Nestled in the wooded hills of northwestern Pennsylvania, the town of Titusville has all the trappings of the rural northeastern US—discount cigarette stores, a Wal-Mart Supercenter, and converted barns that serve as small museums and bed and breakfasts. On the outskirts of town, just before the Wal-Mart on Route 8, is a cracked wooden sign that reveals the town’s story and a source of pride for the locals. In peeling white paint, it reads: “Welcome to Titusville—Birthplace of the Oil Industry, 1859.”
Two years before the American Civil War began, Col. Edwin Drake first struck oil on his farm on the town’s southern edge. It was the first commercially successful oil well in the world, and prompted a nationwide drilling spree as industry tycoons raced to meet the surging demand of a rapidly industrializing nation.
Here in Titusville, it is easy to see where America’s love affair with oil began. What is less clear is where the story will end. Oil prices have skyrocketed to record highs in recent weeks, and as of press time the average price for gasoline cracked $3 a gallon. The US military is coming up on its third year in Iraq fighting a conflict that is—at least in part—being fought to secure American oil interests.
America is still the largest consumer of oil, burning about 21 million barrels daily—one quarter of the world’s usage. Wall Street analysts have recently indicated that global demand is outpacing supply. A growing number of energy experts are debating what may happen to the U.S. economy if oil-producing nations can no longer meet the need.
Some say global recession, some predict a complete retreat to pre-Industrial Age conditions, while still others maintain that there is nothing to worry about. Most commentators have a stake—financial or otherwise—in the world economy’s reaction to the final verdict.
Whether they believe a crisis is ten years away or ten decades away, one thing is clear: the world’s supply of oil was a one-shot deal, and it’s becoming harder and harder to take for granted.
Ground Zero
Gas was only $2.50 a gallon a few weeks ago as I rolled into Titusville for the 2005 Oil Festival. The festival is a high point in this town of 6,146, a yearly tradition of craft fairs, parades, and fireworks to commemorate Drake’s 1859 strike.
The oil fields around Titusville—a town once home to the world’s first oil exchange and the Rockefeller family fortune—reached their peak output in the 1890s, and production levels declined steadily afterwards. The forefront of the industry moved to places like Texas and Oklahoma, and later—around the time the US reached its own production peak—to the monster fields of Saudi Arabia.
One day, the world’s supply of oil will go the way of the Pennsylvania fields, as the world reaches the point at which half the planet’s oil has been pumped out of the ground, after which every barrel will be harder and more expensive to extract. Conservation efforts and new drilling technologies may extend the slide significantly, but production will inevitably decline as well.
In a world that runs on oil – powering everything from modern agriculture to the pharmaceutical industry and the suburban lifestyle of millions of Americans – how will that change life as we know it?
Opinions vary on the severity of post-peak conditions, ranging from theories of widespread population “die-offs” to the possibility of an extended economic recession. James Howard Kunstler, author of The Long Emergency, is one of the more pessimistic commentators; one of his wilder predictions includes the idea that the Pacific northwest could fall victim to pirate raiders invading from Asia.
At the book’s core, however, is an extensively researched argument that the world has expanded its carrying capacity due to a century of developments based on cheap oil.
“At peak, the human race will have generated a population that cannot survive on less than the amount of oil generated at peak,” he writes. “And after peak, the supply of oil will decline remorselessly.” Kunstler has been the loudest and most consistent voice in a growing coalition of experts—ranging from professors at the California Institute of Technology to former oil industry executives—that predicts the global production peak will occur between the years 2000 and 2008.
America—with our current fetish for gas-guzzling SUVs and a car-dependent suburban lifestyle—could find itself in a dangerous jam if those predictions come true. Passing the peak without a significant reduction in global demand for oil would drive gas prices to levels not imagined before, as the price for a barrel of oil skyrockets into the triple digits.
The theory of peak oil was initially developed by geophysicist M. King Hubbert in 1956, who accurately predicted the US production peak, which occurred around 1970. Critics, such as Michael Lynch of Strategic Energy and Economic Research, Inc. (SEER), claim that Hubbert’s model was limited in scope, and while it may have worked for the US oil supply, too much is unknown about the global oil numbers for it to hold up as an accurate framework.
Skeptics Abound
Lynch’s skepticism about Hubbert’s model is echoed by David Morehouse, an analyst at the Energy Information Administration (EIA), the research wing of the US Department of Energy (DOE). He places the world peak at around 2044, based on global supply numbers from the United States Geological Survey. The EIA doesn’t make policy, but the one statement of advice they made to the DOE, Morehouse says, is that “even though our estimates are later than most other people’s, they’re still not all that far off.”
Indeed, a number of factors would seem to corroborate the predictions of Kunstler and his allies. The New York Times recently reported that oil supplies are running neck and neck with demand—due largely to rapid industrialization in India and China and the continued oil dependence of the US.
“As long as demand grows at a pace that outstrips supply,” David Spika, a strategist at Westwood Management told the Times, “We’re going to see prices above $50.” (As of this writing, the cost for a barrel of oil was hovering near $70, up from $42 at the beginning of the year.)
Spika also noted that oil companies are spending less capital on exploration and production, in contrast with previous price spikes when those companies would simply dump cash into increasing production to keep prices at consumer-friendly levels.
“We’re already seeing volatility in oil markets,” a symptom of the production peak, says Kunstler, the Long Emergency author. He notes another possible indicator of a peak occurring within the decade: the depletion of Saudi Arabia’s massive oil reserves.
He’s referring to comments made by Matthew Simmons, CEO of Simmons & Company International, that Saudi oil executives may be fudging their reserve data to give the impression that they can produce oil at current rates for many years to come—and thereby avoid a panic in the markets. Simmons has worked both in the public and private spheres as one of the most influential brokers in the oil world, including a stint as an energy adviser to George W. Bush’s 2000 presidential campaign.
Kunstler notes that the largest field in Saudi Arabia, Ghawar, is fifty years old and has been injected with sea water to keep the oil flowing at high pressure. About half the liquid coming out of the Saudi monster rigs these days is sea water, he says.
“The authoritative answer seems to be that Saudi Arabia can’t get it up,” Kunstler said. “All bullshit aside, they just don’t have the capacity.”
A Vulnerable System
The Saudi oil fields are the largest the world has ever seen; the country produces about one eighth of the world’s daily consumption. If they’re in depletion, the world is in trouble. With supply and demand running so closely, any serious decrease in oil output could have “deep ramifications” in the global economy, Kunstler says, as supply chains break down, commutes to work become too expensive, and home heating prices skyrocket.
Nothing illustrates the vulnerability of oil markets better than the aftermath of Hurricane Katrina. Fierce winds and surging seas destroyed or crippled much of the oil infrastructure in the Gulf of Mexico and the southeastern US. Less than two million barrels a day of refining capacity were knocked offline. Almost immediately, the system panicked—oil prices shot up to over $70 a barrel, gas prices increased nearly a dollar across the country, according to the NY Times, with some consumers reporting prices in excess of $5 per gallon. Gas lines appeared in the South for the first time since the oil crises of the 1970s.
Some blamed price gouging by gas station owners, others called it the “underlying disease” of the system—the consequence of walking a tightrope between supply and demand. Either way, the full system shock—caused by the removal of less than ten percent of America’s daily oil usage from the market—should be educational for observers of the Saudi oil supply.
What would happen to petroleum prices if a major section of the Saudi oil infrastructure—which produces 10.5 million barrels per day—were to fall victim to a severe sandstorm, equipment malfunction, or… terrorist attack?
US response: ‘What peak?’
In the end, the exact date of the peak matters less than the fact that it will occur—and the US government seems ill prepared to deal with its effects.
Two recent actions by the US government—the recently signed energy bill and a new rule on fuel efficiency for SUVs—have environmental and economic observers fuming.
The energy bill was signed into law by President Bush in early August. It contains billions of dollars in federal subsidies, both for renewable energy sources and fossil fuels. While the new policy contains a fair amount of subsidies and tax breaks to boost emerging hybrid auto technology, most observers view it as heavy on the side of subsidizing fossil fuel production and the construction of nuclear reactors.
“This is about the most pathetic response to a major problem,” said David Orr, a professor of environmental policy at Oberlin College. He lamented the fact that subsidies for hybrids and renewable energy sources run out after two years under the current policy, while incentives for fossil fuels last for ten years. Mr. Orr, who will be speaking on energy matters at the University at Buffalo on September 28, called US energy policy a “folly on a scale for which we do not have words.”
Craig Stevens, a spokesman for the DOE, called the energy bill “a step in the right direction.” He defended the timeline for subsidies as well, saying that fossil fuel subsidies go towards exploration, which he believes is a much more expensive and time-consuming task than a quick financial push to allow hybrid auto sales to pick up speed.
The proposed SUV efficiency rule is a mild attempt to reduce the amount of gasoline American drivers consume. This is an issue that many environmentalists, such as UB’s Energy Officer Walter Simpson, feel the government has fallen short on in recent years.
“Nothing has been done in 20 years to mandate efficiency in cars,” Simpson said. The Bush administration claims its new rule, which will be finalized in April, will save ten billion gallons of gas over the next two decades, or about 25 days worth of usage at current levels.
However, the proposed rule has a few problems. First, the current proposal doesn’t do anything to regulate the largest gas-guzzlers like the Hummer H2, which gets about 13-17 miles per gallon.
Also, the administration used some odd numbers in its calculations: proponents say the rule will save consumers over $7 billion, but according to the Times they based that calculation on gas prices of $1.51 to $1.58 per gallon—a price most Americans haven’t seen in years.
At any rate, most observers say US energy policy doesn’t really contain any long-term solutions for the peak oil dilemma. “In the face of rising gas prices, the energy bill Congress passed fell short of meeting the obvious challenge at hand,” said US Rep. Louise Slaughter (D-NY) in a statement to Generation. “The only way to reduce gas prices at home is for our country to reduce its dependence on oil from abroad.”
Seeking a Quick Fix
Several lawmakers have outlined their views on how America can reduce its dependence on foreign oil. But as with the energy bill and the SUV rule, their proposals would do little to alleviate a long-term oil shortage.
US Sen. Charles Schumer (D-NY) has suggested releasing oil from the Strategic Petroleum Reserve (SPR), a series of salt caves along the Gulf Coast. The SPR is an emergency oil reserve to be used by the military in the event of an attack on US soil, or in the case of a natural disaster such as Hurricane Katrina. The White House has agreed to release reserves in response to Katrina, which will reduce prices slightly, but the SPR cannot be relied upon as a solution to the foreign import problem if we also need it for crisis management.
In addition, President Bush is currently working on bringing the SPR’s total reserves up to 700 million barrels. Even if the administration dumped the entire SPR into the market and cut off foreign imports, it would last a little over 30 days at current levels of consumption. Again, a short fix, but not a solution.
Rep. Anne Northrup (R-KY) has proposed that the US begin to tap the Arctic Natural Wildlife Refuge (ANWR), a hot button of environmental controversy throughout much of the Bush administration’s tenure.
The ANWR website lists the amount of conventional oil in the area’s fields at 5.7-10 billion barrels. These estimates are just guesses; the only real way to find out the ANWR’s production capabilities is to drill there, supporters say. Critics contend that even limited exploration drilling could have a harsh impact on the wildlife in the region. Currently no action has been taken on the issue and the debate continues.
As is often the case, simple mathematics can often shed some light on the reality of a politician’s proposal: Even if there are ten billion barrels of oil in the refuge, and we could somehow extract all that oil from the ground, it would give us another year and a half, tops. A recurring trend in American government seems to be an affinity for thinking no further ahead than the next election cycle.
Rep. Slaughter at least advocated the use of renewable energy sources in her statement. Wind, solar, and hydroelectric power are all clean, renewable sources that would greatly reduce our dependence on finite fossil fuels, and would soften the effects of post-peak conditions.
But all of these have problems of scale and applicability (which will be explained in next week’s issue). Also, the transition from a fossil fuel economy to one run on renewables is not going to be easy. As a February 2005 report for the Energy Department concluded, “Previous energy transitions (wood to coal and coal to oil) were gradual and evolutionary; oil peaking will be abrupt and revolutionary.”
Life After the Boom
Titusville is cut into thirds by Oil Creek and a pair of rusty, weed-ridden railroad tracks. There’s a University of Pittsburgh campus at one end of town and a BMX/skate park at the other. There are still a few leftovers of the oil bonanza in the area, but the wells are individually owned and most of the big money has left Titusville for good. An editor at the Titusville Herald told me the largest employer in town is probably the Wal-Mart.
Nowadays, when somebody mentions the oil issue to the locals, the conversation usually dwells on legend and suspicion.
I was sitting at the bar of the Four Sons Brewery on Franklin Street on the last day of the Oil Festival when a man came up to me and asked what I was doing in town. When I told him about the purpose of my trip, he perked up noticeably. The man grabbed my arm, brought his face within inches of mine, and began whispering.
There are rumors, he said, that the Rockefeller family—of Standard Oil fame—kept a vault on the second floor of the Four Sons building, and that after hours the bartender would show you its door, supposedly guarding a fortune in gold bars.
The man told me he didn’t think that if the price of gas doubled, American consumers would change their daily habits to conserve more energy. Americans love their cars, he said, and unless the oil companies get caught gouging prices, they’re going to keep on driving. Even “if the price gets up to ten dollars per gallon.”
The Titusville native is a good example of the main obstacle to America’s post-oil age: Americans.
Don’t worry – Drive happy
Vice President Dick Cheney, in response to calls for increased automotive gas economy, famously declared that “the American way of life is not negotiable.”
Kunstler’s answer: After peak oil, “reality is going to negotiate it for us.”
But Americans are terrible at looking out for the future, Kunstler says. He offers an example from his daily bicycle rides in the posh resort town of Saratoga Springs. He pedals by a house with two gas-guzzling SUVs in the garage—each with a “War Is Not The Answer” bumper sticker.
Both Kunstler and UB’s Walter Simpson advocate a massive shift to conservation, local efforts to fight sprawl, and the rejuvenation of public transportation. We need to transition to smaller communities, Simpson said, because they are walkable for most needs and mass transit will not work in large, sprawling cities.
Kunstler sees the deterioration of the American passenger rail system as a particularly sad lost opportunity for the US. “Nobody is talking about that,” he said. “It shows how unserious we are.”
He finished our last talk with an assignment: It’s up to your generation to come up with a solution to this, he said, because the mistakes of today are going to fall on your shoulders tomorrow.
No pressure, though.
Running On Fumes
I left Titusville after sunset, but before the fireworks. The blonde singer at the “Generation Gap” concert was still crooning Tom Petty’s “Last Dance With Mary Jane” in a windy, nasal voice.
Leaving Titusville, the little town where oil began, I couldn’t help thinking that although Kunstler and his allies can be dismissed as shrill and alarmist Chicken Littles, their ideas ring true for one undeniable reason—there will be an end to the story of oil. Sooner or later, we are going to have to shift our priorities, stop thinking in terms of short-term ease and start thinking of the future.
Whether it’s our generation or our children’s or our grandchildren’s, life is going to get a lot harder for someone than it has been for the last fifty years or more, and the better prepared and educated we are today, the easier it will be on them.
As I drove out of town, groups of teenage boys sped through the dark spots between fast food joints on street-modified BMX bikes in gangs of three or four. They jumped the bikes over the train tracks before fanning out and disappearing into the blackness of an abandoned parking lot, their tires crackling over bits of asphalt and broken glass.
I thought about those kids and their futures, and a passage from Hunter S. Thompson’s Kingdom of Fear came to mind:
“The poor bastards of what will forever be known as Generation Z are doomed to be the first generation of Americans who will grow up with a lower standard of living than their parents enjoyed.
“That is extremely heavy news, and it will take a while for it to sink in. … The last half of the Twentieth Century will seem like a wild party for rich kids, compared to what’s coming now. The party’s over, folks. The time has come for loyal Americans to Sacrifice…Sacrifice…Sacrifice. That is the new buzzword in Washington. But what it means is not entirely clear.”
By “sacrifice,” the White House usually means support for the war in Iraq. If only we had the same determination to attack our nation’s dependence on cheap oil. Homeland security forces may be able to prevent another terrorist attack, but no one can refill the planet’s gas tank.
The argument about what the global gas gauge says will continue. Many of the loudest voices in the debate will never see it its outcome. It is our future—not theirs—that will be determined by the sacrifices we choose or choose not to make.
Generation Z may not see the transition to a post-oil age, but we can determine its course. And no one can dispute that when it happens, it will change the American way of life in ways – and degrees – beyond Osama bin Laden’s wildest dreams.
