Monday, November 15, 2004

What is Peak Oil?

In the coming months and years, you're going to be hearing a lot about this term. Peak oil is the term given to the belief that in the near future, world oil production will peak, followed by a steady, or perhaps dramatic fall in production. The result will be extremely high prices. And that could have drastic consequences for the American economy, and the American car.

To get a cursory introduction to peak oil, you should google those two words.

Websites will come up, and unfortunately, many of them are extremely melodramatic. Some will argue that this will lead to an end of civilization. It won't.

But it will be tough times.

Before I continue, I want to make clear what I view peak oil as, and why I think it is real. A man by the name of Marion Hubbert in 1956 predicted that in the early 1970s, the US domestic production of oil would peak. Many thought he was wrong, but the early 1970s came, and indeed, American domestic oil production did peak. It has since declined, even with new field finds, and the potential of the Alaskan oil fields. This has made us increasingly dependent on foreign fuel.

If we use Hubbert's methods, which are somewhat complex, and not completely understood by me, on world oil production, we can determine that sometime between the year 2004 and 2008, world oil production will peak.

We've seen various geographic areas of the world already peak. Some of these oil fields show sharp declines in production, others less so. No one knows how rapidly the world will decline.

THIS DOES NOT MEAN WE WILL RUN OUT OF OIL. It does mean that oil will get very expensive.

What does this mean for the automakers in the US? It means that they should prepare for the worst, and start designing vehicles that are fuel sippers, not fuel guzzlers.

This isn't a liberal rant trying to get people to pollute less. I am in full support of diesel cars, that get great mileage, but make a lot of pollutants.

I do think however that big SUVs are soon to be a thing of the past. And quite frankly I'm for it. There's been a bit of research that shows they aren't as safe as cars, they have similar, not greater cargo space, and they block my view of the horizon. Ok the last part was selfish, but SUVs do consume a great deal of fuel. Let's let businesses that really need them get tax breaks, but for regular joe who uses a V8 to go 10 blocks for his morning coffee be forced to downgrade to a perfectly adequate great sedan.

So I welcome my readers to educate themselves on Peak Oil, and what it might mean to them. I also ask that they not panic, but if clever, invest in car companies that are prepared to deal with the issue, by making high quality small cars.

GM is not one of those companies, though the Cobalt is a step forward. Ford is getting the idea with its hybrid Escape. The Chrysler Group might benefit some from people dropping SUVs for the 300c, but their small cars and medium sedans are hardly competitive. Honda, Mazda, and Toyota are staking a claim.

I really believe the first car company to come out in the US market with a cool looking two door hatchback that is reliable and not overly expensive like the MINI is going to make a lot of money. The MINI sells incredibly well, but it's still a fringe market kind of purchase. When oil prices continue to rise, cars like it are going to sell like hotcakes. And trucks like the Surburban are going to sit quietly on dealer lots.

So expect more writing on this topic in the future. In the next few days I plan on updating my link list and adding some websites that write about Peak Oil. Believe it or not there are many conservatives, as well as liberals who believe in Peak Oil, so this goes beyond being a one sided issue. I welcome input from my readers on this topic as well...

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