Preparing NYC for Even Higher Prices |
|||||||||
Rising and Falling Oil PricesBack in 2000, oil cost only $30 a barrel. In 2007 it was $70. By the middle of 2008 it was $147. In August, just after many experts predicted oil heading to $200 or $300 a barrel in the next few years, prices retreated sharply, dropping by over 20%. What’s going on? Was it all just a bubble? While financial speculation is playing a role, authorities including the International Energy Agency (IEA) [1]
and U.S. Energy Secretary Bodman [2] agree that price increases are caused by a change in supply and demand. World demand for petroleum continues to rise and already surpasses production. [3]
The change in fundamentals goes even deeper: world petroleum production is increasingly expected to hit a ceiling or peak by 2010, resulting in even less fuel to go around.
The current correction just reminds us that prices won’t necessarily go up in a straight line. As oil prices go up, the economy slows down, worsened by the current recession, triggering other feedback mechanisms. Consumers spend less and cut back on fuel use. As fuel prices go down, speculators sell off oil and commodity investments, lowering prices further still. At some point prices will stabilize and the economy will start to improve, but rising fuel demand will again collide with declining supply, and prices will go up again. [4] In spite of the strong upward trend of oil prices since 2003, there have been dips in price ranging from 10% to 31%. [5] We should prepare for fuel prices, while remaining highly volatile, to soon resume their upward climb. Supplies are LimitedFossil fuels are the legacy of a unique period in geologic history and are not renewable. Oil discovery and production follow a pattern: rising, reaching a peak, and then declining, with 40 years between peak discovery and peak production in a given field or country. Most of the world’s major oil fields were discovered a long time ago, with global discovery peaking in the 1960s. Chevron reports that production is declining in 33 of the 48 largest oil-producing countries. [6] According to BP data, eleven of the top twenty producers have peaked. [7]
In the U.S. discovery peaked in the 1930s and production peaked in 1970. Nearly 40 years later about two-thirds of our oil is imported, mostly from Canada, Saudi Arabia, Mexico, Nigeria and Venezuela. [8] The world uses about 88 million barrels per day (mbpd) of petroleum, and the U.S. uses about 20 mbpd of that amount.How secure are our supplies? Canadian stated reserves are actually oil sands, Saudi reserve information is not public, production from the world’s third largest oilfield, Mexico’s Cantarell, dropped 34% in the last year, [9]
A plateau or a peak? A second viewpoint anticipates a production plateau; a third viewpoint predicts a near-term peak. Both groups agree that the gap between supply and demand is starting, that we’ve used up the cheap oil, and that the remaining oil is increasingly costly to find, extract and refine. The formerly oil-bullish IEA [14] Deutsche Bank and oil companies ConocoPhilips and Total expect production to hit a ceiling at 100 mbd by 2015. [15] Morgan Stanley said oil would hit $150 by July, [16] Goldman Sachs says $200 within two years, [17] and Gazprom’s CEO says $250 within a year. [18] Oil production peak around 2010. The third viewpoint expects a geological peak around 2010 at around 90 mbpd, much earlier than the EIA estimate of 2030. This group includes the U.S. Army Corps of Engineers, the U.S. Governmental Accountability Office, many geologists not working for big oil companies, and Matthew Simmons, founder and chair of the world’s largest energy investment bank. [19] Simmons told CNBC that oil is headed to $300. [20] Dr. Robert Hirsch told CNBC that oil will be $500 within three to five years. [21] Hirsch, the former director of the U.S. nuclear fusion program, is lead author of the Hirsch Report, commissioned by the U.S. Department of Energy, which calls for a national crash program to prepare for peak oil. [22] Formerly a minority viewpoint, imminent peak production is now discussed in the Wall Street Journal, [23] the Economist, [24] Newsweek, [25] and NY Metro. [26] Responding to Permanently Higher PricesTo take appropriate action, it is necessary to understand that the rise in oil prices is not temporary. Whether oil production plateaus or peaks, the gap between supply and demand will keep growing, leading to continued price and supply volatility and price increases. Everyone recognizes that our dependence on oil imports is a security risk that leaves us vulnerable to future price increases and fuel shortages. False solutions, such as more drilling, wastes valuable time and resources necessary to make the inevitable transition beyond oil. Delays will make the transition more painful. Only by acknowledging the full scope of our energy dilemma will we be able to generate the broad public support to buckle up our seatbelts before we hit the potholes ahead of us. Media and government officials should connect the dots and openly discuss how New York City can prepare for much higher oil prices. Since we can’t lower oil prices, and since the supply of oil is finite, we must lower oil use as fast as possible. We can use the price increases to accelerate the necessary processes of conserving, increasing efficiency, and using energy-smart technology. Effective solutions will also enable us to rebuild a sustainable economy and mitigate climate change. Focusing on higher fuel prices will boost climate change response. Scientists say we must sharply cut carbon emissions from fossil fuel use to slow climate change. In fact, many say that climate change is accelerating, [27] and we need to cut emissions 80% by 2020, not 2050. [28] Because growing public awareness has not led Americans to perceive climate change as urgent or to translate its long-term risks into short-term decisions, [29] initiatives based on the threat of climate change are seen as optional and are resisted locally and nationally. On the other hand, everyone has to cope with higher fuel prices and responses to higher fuel prices have become a top political priority: 42% of Americans view dependence on foreign oil as our top national security concern – tied with terrorists obtaining nuclear materials. [30] Sustainable energy policies that deal with all three issues will get the broad public support that climate change needs but can’t get by itself. [31] Understanding higher fuel prices will build support for PlaNYC. PlaNYC, Mayor Bloomberg’s long-term sustainability plan, is an excellent start; however, drivers unwilling to pay $8 to drive into Manhattan blocked congestion pricing, its key transportation initiative. When congestion pricing is re-introduced, the rationale should be the necessity of its revenues to pay for the expanded bus and subway service which will enable the City to function as gasoline prices continue to rise. Likewise, other sustainability initiatives seen as inconvenient and expensive will be more popular when shown to help mitigate impacts of expensive fuel. Budgeting for higher energy costs. Sierra Club NYC has urged City officials to convene an Energy Price Task Force to study future energy price and supply scenarios, as has been done by San Francisco and Portland, Oregon. NYC Councilmember Tony Avella (D-Bayside) has requested the drafting of legislation to set up a Task Force, but business and civic leaders, planners, and advocates need not wait to consider the indirect effects of higher fuel prices and to start planning short- and long-term responses. Identifying vulnerabilities and mitigations now can minimize the impact of higher prices on both public and private budgets. The everyday practices and decisions which made sense when oil was $40 a barrel will become unworkable if it goes to $250. Budgeted costs not only for gasoline and diesel, but for electricity, [32] asphalt, [33] concrete, steel, water and other commodities, should be re-examined. Since many airlines are going out of business from high fuel costs, we might consider redirecting funds from expanding airports and highways to re-building energy-efficient railroads. [34]
Updating PlaNYC with contingency plans for price spikes and fuel shortages. Addressing fuel depletion is not just rhetoric. The 1973 Arab oil embargo generated effective national responses [35] but as many Southeastern municipalities discovered after Hurricane Katrina, state and federal government agencies may not be able to provide replacement fuel during fuel shortages. We should have plans to deal with price spikes or shortages of motor fuel, heating oil and/or natural gas, whether caused by the collision of economic growth and geological constraints or political turmoil, such as an attack on Iran closing off oil shipments through the Straits of Hormuz, or disruption to the flow of Caspian Sea oil via Georgia’s BTC pipeline. In 2004 the NYC Council considered but didn’t act on an energy shortage contingency plan that would set up stages for emergency responses and procedures to quickly cut energy use. [36] Recent City sustainability initiatives such as PlaNYC will have gradual effects and don’t address emergencies, and the NYC Office of Emergency Management has no plans either. [37] Some branch of City government should anticipate fuel disruptions and tell people how to respond. Plans should address movement of people to and from work, food stores, and emergency facilities, movement of goods, especially food and medical supplies, operation of emergency service vehicles, accessibility, distribution and security of available liquid fuel sources, public health, i.e., winter heating, summer cooling, and fuel for hospitals. [38] Measures to quickly reduce transportation fuel use have been compiled by the IEA and the engineering firm Parsons Brinkerhoff. [39]
Next steps beyond PlaNYCWhile building support for PlaNYC, we need to simultaneously push discussion far past PlaNYC goals and start building a post-petroleum economy now. To make clean energy cheap, we’ll have to restore domestic manufacturing, which will create millions of green jobs that can’t be outsourced. NYC, as a financial and media center, can leverage national progress. Following are some recommendations from “Sustainable Energy Independence for NYC,” a report from Sierra Club NYC at www.beyondoilnyc.org. Increase Local and Regional Food Production. Food in the U.S. travels on average between 1,500 and 2,500 miles from farm to table, using lots of fuel not only in transportation but to produce fertilizers and pesticides, pump water, process and refrigerate. We should expand farmers markets and encourage backyard food gardening in cities, suburbs and rural communities. However, to provide affordable food for NYC, we’ll have to rebuild New York State’s agricultural capacity and upstate economy. Farmers should be supported with financial incentives and training programs. NYC institutions like schools and hospitals should be required to purchase a substantial percentage of their food from within New York State. [40]
Scale up solar and wind power. New York State just expanded net metering, which allows homeowners and businesses with solar photovoltaic systems to sell excess electricity back to their local utility. This will encourage greater investment in renewable power technology and will also attract renewable energy manufacturers and installers to New York State. NYC now has 12 megawatts (MW) of solar power installed. We should raise it to 2,000 MW by 2017. Next steps include distributing smart/time-of-use meters, raising the NYS Energy Efficiency Portfolio Standard to 30% reduction of 2006 electric and gas usage rates by 2015, and accounting for energy volatility in the revision of the State Energy Plan. Solutions – and Dead EndsMore drilling, and other dead ends. Right now, many Americans believe that lifting the ban on drilling in ANWR and the moratorium areas of the Outer Continental Shelf (OCS) would lower gasoline prices John McCain says that “we need to drill here and we need to drill now," [41] suggesting this would offer relief from high gasoline prices “within a matter of months." [42] U.S. Energy Information Agency data reveals this is completely false.
Focus on real solutions. Fortunately, we already have technologies and policies that can respond to both climate change and fuel depletion. To implement them, we must build massive public demand for bold and aggressive changes in energy policy, sufficient to overcome the resistance of the deeply entrenched economic interests benefiting from the unsustainable status quo. We’ll have to use existing transportation as efficiently as possible, build as much mass transit and rail as we can, and power them increasingly with electricity. Unlike coal and nuclear, the renewable power sources of solar, wind, tidal and geothermal don’t pollute, can be scaled up in an economically practical way, and can be plugged into a stable, decentralized national grid. Change the energy conversation. Many still hope for new oil field discoveries or a new miracle technology to bringing the price of oil down to long-forgotten levels. What’s more likely is that fuel prices and supplies will be increasingly volatile, business as usual will cease to be an option, and we’ll be compelled to move beyond oil. Low carbon ways of living charted by climate change advocates and green business entrepreneurs, previously dismissed as too visionary, are rapidly becoming accepted as pragmatic and politically possible. A critical mass of citizens will recognize that we must fundamentally adapt and evolve. After Pearl Harbor, America realized the world had changed, and we collectively transformed ourselves to meet the challenge. Great changes are again both necessary and possible. [53]
The most important change is not the light bulbs or the cars we buy, but in our energy conversation. Recognize that we must leave oil before it leaves us, and spread the word.
References 1. “Market hits more record highs despite a lack of fresh news,” Platts, June 30, 2008, http://www.platts.com/Oil/Resources/Futures/index.xml; ; “Peak Oil: IEA inches towards the pessimist’s camp,” Wall Street Journal, July 1, 2008; 45. “The cruel offshore drilling hoax, part 1,” Joseph Romm, Grist, July 11, 2008, http://gristmill.grist.org/story/2008/7/10/142042/915 |
|||||||||
|
|||||||||