Regardless of what's causing the rise in gas prices, America and the rest of the world are going to have to be prepared for the following possibility. When the World's oil supply reaches depletion stage, Alternative energy sources may not be a feasible option for running Western Civilization at American standards of living. The American economy itself may have to restructure itself to make America less dependent upon cars.

When the World's oil supply reaches depletion stage, the poor countries may find themselves locked out of access to oil. At this point, Western Countries may face economic depression but things will be worse for the poor countries since much of the World's food production depends on oil. Right now, increased demand by the Big Countries like China, India, and America is what's helping to increase the price of oil. Much of that oil is being used for cars, airline travel, and things that would be considered luxuries in the poor countries. What bothers me is the possibility that many people could starve while the world's remaining energy supplies are used to support relatively luxurious lifestyles by middle class and rich people in the rich countries.

For the Debate,
When the World's remaining oil supplies approach depletion stage, how should the remaining oil supplies be distributed?
1. Let the Highest bidding countries get the oil?
2. Have OPEC set a limit to the amount of oil each country can buy?
3. Let the Industrialized Countries settle this with their armies?

This is a tough problem with no easy answer. If the World goes for Option 2, everyone can have food to eat but every person would have to live at a very low standard of living with little electricity, no A/C, no hot showers, etc. I'm opposed to Option 3, but politicians in Europe and America are not anxious to have America leave Iraq precisely because of the oil issue. And Option 1 already presents the dilhemma of a precious resource being used to support a rich person's luxury instead of being used to feed people.

There is plenty of oil in the ground in various forms. As the price rises two things happen. People us less and other forms become economically viable. We will never run out of oil - EVER.

Alberta sits atop the biggest petroleum deposit outside the Arabian peninsula - as many as 300 billion recoverable barrels and another trillion-plus barrels that could one day be within reach using new retrieval methods. (By contrast, the entire Middle East holds an estimated 685 billion barrels that are recoverable.) But there's a catch. Alberta's black gold isn't the stuff that geysered up from Jed Clampett's backyard. It's more like a mix of Silly Putty and coffee grounds - think of the tar patties that stick to the bottom of your sandals at the beach - and it's trapped beneath hundreds of feet of clay and rock.
This petroleum dreck is known in these parts as heavy oil, and wildcatters are determined to get it out of the ground and into a pipeline. If they succeed, the stereotypical oil zillionaire may be not an Arabian emir but a folksy Albertan fond of ending sentences in a question, eh? Like Jim Carter, president of Canada's largest oil company.
Better yet, recent improvements in mining and extraction techniques have cut heavy oil production costs nearly in half since the 1980s, to about $10 per barrel, with more innovation on the way. The petroleum industry is spending billions on new methods to get at the estimated 6 trillion barrels of heavy oil worldwide - nearly half the earth's entire oil reserve. Last year, Shell and ChevronTexaco jointly opened the $5.7 billion Athabasca Oil Sands Project in Alberta, which pumps out 155,000 barrels per day. Venezuela's Orinoco Belt yields 500,000 barrels daily, and that number should spike when a new ChevronTexaco plant goes online this year.

http://www.hotwired.com/wired/archive/12.07/oil.html

Ted, your discussion of tar sands in Canada reminds me of the hyperbola that surrounded oil shale development in Western Colorado and Eastern Utah circa 1980. That is, it is a vast resource but surrounded by difficulties when extracted in hugh quantities. To be sure, tar sands (and the heavy oils in Venezuela and elsewhere) are now economic to produce in moderate volumes where oil shales are not. My understanding from a symposium I attended this year is that production costs are in the $20 to $30 per barrel range not $10. You are correct in stating that some more efficient technology has been proposed but it has not been proven in any production level. The bigger question is whether large scale production can be sustained environmentally. Wikipeda's discussion is fairly objective on the subject. (Athabasca Oil Sands).

(Economics).

(Environmental Impacts).

I agree but the fact that the oil companies have been pouring billions into it tells you they feel there is cost effective potential there esp. as prices rise.

“The petroleum industry is spending billions on new methods to get at the estimated 6 trillion barrels of heavy oil worldwide - nearly half the earth's entire oil reserve. Last year, Shell and ChevronTexaco jointly opened the $5.7 billion Athabasca Oil Sands Project in Alberta, which pumps out 155,000 barrels per day. Venezuela's Orinoco Belt yields 500,000 barrels daily, and that number should spike when a new ChevronTexaco plant goes online this year.”

We really need to move to nuclear, wind and solar but the with everything taking decades to get funded and past the environmentalists, and NIMBY groups I am not holding my breath.

You are right that we will never run out of oil. But at some point, it will take more energy to pump the oil out of the ground than the actual amount of energy in the oil. This would be very un-economical for oil companies to do, which is exactly why the world will not run out of oil.

Now, the fact remains that the world cannot continue pumping 82 million barrels/day forever. The odds of a house owner in Alberta finding a Prudoe Bay in his backyard is very small indeed. At some point, the world's oil production has to start declining. If the annual decline is small, then the Free Market will have enough time to build the infrastructure for things like Solar Energy and Wind Energy and Nuclear Energy. If the annual Decline turns out to be much steeper than the Rise, the other forms will not be economically viable.

So to Ted and TedN5, if the Production Decline turns out to be much steeper, should the World's governments go with Option 1, Option 2, or Option 3?

Option one will be the fairest option for all. In fact, it would most likely be the one most beneficial to the third world countries.
Africa has experienced this in telecommunications. Because they are so late in their development, some countries have been able to completely bypass the costly hardwire roll out of conventional phone systems by going wireless from the start.
This has resulted in huge capital savings wherever it has been implemented.
The fuel distribution systems in the third world are rudimentary, and when oil production declines, they will be the first to opt for alternatives rather than plunging capital into upgrading a legacy fuel distribution system.
Isn't that precisely what happened in Brazil? They have turned almost exclusively to alcohol as auto fuel due to their lack of domestic oil production and availability of Sugar Cane. (And let's not forget the impact of American import duties reducing the value of sugar exports. The law of untended consequences strikes again!)
Prices are the fairest way to "distribute" goods and services.
First adopters of technology pay for the startup cost of production, allowing prices to drop later for the rest of us. PC computer gamers highly value fast robust computers so they can have a better video game experience.
They will pay $6,000 to $10,000 for a machine that you or I could buy new for $2,500 simply by waiting for about a year. Would it be better for me if Dell allocated X number of gaming computers for poor gaming enthusiasts like me, or to allow distribution based on market prices? Is the Dell pricing system unfair?
Before Florida imposed price controls on roofing services, it would be rare for anyone to suffer through winter without a roof after a hurricane.
The high demand on limited roofers caused them to allocate jobs by price... those who were willing to pay more got their roofs done first. The high initial profit margins provided capital to the roofers, enabling them to invest in tools and equipment making them more efficient. They would offer higher wages to recruit more workers to do this dangerous and arduous work. It also drew roofers from neighboring states to capitalize on the high demand/high profits. All of this worked together to increase the rate that the necessary work was done.
The Florida legislators, alarmed at the high price of goods and services after a weather event, stepped in to "help the little guy" and "put a stop to gouging".
They decreed that goods and services cannot be charged above a certain percentage from before the crisis. No more were homeowners and their insurance companies gouged by roofers, but neither did they get new roofs.
Unable to charge market prices, capital wasn't created to buy equipment and expand the pool of local roofers. Unable to realize attractive enough profits to justify leaving a thriving business near home and family, roofers in neighboring stated didn't bother to fix Florida roofs.
Result? Some houses in Florida have waited more than two years for a roof. Aren't you glad that Florida politicians are looking out for them?
Like oil, copper is a world market commodity. In early May, copper was sold on the open market at $4 a pound. Copper is the best metal for conducting electricity, after silver. Because of the vast infrastructure growth of India and China, (population 2 billion) demand for copper has been much higher then at any other time in history. But recently, copper has experienced a sharp decline. In the past, copper would run up, new copper mines would open and older marginal mines would open, satisfying demand. But that had all happened last year in copper- there were no new mines... What happened to make the price of copper fall? At $4, substitutes were found, like aluminum. But the biggest shift was due to recycling! $4 copper was enough of an incentive to bring to market the equivalent of a brand new mining operation. Recycling became worth doing at these prices, when it wasn't worth the trouble before.
Prices sent a message to those who had old copper lying around that they could profit from the effort of recycling it, and helping to fill the need of those who wanted it. Prices sent a message to copper users that they might be able to find an adequate substitute for a cheaper overall cost.
So it is with oil. The market, if left to itself, will transition away from oil in a majestic way that no one will be able to predict, but we will all marvel that we didn't think of it ourselves afterwords.
The open market is far more efficient and fair at allocating scarce resources.

I have written multiple posts on Peak Oil (yes, I believe it is near), on energy alternatives, and on the environmental consequences of different alternatives. I believe a solution to each is intimately connect to the others. Any alternative that adds to greenhouse gas releases like tar sands, heavy oils, and oil shales is problematic at best. New nuclear reactors are better than new coal fired plants for the same reason. However, I do not think new electrical generation plants of any type are needed. They don't add to transportation fuels which will be the main shortage. They are also economically uncompetitive with improvements in energy efficiency if both are properly incentivised to reflect external social costs. As much as 2/3rds of electricity used today could be eliminated with further improvements in end use efficiencies. Efficiency improvements could go a long way in resolving the transportation fuel issue as well. In fact, I think we could reduce petroleum use as fast as production declines if we really focus on it. When it really gets scarce, we should be able to manage our reduced needs with bio fuels and alternatives like wind, solar, wave, and tidal generation. Some of this production may be use to generate hydrogen to run super efficient vehicles using fuel cells. Once again I refer interested parties to the RMI.org sites and the link to Winning the Oil End Game which is a comprehensive study pointing out what is possible with current technology.

That's what I think should happen. What I think will happen is that we will go through more resource wars, mass starvation, and possibly irreversible climate change before we adopt a comprehensive solution.

Here are our proposed options:

1. Let the Highest bidding countries get the oil?
2. Have OPEC set a limit to the amount of oil each country can buy?
3. Let the Industrialized Countries settle this with their armies?

Option 1 is what is currently being done. We'll leave that aside and determine whether or not either of the other two options are better.

Option 2: limiting the amount of oil per country. A rationing scheme, in essence. But who would enforce such rationing? OPEC? Canada? Russia? What is missing here is a price mechanism. If the price level is set in the same way as option 1, then there is little difference. If there is a price cap, then we will see a black market of oil. Would there be an advantage for oil suppliers to limit their income by capping prices when other, richer countries will pay more for the oil? Not likely.

Limiting supply in richer nations who are willing to pay more will drive end user prices even higher. Shortages will be severe in the richer countries, probably causing rioting and gas wars locally.

Option 3: the fall back position if the free market isn't allowed to work.

My daughter asked me the other day why countries fight wars. I told her it was the same reason that lions fight hyenas and red ants fight black ants. The answer is limited resources. (I explained that other wars are fought over ideology, but throughout the years, the drive for resources has fueled the majority of wars).

If the supplies of oil are unfairly (a subjective measurement if there ever was one) doled out, then war will certainly be the result. Since it is a virtual guarantee that not everyone will feel the allocations are fair, this is a virtually certain outcome of option #2.

So neither Option 2 nor Option 3 are superior to the (current) Option 1. We should stick with Option 1.

All three options present the danger of global collapse in some form or another. When you boil it all down, we do not even need oil. Brazil is already a quarter of the way there of being totally oil-independent thanks to corn ethanol and are drafting plans to complete the transition at some point in the near future.

Since that is not the point of the debate, however, I would have to say that Option One presents the best outcome assuming that the countries controlling the last oil reserves do not tap into them for themselves and tell the rest of the world to simply go away.

The first option is not the cleanest, but when I think it through I assume that the richest counties who would be capable of buying the last drops of oil would be the ones in the most desperate need. Capitalistic and industrialized nations need oil, let us face it. It will take a devastating depletion to get them to see otherwise and they will do everything in their power to maintain their dependence on oil as long as it takes.

The countries get their oil, life goes on for a short time. When the oil runs out, it will be up to them what happens. But no matter how you boil down the situation and regardless of the option you pick, the same outcome will be reached in some fashion or another.

It may turn out that the US will be in a bad position to pursue option 1 given its accumulating foreign debt to which additional higher prices for imported oil will add. I don't think oil producers will be interested in our IOUs and financial services in a world of declining oil production.

OPEC rationing is unlikely but individual countries are making deals with big oil consumer nations. World wide rationing might be the best temporary solution in a real crisis in the unlikely event that an international agreement could be reached. Such a scheme would have to apportion oil by real need and not by past consumption patterns. (Driving the SUV to pick up a quart of milk would be out while fixating nitrogen for farming would be accommodated).

Option 3 is really what we're about in Iraq. What else do you think the 14 "enduring bases" and billion dollar embassy are about? Given our lack of success in Iraq and in the maneuvering against Russia and China in Central Asia, this option may become less viable as well, particular if the dollar starts to erode.

That problem isn't going to happen. It is a fairy tale or nightmare depending on who you are talking to, but it is still only fantasy.

There are several different directions this is going to go.

1) Oil Shale -- Through this we have more oil than any one of the middle eastern countries. It would take oil prices staying over 75 dollars a barrow to make this profitable and companies would have to get through the time period for doing the environmental studies for mining it. A large chunk of US's government reserves are based on oil shales. If we needed to we could be producing our current rate of oil within a decade. This is already an established technology. The only time needed is to build the facilities and make the mines.

2) Conversions of biomass -- Above 90 dollars a barrow for oil a refinery could produce oil with only a minor expansion of their facility. They need to dedicate a couple room fulls of equipment to boil down the biomass into more basic substances such as tar, crude oil, and natural gas. They have most of the equipment needed in the refinery to do this. If the government were to setup a program to provide the transportation of the feedstock this could be done in a couple years to reach current capacities at current technology.

3) Ethanol - At current technology this isn't quite ready. The industry needs to switch entirely to cellulose in order to get the required volume. In another 15 years this should be a realistic option.

4) Pyrolytic liquid fuel - this is another biomass solution. We would have to trash all of our current vehicles and switch to a different type of engine. Pyrolytic liquid fuel is the only solution that is less expensive than current gasoline. Depending on how it is made, it could be more smelly than some diesel fuels. But as burnable fuels go, this stuff is cheap. What it simply is is heating up biomass without the presence of oxygen and draining the fuel. It is a short dirty version of biomass to oil conversion. And it produce 95 units of energy for every 5 consumed. Any solid left over are good a good replacement for coal.

All of thee above take less energy than what is produced.

There are a number of other solutions. The point is, we can use the other alternatives quite quickly.

I was intensely involved in the last round of oil shale promotion so I know a good deal about the resource. It is a vast resource but dilute. In 1980 a 400,000 barrel per day industry would have had to move as much material as 1/4 of the entire US coal industry. There were also very serious environmental concerns with air quality impacts locally and in nearby wilderness areas. Also the availability of sufficient water in this arid region was seen as a limiting factor as was the impact on water quality. Shell's piloted insitu process offers some potential improvements in both the economics and environmental impacts but would still be very environmentally damaging if a multi-million bbl/day industry were established. With todays interest rates surface retorting would have costs of $70 to $75 per bbl, in situ has been estimated at $25 to $30 but could easily increase substantially as the technology is scaled up. Both cost figures are highly sensitive to interest rates since the technologies are capital intensive and would probably also be sensitive to the rising price of energy generally since their energy out to energy in ratio is low.

The other limitation on the development of oil shale (and tar sands and heavy oils) is the added release of greenhouse gases. Much more CO2 is released than in conventional drilling and pumping oil. In a world with a global warming crisis at hand, we simply can't allow ourselves to develop another major industry that would overwhelm efforts to control greenhouse gas release.

Your other alternative have problems too but I will leave them for others to discuss.