributors to global warming and climate change. Morally, one may question our right to be the last generation with access to economically viable oil. It is hard to imagine a world without oil but this may very well be reality by the middle of this century unless we cut down.
