It’s time to prepare for the end of the oil era

I have written before about America’s dependence on oil. In July 2004, I wrote about the end of cheap oil. At the time, the $40 price for a barrel of oil seemed outrageous. Two years later, we look back at those prices with nostalgia. A year later, I wrote that America was a country in decline, in part due to the many emerging economies driving up demand for oil. A month later, I wrote about how surreal and scary it was to drive through the rapidly growing exurbs, knowing that their existence was predicated on the automobile and consequently the ready availability of gasoline.

Like most Americans, I too cannot help but be fixated on the price of gas. I reached an unfortunate milestone this week when I filled up my fuel efficient Honda Civic Hybrid. It is just a compact car, but it still cost $36.50 to fill its tank. I do not recall ever spending more than $30 to fill it up. My wife drives a larger car (a 1997 Honda Odyssey). I filled it up for her on Monday and it cost $41, another record high. I am sure others with larger cars and gas tanks are paying much more. I heard on the news this week of a woman who paid over $100 to fill the tank of her Ford Explorer SUV. That has to hurt.

Naturally, with these kinds of prices it is hard to keep hybrid cars in the showrooms. SUV sales are way down. Many Americans are making big changes in their driving choices. Even our Republican congress is thinking the previously unthinkable: raising automobile fuel efficiency standards, even for SUVs and light trucks.

These are steps in the right direction. Yet I also think most Americans understand intuitively now that an era has passed. We can no longer take for granted that we can get from point A to point B at an affordable price and at a time of our choosing. Prudent Americans should be preparing for what comes next.

Of course, it is hard to know what will come next or how soon it will arrive. I do think we can take as a given that our transportation costs are going to keep going up, largely due to increases in the price of oil. I think we can also count on our oil supply system becoming more vulnerable to supply fluctuations. We are like a hypochondriac. We watch our oil supply system with the greatest concern. The smallest problems are greatly magnified and cause oil dependent economies to keep bidding up the price of oil. While there are still likely undiscovered oil fields out there, they are fewer. Extracting oil from them will be increasingly more expensive.

Those of us who lived through the 1970s remember the two oil shocks. We remember gas lines. We remember only being allowed to buy gas only on odd or even days. I remember waiting for more than an hour to have the opportunity to fill up my car’s tank. We are likely to see those days again.

It is possible that Saudi Arabia will fully open its spigots, thereby increasing supply and lowering prices. However, they are already pumping at close to their capacity. Moreover, it is not necessarily in their interests to increase the supply. Even if they do so, there is more demand. China, India and Indonesia are but some of the emerging new economies whose continued growth is predicated on oil.

What does the average American do? Is it enough to buy a hybrid? As with all things it depends on what actually happens and how much risk that you are comfortable assuming. It may also depend on your financial situation. Oil price increases are easier to endure if you make $100,000 a year instead of $40,000 a year. However, if there are large disruptions in the supply of oil all of us automobile owners will have to wait in gas lines.

I am more of the paranoid type. I do not necessarily prepare for the worst case, but I am prepared for the next to worse case. I think gas prices will keep going up. I think we will see occasional gas lines. I think our lifestyles will get a lot more expensive and risky, and I want to minimize both of these likelihoods. So yes, while SUVs were still flying out of dealers’ lots I bought a hybrid. Today, as I listen to my wife’s car idling at traffic lights, I also wonder if it is time to trade in her car for a hybrid. These are sound strategies, providing there is an adequate oil supply.

Long ago I realized my family also needed to be in a position where we could live without a car if necessary. I am fortunate because I can bike to work when the weather allows. Work is three miles each way and biking is an easy and fun way to get the exercise my body needs anyhow. If biking is out of the question, walking is not. I also have a bus I can jump on a quarter mile down the road if necessary. My wife is in a more difficult spot. Her job is 15 miles away. It is theoretically possible for her to get there by public transportation, but unless the bus routes changed, it would likely be at least a 90-minute trip each way to work and she would still have to do considerable walking. We also have two grocery stores about a mile away from us. Life would not be pleasant but assuming that public transportation was available, we could get by.

If your income depends on having an automobile, I suggest that it is time to rethink your lifestyle. I am not saying it would be easy, but I do think that this is the time to do it. It is better to be on the leading rather than the trailing edge of this change. For example, if you have a house in the exurbs, it is time to think about selling it and moving in closer. I would recommend settling somewhere no more than a mile from public transportation. Ideally, the public transportation should take you expeditiously to convenient major centers of employment.

Clearly, this is not an easy thing to do. One of the reasons people moved to the exurbs in the first place was that it was expensive living near the city. However, if it is expensive now, it is only going to get more expensive. What might your life look like in ten years if gas costs $20 a gallon and you still had to commute by car? Now suppose you could not even get to your job because you could not buy gas for your car. Could you telecommute indefinitely? Could you buy your groceries from a nearby farmer’s market?

I fear that there will be many hard and unpopular choices like these in the years ahead. The good news is that in many communities the housing market is soft. Here in Northern Virginia there is an abundance of unsold condominiums. Even houses are languishing in the market and prices are coming down. This may be the time to make that difficult lifestyle transition, even though in the short term it may cost you considerably more to move in closer to the city.

I feel fortunate. While there are no guarantees in life, I have a reasonable buffer should a sustained oil shock occur. The good news is that the sooner we come to grips with our new reality, the better prepared and less vulnerable our society will be when it arrives. If more of us realize, for example, that we need to live closer to places where there are plentiful job opportunities, it will encourage denser housing developments closer to urban areas. With the return of far-flung suburbanites, these communities will probably be transformed in a positive way. While we may not like having more neighbors closer to us, we will still carry our values with us. We will insist on safe neighborhoods and quality schools.

As part of this transformation, we will also be consuming less oil, simplifying our lives, improving the environment and helping the planet. In addition, if you begin this transition now it will cost you a lot less and be a lot less painful than it will be for the procrastinators.

As the late Ann Landers so often put it, it is time for Americans to “wake up and smell the coffee”.

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