I have an Australian friend who works on an oil drilling platform off the coast of Tasmania. He sent these photos from his phone. Pretty cool, huh? These photos got me thinking about the Peak Oil meme. For the uninitiated there are two camps on the subject.
One camp says there’s an unlimited amount of oil, natural gas, and coal in the ground and new technology will always be able to bring it to market. Since global demand is insatiable there will always be money on the table to incentivize new supply. This camp tends to shrug off environmental concerns and puts people and economic growth first.
The other camp says there’s a fixed amount of fossil fuel in the earth’s crust and at some point the cost and complexity of wrestling the last sour crumbs to the surface will hit a wall the market can’t bear. Concerns about environmental degradation and social justice loom large in this camp.
When oil reached $147 a barrel in 2007 the Peak Oil folks felt victorious. They also insisted that record high fuel prices, not merely financial chicanery, precipitated the economic crash of 2008. Today fracking, shale oil, and new deep water discoveries have created a glut of supply with significantly lower energy prices. There’s currently a lot of, “We told you so” from the other side.
My view on the subject is colored by my experiences growing up during the oil shocks of the 1970’s and the resulting economic repercussions. Those shocks were caused by geopolitics in the Middle East during the Yom Kippur War of 1973 and the Iranian Revolution of 1979. They had nothing to do with any physical lack of oil in the world – just supply chain disruptions. But those disruptions were devastating to my family in ways that many people don’t necessarily remember clearly today.
My parents had just purchased their first home in suburban New Jersey the year before the oil crunch hit. I was seven years old. Like many young couples my parents had put every bit of their savings into the down payment and were stretched very thin in terms of the monthly payments. Everyone in our extended family was working class with middle class aspirations so home ownership was at the top of the must-have list. New York City was falling apart back then so they drove an hour and a half south until they found a four bedroom fixer-upper on a quarter acre lot in a good school district that they could afford. The house wasn’t perfect, but my folks were convinced that it could be improved over time with sweat equity. Their mortgage was $203 a month. At the time that was a heavy burden relative to their modest income. (Adjusted for inflation that would be the equivalent of $1,153 today.)
We had oil heat like most people in New Jersey back then. A 300 gallon tank in the back yard would keep the house warm for about a month. From early fall until late spring we burned up six tanks on average per year. When we first moved in heating oil sold for 24¢ a gallon. 24¢ x 300 gallons was $72 (or $409 today). That was the number that my parents used when they put together their household budget before buying the house. At the worst point in the oil crisis heating oil sold for $1.20 a gallon. That’s $360 a tank compared to the mortgage payment of $203 (or $2,045 vs. $1,153 in today’s dollars). Think for a moment about your own mortgage or rent. Now think about what would happen to your personal finances if your utility bill unexpectedly became almost double that sum for half the year.
At exactly the same time that our household budget collapsed under the weight of that heating bill, the cost of nearly everything else also rose significantly. Oil is used in the manufacture and transport of just about everything from beef and milk to lawn mowers and toilet paper. As fuel prices rose that additional cost rippled through the entire economy at the precise moment people had the least ability to absorb the increases. Consumer demand for many discretionary items collapsed, people lost their jobs, and the overall result was a considerably lower standard of living. That process played out over an entire decade and did serious damage to my family.
Today most heat in New Jersey comes from natural gas which is cheaper, cleaner, and produced domestically. Problem solved, right? Well… I’m not so sure.
The US still imports large amounts of natural gas and oil from other parts of the world – primarily Canada and Mexico along with Venezuela, Columbia, Nigeria, and the Arab nations. These things are priced in a global market so in spite of the “America is the new Saudi Arabia” talk prices can become volatile based on events in other parts of the world. The Bakken shale oil coming out of North Dakota is priced right along with the oil coming out of that oil rig off the coast of Tasmania. If even a small amount of the global oil supply were to be choked off for any reason (the Strait of Hormuz gets shut down due to war, or the Ras Tanura oil terminal is disabled by terrorists) the price of oil would skyrocket worldwide. Natural gas is harder to transport across the seas so that market might appear to be more insulated than the oil market, but if the price of oil jumped it could cause more of those economic ripples that were so troublesome in the ’70s. If you’re unemployed due to an oil shock and you lose your home to foreclosure it may not help that domestic natural gas remains relatively affordable. Peak Oil doesn’t have to be real for me to be concerned about energy and my household security.
I never ever want to find myself in a similar position as my parents so I organize my affairs as if Peak Oil is a legitimate possibility, regardless of the particulars. Listed below are some of my personal rules. Notice, this isn’t a conservative or a liberal list. There’s no mention of bomb shelters or gas masks or firearms to defend against zombies. Nothing on this list will make anyone poorer or less happy. If life continues to be endlessly prosperous and bountiful no one will be missing out on anything. And by the way, these are all things that our great-grandparents did as a matter of course.
Keep debt to an absolute minimum. Live below your means in a smaller less expensive place than you can actually afford. Get that mortgage paid off entirely as soon as possible. Unless you have six kids you don’t really need a 2,600 square foot house with a three car garage and a bonus room. Think about the debt you will take on for a fancy kitchen remodel so you can keep up with the Joneses – and then think about how nice it would be to not have a monthly payment of any kind instead. The fancy kitchen is fine if you can pay cash, but that old Formica might look a whole lot better in a mortgage free home. If the economy gets funky and you lose the house to foreclosure the bank could end up enjoying those granite counter tops while you pack your bags and move in with your crazy brother-in-law.
Live in a place where you can actually walk or ride a bicycle to all of your daily needs including work, school, the doctor’s office, the post office… This doesn’t mean you have to give up your car or stop driving. It just means you’ll have options and flexibility. And this doesn’t have to be Manhattan. Lots of small rural towns and some older suburban areas still have these qualities. Don’t let the grand double height entry foyer out in the McMansion subdivision off the side of the highway distract you from what’s really important in life. It ain’t chandeliers.
Figure out how to keep the house heated and cooled with the minimum amount of fuel of any kind. Start with the low hanging fruit by adding lots of insulation. Then think about adding modest extra sources of heat such as a small south-facing greenhouse addition or a back up wood stove. If you have the money you could spring for some technological bells and whistles like solar panels, but that’s very last on the to-do list after the cheaper more effective conservation stuff is done. Remember, Denmark is the most energy efficient, most “green” nation on earth with 20% of it’s power coming from windmills, but the other 80% of their energy still comes from dirty old fossil fuels like coal. They just use it very sparingly. First get your household consumption way, way down. Then think about green power to supply what little you do use.
Find cost-effective ways to secure a plentiful supply of water that isn’t dependent on mechanical pumps or distant supplies that you have no control over. Rainwater catchment off your roof is one such option. Water security is especially important for people who live in a desert or a region that suffers from long periods of drought.
Keep a really well stocked pantry to help ride out future difficulties. Mine can make a Mormon grandma blush. Maintaining a well stocked pantry is a sensible form of insurance and a hedge against future inflation, unemployment, or temporary shortages.
Produce useful things. Plant a big veggie garden and some fruit trees. Keep chickens. Keep honey bees. Keep meat rabbits. If you have enough space for a dog, then you have enough space for a couple of small dairy goats. If you’re a vegan pacifist you can adjust by ramping up the garden even more. If you’re a skilled hunter you can fill the freezer with venison.
Cook. (Nuking a tray of Lean Cuisine doesn’t count.) Learn to bake a loaf of bread from scratch. A pot of bean soup is ridiculously inexpensive and dead easy. If your kids will only eat pizza then learn how to make it at home. In fact, teach your kids how to make it themselves as a family project. This stuff isn’t rocket science. While you’re at it learn to sew or knit or do woodworking. These skills can be rewarding unto themselves as hobbies, and you never know when they might actually become necessary.
Get to know your neighbors and build relationships of trust with like-minded people in your community. These associations can be extremely helpful in a crisis. If Peak Oil never occurs you’ve lived a comfortable, affordable, secure life surrounded by good people. How cool is that?