National Commentary

The Peak Oil Crisis: Virginia

It has been a busy week on the peak oil front. On Monday, former U.S. Secretary of Energy and Defense, James Schlesinger told the world peak oil meeting in Ireland that, indeed, imminent peak oil is for real and we should get on with doing something about it. On Tuesday, the Federal Reserve cut interest rates by half a percent, thereby driving oil prices to an all-time high above $82 a barrel. On Wednesday, the stocks report disclosed an unexpectedly large drop in U.S. crude inventories and, finally, a tropical storm may thrash around in the Gulf oil fields this weekend.

Unless the storm turns out to be a really bad one, the most important development of the week is the further decline in U.S. crude oil stockpiles by 3.8 million barrels. Although U.S. stockpiles are still above average for this time of year, they have been falling rapidly since last May. Most ominously, U.S. crude imports for the last four weeks have averaged 750,000 barrels per day less than last year. Thanks to a good week for gasoline imports, U.S. gasoline stockpiles actually rose by 400,000 barrels last week, but are still perilously close to minimum operating levels. Remember that that U.S. burns about 65 million barrels of gasoline a week so a 400,000 addition to the stockpile really is not significant.

So far, gasoline prices, which are the major concern to most, have not risen very much. This is attributed to the drop in demand which takes place after Labor Day and the transition to cheaper-to-produce winter gasoline which goes on the market in September. This situation is unlikely to last much longer. Many knowledgeable observers are beginning to talk of $90 or even $95 oil this winter which will bring gasoline prices to new highs.

We built up our stockpiles well above average earlier in the year, so that we are still 40 or 50 million barrels away from being in trouble and we always have the strategic reserve to fall back on. However, if imports continue to run 3-5 million barrels per week lower than last year, we clearly will be in trouble a few months from now.

While awaiting further developments I would like to make some observations on “The Virginia Energy Plan” published last week. The 180-page plan, which was mandated by the General Assembly last year, reflects the goals of all those with an interest in the future of Virginia’s energy: producers, consumers, environmentalists and many others. There is something for everybody which is why the most of those concerned could find something to praise. Even the Sierra Club called it a “very well balanced report,” but then went on to release their own report which calls for cutting carbon dioxide emission by 80 percent before 2050.

It would be nice to say the legislation and energy plan were written to prepare the state for dealing with the consequences of declining oil supplies, but this is only partially true. The original legislation was drafted to encourage drilling for oil in Virginia’s coastal waters, but then in true legislative fashion, was decorated with so many amendments and compromises that nearly everyone found something to like.

Since the notion that peaking world oil production will soon cause major problems has not yet firmly taken hold in the minds of most Virginians, the plan is not cast around mitigating the consequences of peak oil. From the peak oil perspective, the major flaw is the timing which speaks of goals in decades when the real problems may be months away.

There is nothing wrong with reducing the rate of growth of energy use by 40 percent over the next 10 years, unless one has an appreciation of just how bad the peaking of world oil production and more importantly exports is likely to be. If things turn really sour, it is likely that Virginia will be dealing with absolute reductions in available energy, particularly liquid fuels,ten years from now and not just slowing the rate of growth.

Marked reductions in the availability of imported oil and products, which seems to have started already, will undoubtedly impact other fuels as the nation scrambles to substitute natural gas and electricity for vital functions such as the production and distribution of food.

When shortages start to develop, be it in the next 30 weeks or the next 30 months, a new paradigm for energy will rapidly form.

Once you get by the lack of urgency in Virginia’s plan, there is much to praise. The emphasis on conservation and consumer education is exactly what will be needed to cope with the consequences of peak oil. Indeed, this week the state’s largest power company announced a plan to aid the distribution of compact fluorescent light bulbs around the commonwealth.

There is nothing wrong with reducing emissions, renewable energy, increased investment in energy R&D, improved electricity and natural gas infrastructure and a host of other recommendations.  These are exactly what the state and the whole world, for that matter, will need to mitigate the consequences of reduced availability of oil.

So where does this leave us? Virginia, unlike many other states, has a formal, written, coordinated plan. While it does not contain a sense of urgency and the goals clearly are not in proportion with the crisis we are likely to face, it is a good start. Plans can be changed. Goals can be moved up — especially if there is no other choice.