Wednesday, September 14, 2005

The view from the peak

People sometimes mistake the peak oil issue for the question of "when will the oil run out." The answer is effectively, never. There will always be some theoretically extractable oil in the ground - how much depends on what we can afford to extract.

We're on the way down from the peak, or will be very shortly, and the ride down is a lot bumpier than the ride up was. But it doesn't look like all of the oil suddenly disappearing - it shows up as inflation, unemployment, poverty. It looks kind of like this - suddenly, we're making choices we never thought we would have to.

Just as an example, near me there's a family that sells organic, grass fed beef. They don't make a ton of money - their annual returns pay the taxes and give them a buffer. They do other work - cut hay, substitute teach in the winter, etc... But they sell wonderful meat, sustainably raised, without the hormones and the other crap, and they do ok. But I don't have a lot of hope for their future, because it is predicated on a healthy economy, and people being able to pay what their food is worth, rather than the artificially low prices that supermarkets offer.

The thing is, their costs are higher because they truck their beef to a small packing house they trust and have it butchered there, and then sell it back to the consumer. They keep it in their freezer, and pay regular electric bills for it. They have to buy some hay now and again, and pay their vet bills - and so do the industrial farmers. But because they have 70 cows, not 2000, they don't have the economies of scale. Feeding their animals on grass instead of cheap corn means that it takes longer to raise them, and the investment is comparatively

In the industrial model, economies of great scale absorb most of the cost of the automated killing system, the energy costs of refrigeration at the time of slaughter and during aging, in the truck on the way to the supermarket, in the supermarket. We all barely notice that we pay the cost of lighting, cooling or heating the supermarket, the cost of employing the butcher (which is in part a fuelcost - you have to pay him enough to drive to work from the next suburb over, and to heat his house with oil.) The handling costs have oil expenses in them - it is presently cheaper to hire one guy with a forklift to unload the meat, rather than 20 guys with strong backs. There's only a little oil cost here, and little there, but it adds up. At $2.00 per gallon, the cost is, maybe, 15 cents lb. No problem - if it gets too pricey, I'll just quit buying roasts.

Not a big deal, I still can afford an occasional roast, maybe I'll just eata few more beans and a bit more hamburger. But wait a minute - gas is up to 3 no 4 no 5.00 dollars per gallon (I know, you think it won't happen - of course it would never go as high as 3.50...right?) - now the roast costs $1.20 lb more. No problem, as I said, I'll just stop buying roasts. Beef isn't good for you anyway But even the hamburger costs $4 lb, and I'm spending more of my income on electric bills, heat and commuting - so no more hamburger either. Just spam and beans. So now beef isn't selling well - and the nice neighbors with the family farm who provided a sustainable alternative isn't making anything any more - because the bottom has dropped out of the beef market, but her land taxes haven't gone down any.

Oh, and let's not forget the supermarket butcher (he's also a neighbor) - the overhead costs for the supermarket have increased dramatically (very expensive to keep that a/c running all summer) and meat sales are down, so they've fired two of their four butchers and cut the hours back on the others. The laid off meat cutters are now collecting unemployment, along with everyone else whose employers are trying to keep their bottom line going. And there's a lot of them - the travel industry got a 1-2 punch with rising airline fuel costs (note that two more airlines enter bankruptcy today - shocked?), and with the lack of disposable income. Retailers are feeling the pinch as people buy fewer luxuries (remember Walmart's falling profits - so far iti is the poor and lower middle class who are cutting back on their buying). All those white collar Dilbert jobs my friends have - an awful lot of those are optional to the other companies that make up most of their business, so now the Gap and Banana Republic are having a bad Christmas, since the computer guys and the advertising people are feeling a pinch....

And none of those laid off are buying much beef anymore, either. The nice old lady who used to buy eye of round and drive it back to her house down the road has to choose between her medications and her dinner, since the price of her digoxin is up 500%. She's going to the food pantry now, along with the unemployed butcher. People are still buying food, of course, but now the competition is on for the cheapest prices, and Walmart has them - so the middle class who still have jobs but are feeling the inflationary pinch and getting nervous start shopping there. They no longer buy organic produce, or fancy salads, or $4 cups of coffee. Our nearest supermarket can't afford to sell hamburger at the same price as Walmart, and so they fold, putting all their workers out of work, and adding just another little pinch to everyone who doesn't live next door to a Wallyworld and has to drive there (all 8 remaining citizens ;-).

And the oil prices are up more, because of lost refinery capacity (been paying attention to the news from Katrina?) and the necessity of upgrading refineries to handle the lower grade of crude now being extracted (this was underway even before Katrina, and is among the best concrete evidence of peak oil I've ever seen). Now a lot of peopleare spending 20% of their income on commuting costs, and more if they have to heat or cool their houses - those that still have jobs and houses, that is. Now roasts aren't the issue for most of them - the price of potatoes is. See most ofthem are grown in Idaho (in fact, even though New York grows an awful lot of potatoes, most supermarkets don't carry them!), and the shipping, fuel, spraying andrefrigeration costs have driven them up to $1.80 lb - and of course,*EVERY SINGLE THING* is rising too - toilet paper, beer, soap, diapers, beets, cheese, flour, onions, chocolate, heating oil, natural gas, water bills, medical costs, town taxes (lost sales revenue means they've got to cut services, raise taxes or both to keep the plows and school buses running) - everyone has more overhead. Everyone's materials cost more. That extra 30 cents doesn't matter, until it is multiplied by 1000 every month. And until, trying to keep afloat, most middle class families are down to one, or no income.

Then we make choices - soup with meat or without...again? Bread and gravy for dinner? Heat off if it is above freezing? Heat off even below it? Desperately needed heart surgery or mortgage payment? Emergency room visit for daughter's asthma or electric bill? New shoes for the kids or a coat for Mom? Sound familiar? These are the troubles ordinary, plain old poor people have - except without cheap energy, a whole lot more of us, maybe even everyone, falls into that category eventually.

There will be oil in the ground, and gas in the gas stations - the ones that stay open, anyhow. But who will be buying? And how will we refigure our economy to bring back and reduce costs on things that only cheap oil made possible?

Sharon

8 comments:

Silas M. said...

I am starting to think we are just about there (peak oil) now. But like Jim Kunstler says, the peak oil event will first be seen in the rear-view mirror. Having said that, I think that being observant of the economic decisions that people are being forced to make is one way of getting an idea of where things are in relation to the "peak".

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