Global Energy Issues: The End of Easy Oil

The collapse of Wall Street precedes the collapse of big oil

Most of the major problems facing the world today–the energy crisis, the economic collapse, the Great Recession, climate change, and swine flu–were all foreseeable. One person foresaw them all. But we are currently just in the middle of the time of trouble. The collapse of Wall Street has temporarily forestalled an energy crisis.

The Long Emergency by James Howard Kunstler predicted many of the problems that now plague our country. How did he do it? Did he have better information than the experts in the banking sector? No, he just listened to the right people.

His book is mostly about peak oil–the concept that we will never again be able to produce as much oil as we are producing right now, though demand will continue upward. He believes we are actually past the peak which will push oil prices, with wild fluctuations, rapidly higher. A year ago, we were staggering under the high prices and many of us were ready to belive his theory, but with recent relief, it might be harder to believe. But the current price of oil is merely a reflection of the economic implosion that he also predicted.

After talking with a number of banking-sector experts who were worried about mortgage-backed securities, Kunstler predicted that the economy was headed for an inevitable collapse. Kunstler had written a previous book about the unsustainablility of suburbia, The Geography of Nowhere. Ever-expanding suburbs, it turns out, are just as bad for the economy as they are for the environment.

Now, with the current BP Deep Water Horizon debacle, Kunstler continues to be prescient.

If he continues to be right, we should expect oil prices to suppress any kind of economic recovery. As soon as demand turns around, we will find that we cannot increase supply to meet it.

Some might point to recent discoveries of new reserves. While these discoveries make headlines, they actually are happening with lower frequency than in the past, and they are much more costly to find. As costs go up and frequency of discoveries go down, the price of oil will rise. The newest discoveries are often in the hardest to reach places, like 5,000 feet below the Gulf of Mexico.

Kunstler Speaks of Suburbia's Demise

Implications for your Finances: Sell your house and buy gold

While I do not believe Kunstler's doomsday prediction for the decline of civilization. His predictions do have some personal finance implications.

Firstly, suburbs will be the ghettos of the future. This is already true in many large cities around the world. The trend is slow to take hold in the US because of our well-entrenched love affair with parking lots and lawn mowers. But as the price of oil rises, the popularity of city living will skyrocket. Those who are considering buying a home in the burbs should consider how impractical suburban living will be in 30 years. Conversely, real estate in walkable neighborhoods will be a premium. The recent condo boom in downtown areas may have stalled in the short term because of other economic pressures, but it will rebound as the economy heats up and oil prices return to their July '08 highs.

Secondly, as oil dries up, oil companies will make huge profits on the shrinking stores that they have, but even they will reach a point where they cannot sell what they do not have. Alternative energy companies will become essential to the energy economy. Wind energy, biomass fuels, and even coal will have to grow to meet the demand. Investments in these companies could have huge payoffs.

Finally, many people have begun to protect their investments by purchasing gold. Gold trends up with energy prices and up during any crisis. The only questions is will it continue up beyond the highs it has seen lately.

The Long Emergency

How can you protect yourself?

The short answer is, you can't. A decline on the scale that Kunstler talks about will touch everyone no matter how prepared you are. One can, however, learn more about living off of the grid. As solar panels become more common, access to off-the-grid energy is widening. If appliances become more energy efficient at the same time, one could potentially live without the luxury of purchsed electricity. It is unlikely that electricity will become unavailable, but it may become much more expensive.

Some simple steps:

Replace all light bulbs with CFLs.

Use a laptop rather than a desktop–more energy efficient and has a battery.

Grow your own food.

Live in a walkable community.

Global Consequences

What is most frightening of all of his doomsday predicitons is also the most likely to come true: that oil prices will be climbing at precisely the same time that our need to illiminate carbon emissions will become most dire. This double bind means we cannot revert to using coal, an energy resource that is still plentiful. By all accounts, clean coal or carbon capture technology is not likely to come around by the time we will need it the most.

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