As I said last week, I’m not sanguine about our prospects in the face of peak oil.
It would be nice if the decline of oil supplies was slow and steady, markets adapted smoothly with the introduction of alternative fuels, and we came in for the much-touted "smooth landing." But those who envision such a scenario drastically underestimate just how delicate a situation we’re in. We’re trying to get from one side of a chasm (an oil-based economy) to the other (a healthy economy wherein oil is marginal) on a tightrope. While patting our head and rubbing our stomach. And reciting the alphabet backwards. Drunk. On one foot. Etc.
To get a sense of what I mean, consider “Oil Shockwave," a recent wargaming exercise cosponsored by the National Commission on Energy Policy and Securing America’s Future Energy (SAFE).
Conducted in a D.C. hotel ballroom, the exercise had a panel of former gov’t officials, playing the part of a president’s cabinet, act out a series of scenarios whereby the global oil market might be disrupted: ethnic conflict in Nigeria, terrorist attacks on oil facilities in Alaska, etc.
The results were grim: "the war game’s participants … soon realized the U.S. government had few options in the short term to prevent an economic crash in this country and worldwide."
The problem, of course, is that supply and demand are currently so tightly matched. There’s very little wiggle room.
One background assumption seemed to be that, as Kenneth Baer puts it, "the only swing capacity is in the hands of the Saudis. If they don’t want to play ball or a situation arises in which they can’t, then basically, we’re screwed."
But if Matthew Simmons is right, the Saudis don’t have any swing capacity either. And if that’s true, then there’s no wiggle room anywhere, and any disruption means we’re screwed.
Such a disruption could take almost any form: domestic unrest in oil-rich countries, terrorist attacks, accidents at oil fields, pipelines, or refineries, demand spikes from faster-than-expected growth in China or India … you name it.
And that’s just disruptions that directly affect oil supply and demand. There’s also the U.S.’s generally precarious financial situation — up to our ears in debt, with a rapidly aging population. There’s the ever-present possibility of spreading conflict in the Middle East, or war in North Korea, or between India and Pakistan, or China and Taiwan (i.e., us). There are internal political considerations in oil-rich countries like Nigeria, Venezuela, and Saudi Arabia, which are unpredictable and not entirely stable. Etc.
So you see what I mean about the tightrope.
Nobody knows what’s going to happen in the future, and anyone who predicts confidently begs to be made a fool. But we’re in a tenuous balance. There are lots and lots of ways the spinning plates could start falling, setting off a cascading series of disasters.
And the path to a soft landing looks awfully narrow.
