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"Market forces will balance out oil consumption. As supply diminishes prices will rise and creat new equilibriums. Production will increase because it is economical to use more expensive extraction methods." --Cynicalkh
What you describe is Natural Resource Economics 101, straight out of the textbook. This may indeed come to pass, as it has with oil in past energy price spikes--when recession followed, a supply glut ensued as demand was destroyed due to recession. This time, one of the main differences is China and India coming on-line to dramatically increase demand, but of course they won't be spared from an energy-induced global recession should this come to pass.
Finaly, although it may indeed become more "economical" to use more expensive extraction mehods (i.e. tar sands, deep water drilling) this does not decrease the COST to the end user. This makes energy consumption more expensive to all and could possibly result in a lower-energy future if alternatives cannot come on-line fast enough to fill the low-cost void created by the end of cheap oil.
The Toronto lurker is back! and I get to be first to post!
I started reading Kunstler last week and his stance is not surprising given his views on city planning.
We think that Peak Oil is real, and either is happening now or will in the near future (yep, could be 2007 or 2008 too) Hence our choice of a centrally-located home on the subway line that we've upgraded with high efficiency furnace and soon some extra insulation in the attic. With a new job in the downtown core of Toronto and a monthly public transit pass for me, we've started a new game in our household: how many days can we go without filling the gas tank? Last fill-up was last night and it had been 24 days since the prior fill-up. Folks in the suburbs don't really get to join me in this game since they'd have to hike 2 km to the nearest convenience store (do such things exist in the 'burbs?). (Come on, bloggers, challenge my record in the coming threads! :-) )
Too bad I can't do much about the rise in the price of other stuff (food, heavily produced with oil inputs like fertilizers and mechanization; overall base heating costs, etc.) though we'll be putting in a garden soon.
We think that the 905-area code suburban ring of real estate around Toronto will take a bigger hit than the city core when real estate corrects. That said, I did spend 3 weeks in Washington D.C. and the surrounding Virginia and Maryland suburbs (Leesburg, Arlington counties, etc.) and was astounded at how the buildings were so loosely packed. They stand a real chance of emptying out in a prolonged energy crisis coupled with a real estate bear market. Makes a Toronto suburb look like a dense city. You guys are in a pickle where city planning, gasoline use and commute times are concerned.
I'm no expert on James Kunstler, but I find his "Clusterfuck Nation" posts too gloom-and-doomish for my tastes. Though I do agree with his basic assessment of peak oil (we're near it) and American and global current oil/gas consumption trends (unsustainable), he pretty much pooh-poohs the idea that alternatives can be developed in time or that the market can adapt to post-peak oil. He also assumes that pretty much ALL of the post-peak oil adjustment will come in the form of less consumption and a tremendous drop in the Western standard of living.
These assumptions may or may not turn out to be true (who can predict decades from now with perfect accuracy?). Even so, he paints with overly broad strokes and basically declares "not gonna happen" without much data to back it up. What's also missing from his pessimistic tomes is the acknowledgment that as oil/gas prices continue to rise, alternative forms of energy become viable --politically as well as economically (tar sands, nuclear, wave, wind, solar. etc.).
I believe that the west is due for a rude awakening --if not from peak oil, then certainly global warming. Even so, I am not so presumptuous as to bet against human ingenuity or adaptability. There are any number of ways that the End of Oil may play out and Kunstler's is only one --and one of the most pessimistic.
"You guys are in a pickle where city planning, gasoline use and commute times are concerned." --TOLurker
This I agree with. I actually think that perhaps the most important point that Kunstler makes is "why has America made so little investment in rail transit, both for public transportation and goods transport?" This is a very good question because it is obvious that our current highway-based infrastructure is relatively inefficient. Well, worst case scenario as I see it is we can get construction crews out there laying down rail on existing highway lanes in a New Deal like program. If a depression got bad, that would give us jobs to do to put food on the table.
"What’s also missing from his pessimistic tomes is the acknowledgment that as oil/gas prices continue to rise, alternative forms of energy become viable –politically as well as economically (tar sands, nuclear, wave, wind, solar. etc.)." -- HARM
Totally agree. And don't forget all of the efficiency gains we can make coupled with conservation. I also think he is way too much of a "Doomer," especially when he somehow connects the Peak Oil phenomenon to total financial market meltdown. He may be correct that energy shortages can/will dramatically slow economic growth AS WE KNOW IT TODAY, but he does not take into account the kind of economic growth that comes from increased efficiency and productivity gains.
Peter P
2006 Feb 6, 4:09am
Market forces will balance out oil consumption. As supply diminishes prices will rise and creat new equilibriums. Production will increase because it is economical to use more expensive extraction methods.
However governments will try to socialize the true cost in the name of a "price relief". This way, we will still have a stable disequilibrium.
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James Howard Kunstler has recently equated Peak Oil as a contributing factor to the decline of the Housing Bubble. In one of his Blog entries of a few weeks ago, he writes the following:
"You can only introduce so much perversity into an economic system before distortions cripple it. From 2001 through 2005, consumer spending and residential construction had together accounted for 90 percent of the total growth in GDP, while over two-fifths of all private sector jobs created since 2001 were in housing-related sectors, such as construction, real estate and mortgage brokering. Much of the money spent did not really exist except as credit -- incomes as yet unearned, hallucinated liquidity, wished-for wealth, all based on the expectation that house values would continue to rise at 10 to 20 percent a year forever. It became a reckless racket, all predicated on sustaining an economy that had lost its other means for generating wealth -- foremost its infrastructure for making things besides suburban houses.
This housing bubble economy represented, holistically speaking, the wish to maintain a sense of normality in American life, under conditions of disintegrating normality, and it is no symbolic accident that it centered on the images of hearth and home, because fundamental comforts were what many Americans actually stand to lose in a reality-based future. The decay of standards and norms in banking behavior applied-to-housing started, as in the case of the proverbial rotting dead fish, at the head, the federal reserve, and infected every lowly loan officer through the body until, in effect, lending standards ceased to exist.
The suburban housing bubble and its related activities were predicated on the idea that we could continue building out a living arrangement dependent on cheap oil and methane gas, and that all the subdivisions and strip malls would retain value for decades to come. Of course, this was the central delusion of the suburban sprawl economy, because it was obvious to anyone who gave the situation more than a cursory glance that cheap oil and gas were the things we were least likely to have in the decades to come.
This reality had begun to penetrate the American collective consciousness and will be represented in 2006 by millions of individual choices to not buy a new suburban house, either because the individuals fear the expense of long commutes or they fear the cost of heating a 4000 square foot house occupied by only a few people (or both). As the inventory of unsold new houses mounts up, the prices of all houses, new and old, will start to go down. There will be enormous psychological resistance to this reality, expressed in a lag of correct pricing, as the owners of these value-shedding "investments" wait for the bubble behavior (anticipated 10 t o20 percent asset appreciation) to return. Eventually they will get the picture.
The velocity of change in the housing bubble (and the psychology involved) will be greatly affected by oil and gas prices. It seemed to many of us watching the energy markets that the world may indeed have passed through its all-time oil production peak in 2005. Production in 2005 was nearly flat over 2004. The world was producing and also using roughly 82 million barrels of oil a day. "
So what do you all think? How real of a phenomenon do you think Peak Oil is and how much does it relate to the energy price spikes of this past year? Will it have a real effect on the housing bubble and is it indeed a harbinger of decline as Kunstler suggests above? Is it likely that we're on the path toward a lower-energy future? Is high-density centrally-located housing the wave of the future?
#housing