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ENERGY: Peak Oil and the Great Recession by Tom Whipple

ENERGY: Peak Oil and the Great Recession by Tom Whipple

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The year 2008 will be remembered as a major turning point in industrial history, for it was the first year when the world got a taste of the unpredictable price spikes that come from inadequate oil supplies. The first half of the year was marked by a steady increase in the weighted average price of oil, which started the year at about $90 a barrel and finally peaked in July just shy of $150 a barrel. At the same time, the global economy was contracting rapidly with falling industrial production, falling exports, and rising unemployment. By July 1, 2008, many industries that are dependent on oil, especially the airline and trucking industries, were desperate and in danger of being forced out of business. With the average price of gasoline above $4 a gallon in the United States (above $5 in California), car sales plummeted, leading to bankruptcy for much of the U.S. automobile industry and eventually massive government bailouts.
The year 2008 will be remembered as a major turning point in industrial history, for it was the first year when the world got a taste of the unpredictable price spikes that come from inadequate oil supplies. The first half of the year was marked by a steady increase in the weighted average price of oil, which started the year at about $90 a barrel and finally peaked in July just shy of $150 a barrel. At the same time, the global economy was contracting rapidly with falling industrial production, falling exports, and rising unemployment. By July 1, 2008, many industries that are dependent on oil, especially the airline and trucking industries, were desperate and in danger of being forced out of business. With the average price of gasoline above $4 a gallon in the United States (above $5 in California), car sales plummeted, leading to bankruptcy for much of the U.S. automobile industry and eventually massive government bailouts.

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Published by: Post Carbon Institute on Aug 30, 2011
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The Post Carbon Reader Series: Energy
Peak Oil and the Great Recession
By Tom Whipple
 
About the Author
Tom Whipple is one of the most highly respected ana-lysts of peak-oil issues in the United States. A retiredthirty-year CIA analyst who has been following the peak-oil story since 1999, he is the editor of the daily
 Peak Oil News,
published by theAssociation for the Study of Peak Oil–USA, and a weekly columnist forthe
 Falls Church News Press
. He has degrees from RiceUniversity and the London School of Economics. Whipple is a Fellow of Post Carbon Institute.Post Carbon Institute© 2010613 4th Street, Suite 208Santa Rosa, California 95404 USAThis publication is an excerpted chapter from
The Post Carbon Reader: Managing the 21st Century’sSustainability Crises
, Richard Heinberg and DanielLerch, eds. (Healdsburg, CA: Watershed Media, 2010).For other book excerpts, permission to reprint, and purchasing visithttp://www.postcarbonreader.com.
 
PEA O A TE GREAT RECESSO1 TE POST CARBO REAER SERES
 When in the late 1990s it was recognized that worldoil production was likely to start declining early in thetwenty-rst century, petroleum geologists and otherindustry observers started talking and writing about theeconomic damage this event would cause. Serious eco-nomic consequences were a virtual certainty because,since the beginning of the industrial age, economicgrowth had required increasing quantities of fossil fuels.During most of the twentieth century economic growthincreased the demand for oil, which had come to serveas our primary transportation fuel, the source of energyfor many production processes, and the raw material foran ever-increasing range of industrial products. Unlesssatisfactory substitutes could be found quickly, eco-nomic growth was likely to stop. And without alterna-tives, economic decline—if not a collapse—was likely.This chapter explores the relationship—as it is under-stood thus far—between the peaking of oil production, which started around 2005, and the current globalrecession, which officially started in late 2007. In thelong run, global warming may turn out to be of moresignificance than the peaking of fossil-fuel supplies.However, it is clear that the peaking of global oil pro-duction has already had economic consequences, which will become increasingly serious as time goes on, andthat the global economic recession is due at least par-tially to the lack of significant growth in world oil sup- plies since 2005.Although concerns about the amount of crude oil thatcan ultimately be produced go back many decades,modern interest in the topic was revived in March 1998by an article published in
Scientific American
writtenby two senior European geologists, Colin Campbelland Jean Laherrère. The article warned that, fromthe perspective of geology alone, world oil production would likely reach an all-time peak sometime around2010. Worldwide production of crude oil and variousliquid substitutes
1
in 1998 was roughly 75 million bar-rels per day (bpd), and oil was selling for $10 a barrel.Over the next seven years production grew rapidly,reaching a multi-year plateau of 85 million to 86 mil-lion bpd starting in 2005. Prices then started climbing rapidly, peaking at over $130 per barrel for the monthof July 2008 (see figure 19.1).Over those ten years, public and media awareness of theissue grew slowly while organizations,
2
books, and Websites appeared, tracking and discussing the various impli-cations of worldwide oil peaking. e revival of the ideathat global oil production would soon peak also broughtforth many detractors, some of whom remain highly vocal to this day. e most important doubters werethe two major organizations charged with tracking the world’s oil supply and making forecasts as to what waslikely to happen in the decades ahead—the InternationalEnergy Agency of the Organisation for EconomicCo-operation and Development (OECD), based in Paris,
 
The peaking of global oilproduction has already hadeconomic consequences,which will become increasinglyserious as time goes on.

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