Transitioning away from declining petroleum production


While we are not in the habit of frequently firing out news articles, there are three relatively recent articles that strike home the fact that conventional oil production is inescapably on the verge of declining (if it hasn’t already). The first is an admission by none other that the Wall Street Journal:

… listen to warnings about a different crisis that is looming and that could cause massive disruption. A shortage of oil could be a real problem for the world within a fairly short period of time. It was unfortunate for the [Industry Taskforce on Peak Oil and Energy Security] which chose to point this out yesterday that they should have chosen to do so on the day the Organization of Petroleum Exporting Countries, or OPEC, reported that the effects of the financial downturn had led to a slight downgrade in its forecast for oil consumption this year.

According to Philip Dilley, the chairman of Arup, the consulting engineers: “We must plan for a world in which oil prices are likely to be both higher and more volatile and where oil prices have the potential to destabilize economic, political and social activity.”

The next surprisingly candid article (given the source) is about scientists at Kuwait University and the Kuwaiti Oil Company;

Predicting the end of oil has proven tricky and often controversial, but Kuwaiti scientists now say that global oil production will peak in 2014.

Take Mexico as just one example. The nation that has long represented a top oil exporter has experienced plummeting oil production, and might even begin importing oil within the decade.

Already we are seeing signs that $80/bbl oil prices are changing how far goods are moved. From SupplyChainManagement.com;

The move toward “near-sourcing” is underway. Also called “reverse globalization” or “shortening the supply chain,” near-sourcing describes the return of American manufacturing in order to decrease shipping expenses. As freight costs remain high, globalization has become less competitive and is expected to remain so for the foreseeable future.

Historically, cheap gas fueled globalization. It enabled companies from all over the world to shop globally for cost-saving business solutions…fuel has been 15 percent of carrier operating costs. Today, it is estimated to be substantially over 40 percent…the cost of transporting imported goods into the United States is now equivalent to a 9 percent tariff on imports.

So the WSJ has caught on to the timeframe and risks associated with peak oil, and even a major OPEC exporter is telling us it is breathing down our neck. With shortening supply chains, transitioning goods and services back to local sourcing will provide a lot of opportunities for employment and new businesses.

In future articles, we will discuss in greater detail what we can do to plan and implement such a transition.

Will Stewart

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