Why gasoline, diesel fuel, and natural gas may soon cost much more....

Today's post: Wednesday, 1-5-2011

We need an 80% reduction in fossil fuel use by 2050 to avoid the worst global warming effects. And, practically speaking, we need to also double our electricity generation and double the useful work done per unit of electricity & other energy sources as well during that same time to have a decent economy.

At some point, the oil that we’ve been using to power much of our economy will begin to run low enough that our world economy will shrink due to lack of supply or excessive costs or both. Kuwaiti scientists recently predicted peak oil in 2014 – just 3 years from now.

And, once the demand for oil picks up again with the apparent economic recovery or supply begins to plateau or drop, the prices will again go back up. That will cause more hard times economically unless we have enough alternative sources of energy to turn to.

Today’s post: Why gasoline, diesel fuel, and natural gas may soon cost much more....

Our post always begins with this:

“At some point, the oil that we’ve been using to power much of our economy will begin to run low enough that our world economy will shrink due to lack of supply or excessive costs or both. Kuwaiti scientists recently predicted peak oil in 2014 – just 3 years from now.”

Before the recent US credit crisis caused its severe recession, demand had gasoline well over $4 a gallon. The US economy is slowly recovering somewhat. But more than that, the economies of India and China are expanding -- AND, their demand for oil and natural gas is going up.

So, as this increase in demand continues, the increases in oil and natural gas production cost more for each measured unit of them than was true before as the cheap, easy to find supplies have mostly been found and many are running out.

In addition, some of this new oil and natural gas is coming from environmentally harmful extraction methods. Since there are influential people in the areas where this is being done who dislike the idea of where they live becoming an unhealthy to live in wasteland and like it or not, pollution and CO2 release will begin to cost more for many reasons, these costs may easily go up even more. (The technology does exist to minimize the environmental damage; and thanks to Skyonic we now have a way to remove CO2 from exhaust also.)

So gasoline at $5 or $6 a gallon is relatively likely within the next 3 years.

But what if it were to go up by an extra fifty percent too?

That would mean gasoline at $7.50 to $9.00 a gallon within the $3 years.

Yikes! In Europe, they already have gasoline in that range. But they have more effective rail transport and mass transit than we do; and many of their cities are more compact than those we grew in the United States due to cheap oil and gasoline.

It seems this scenario is possible and maybe even likely.

We still import about half the oil we use. But the high levels of debt the US government took on as Bush funded our military in Afghanistan and Iraq with it; and Obama used it to prevent the US from falling into a depression -- mean that the dollar may soon buy half as much outside the US as it does today.

Funding our military in the Middle East despite its mixed success and possibly mistaken stated rationale for being there, HAS helped us ensure that we continue to get oil from the Middle East. And, a true depression with double or triple the current unemployment rate was and is worth avoiding!

But, as long as we get half our oil from outside the US, if we must pay twice as much for that oil, using the oil will cost 50% more on top of any other increases!

Based on a very persuasive audio I recently heard online about why the dollar may lose value internationally, this is the most conservative and least scary likely scenario.

It could be even worse.

The only good news in this is that energy efficiency and using all electric and plug-in hybrid vehicles will get an enormous boost as this begins to take place.

It will also begin to dramatically increase the motivation of people in the United States to find ways to avoid having to import oil from outside the country.

Because most things everyone buys today are transported using oil, it also suggests that some inflation may well return within the 3 years.

It remains to be seen how all of this will play out. But on top of trying to recover from the current recession, it will be challenging.