Ragnar Carlson
May 04, 2005

 

Since the oil embargo of the 1970s, Americans have been aware that the day will come when the petroleum on which our economy is built will no longer be in cheap supply. Today, as oil prices hover around $50 per barrel, the issue is once again in the public eye, both locally and around the world. Drivers fret over rising prices at the pump while manufacturers see their profit margins collapse under the weight of higher shipping costs. The airline industry struggles for its very existence as jet-fuel prices deepen already staggering losses. A growing number of geologists, economists and oil experts argue that we are entering an era of declining oil production, one that will result in a permanent and dramatic rise in the price of petroleum, to levels previously unimagined.

The debate is far from settled, and there are as many different projections as there are analysts. At least one thing does seem clear: The end of oil is approaching, and more rapidly every year. As the world’s developing economies begin to demand greater supplies of petroleum, there is ample evidence that prices, even if they do not immediately reach the extreme levels some analysts fear, will increase steeply as growing demand meets dwindling supply.
The concern centers on something called “peak oil.” At the simplest level, peak oil refers to the point at which global oil production will reach its peak, thereafter entering into permanent decline. Because oil prices are driven by the interplay of supply and demand, the peak is significant in part as an indicator of when prices can be expected to begin creeping ever upward.

Hawai‘i, with its high dependence on low oil prices for everything from tourism to food supply, can expect serious consequences across the economic spectrum when those price increases occur, consequences for which the state is alarmingly unprepared.

The United States reached its own oil production peak in the early 1970s at roughly 11 million barrels per day, with the amount of crude collection declining steadily since then, to a level of 5 million per day in 2004. Determining the date of the past U.S. peak is relatively easy and is apparent on any production chart. Pinpointing the future global peak is much more difficult; projections are heavily reliant on assumptions of future oil-field discoveries and advances in extraction technology. Compounding the problem is the reluctance, often for market reasons, of oil companies and oil-producing nations to be forthcoming with their own internal calculations.

Estimates about when the global peak will occur vary widely, with some experts suggesting that it won’t happen until the middle of the current century, but a growing number of analysts fear that peak oil is upon us. Some, including Princeton University geologist Kenneth Deffeyes, argue that oil will peak this year, with many others in government and industry projecting a peak sometime between now and the end of the next decade.

The end of the world as we know it

Those inclined toward optimism note that even the most dire peak predictions suggest that the world won’t run out of oil for decades to come. Oil experts, however, insist that such thinking overlooks the larger significance of the peak-oil discussion. While many are aware that the world will face serious challenges when the supply of petroleum is finally exhausted, these experts argue that the crisis will occur much sooner than that, more or less at the moment when production begins to decline.

This is the central concern of peak oil analysts: that an economy of oil scarcity will usher the world into a new era, in which the organization of American life will begin to break down and the interconnected global economy, in which goods and resources are flown and shipped all over the world, will come crashing to a halt. Analysts foresee increased conflict over resources at the international level as developing economies battle with established ones. The confluence of anxiety about the end and a tightening of supply as production declines, they say, will shake our material culture to its foundation.

James Howard Kunstler, an expert on the interplay between environmental and economic issues and author of The Long Emergency, paints a vivid, often frightening picture of the economy that may be approaching. “When thinking of this coming period of oil scarcity,” he says via phone from his home in New York, “so much comes down to scale. The distances we travel, the vast size of our cities and suburbs, the length of our retail supply chains...all of these things will be downscaled by orders of magnitude.”

The American economy Kunstler foresees is almost unrecognizable. He points to the vast distances food must travel to reach most consumers, the reliance of Wal-Mart and other retailers on long supply and production chains that stretch around the world, and to the hundreds of hours Americans spend in gas-guzzling cars each year to get from far-flung exurbs to city jobs. All of these are dependent, Kunstler says, on a plentiful supply of inexpensive oil that simply will not exist.

“When you start talking about the scale of our economy having to be reduced so dramatically,” he says, “a lot of it will happen in a disorderly way. These changes will not happen cleanly, and there will almost certainly be destructive results.” Kunstler, like many others who have been thinking about peak oil in recent years, is nowhere close to optimistic. “We are entering an extremely unstable period,” he says, “one with the most dire implications for our way of life.”

Isolated islands

Even if peak oil is already here, it is by no means certain that the near-apocalyptic scenario envisioned by Kunstler and others will materialize. New fuel-efficient technologies could be developed. Faced with soaring fuel prices, Americans may yet commit themselves to conserving more and living more simply, however unlikely such a development may now appear. Nuclear power, though unpopular at the moment, may gain favor in time. Any of these changes would reduce our dependence on cheap oil and may help stave off some of Kunstler’s more frightening predictions.

Nevertheless, the central problem—that oil is a non-renewable resource that is being consumed at record levels even as new oil discoveries dwindle toward irrelevance—is almost certain to get worse. And perhaps nowhere will the impact be felt as intensely, nor as soon, as in Hawai‘i.

“Island states like Hawai‘i are very susceptible to energy prices,” says Jack Zagar, a petroleum engineer and international consultant on oil reserves. “Economic collapse is not a given, but resourcefulness is a must.”

A look at Hawai‘i’s petroleum “footprint” illustrates the source of Zagar’s concern. According to the Hawaiian Electric Company, O‘ahu relies on imported oil for 78 percent of its electricity, compared to the national average of just 3 percent. Because Hawai‘i does not have access to natural gas or coal in the quantities available on the mainland, the state is uniquely at the mercy of oil prices simply to keep the lights on. HECO’s Chuck Freedman explains the utility’s economic model, which underscores the fragility of the system: “The cost at which we purchase oil is passed through dollar-for-dollar to the customer. The customer pays what we pay. It is difficult to see a situation in which we could charge less than that.”

By some measures, Hawai‘i is a leader in the pursuit of alternative, renewable energy sources. Freedman points to geothermal development on the island of Hawai‘i, which meets 15 percent of the island’s electricity needs. Solar is popular in Hawai‘i and business and government groups continue to explore hydroelectric and other options. Still, despite research and exploration in recent decades, Freeman acknowledges that “most of the alternatives people were excited about in the 1970s haven’t panned out.” Freedman says that because more attention has been focused on renewables in recent years, “some people have gotten the notion that there’s an alternative-energy solution available to replace fossil fuels, but there just isn’t.” Nuclear energy, the one currently available alternative to petroleum, “isn’t on anyone’s list for Hawai‘i,” he says.

Alternatives may yet be found. Solar energy harvesting continues to improve, and many governments and companies are investing heavily in wind power. New York is planning a massive offshore wind-energy park, complete with 40 giant turbines that may power as many as 48,000 homes. Still, even the New York project’s backers hope that over 20 years, the turbines will save 13.5 million barrels of oil, an amount less than is required to power American automobiles for a single day. For the foreseeable future, Hawai‘i’s fuel mix will remain heavily oil-dependent.

Fueling tourism

Hawai‘i’s vulnerability to a global oil crisis, however, goes far beyond the need for electricity. Tourism accounts for 1 in 4 jobs and a similar portion of Hawai‘i’s gross economic product. With the domestic airline industry already struggling for survival, the doubling or tripling of oil prices could impact airfares—a potential cataclysm for the tourism industry. Combined with the already-reduced standard of living that may be in store for citizens of an oil-strapped future, the effects could be crippling for Hawai‘i.

“Hawai‘i now depends on large numbers of people coming in and spending money,” Kunstler says. “What happens if those numbers drop by half or more?” He worries that the islands may become a bellwether of the massive changes ahead. “Volumes of tourism will decrease markedly for Hawai‘i. From there, a collateral effect emanates that will severely affect your economy, your standard of living and your basic expectations about how life is lived.”

A further challenge lies in Hawai‘i’s dependence on imported food. Even with its large commercial fishing fleet, the state imports nearly 70 percent of its fish and seafood. Locally grown chicken recently became a thing of the past on O‘ahu and local dairies, once responsible for 80 percent of the state’s milk supply, now account for only half. Hawai‘i residents already face food bills 30 to 40 percent higher than the national average—a dramatic rise in shipping costs would inevitably worsen the problem.

While local agriculture is enjoying something of a recovery, Hawai‘i is nowhere close to sustainability. Larry Geller, an officer of Slow Food Hawai‘i who has long been active in environmental and agricultural issues, notes that many of the state’s prime agricultural lands have been lost to development. “Our most fertile farmland is covered in housing,” Geller says. “It’s gone so far in that direction, at least on O‘ahu, that I don’t know if sustainable agriculture is possible here anymore.”

The overall picture is stark: Despite proclamations by politicians and others that Hawai‘i is a leader in sustainable development, the opposite appears to be closer to the truth. One hundred fifty years ago, many native Hawaiians still lived and worked in the lo‘i, the foundation of a model sustainable economy. Today, asked to think of a society comparable to Hawai‘i in sustainable-energy terms, oil expert Zagar points to Tokyo, one of the most dependent cities on earth. With a growing population in constant demand for new housing and infrastructure, the state is in many ways becoming more unsustainable every day. Each new development encroaches on already dwindling agricultural lands while creating new demand for imported oil in the form of electricity and gasoline. Every year of overfishing increases the need for future food imports. Every new car adds to already overcrowded roads on which thousands of gallons of gas are wasted in traffic every year.

Kunstler is quick to point out that the rest of the country will also face many of these problems. The American economy relies heavily on imports from Asia and will suffer when shipping and transportation costs drive the prices of those imports to new highs. Food is trucked around the country, with very few cities able to sustain themselves from nearby agricultural production.

“The destruction of the landscape is very advanced at this point,” Kunstler says, “and the eventual result might be somewhat salutary for us. It’s hard to imagine how bad it’s going to get.” Kunstler is aware that his analysis seems extreme to those who have not been following oil trends closely, but maintains that the evidence is on his side. “I tremble when I think of places like Tucson, Phoenix and most of California,” he says of the southwest’s desert cities. “People are going to be in for some serious hardship.”

Future farmers of America

Not everyone agrees with Kunstler’s dark forecasts. Many observers, including Henry Curtis of local advocacy group Life of the Land, suspect that there will be no oil crisis, that renewables and other fossil fuels such as natural gas will easily replace oil, and that the whole conversation is driven by oil companies with “other agendas.” “Renewables can eliminate our need to import energy, and I suspect they will,” Curtis says. “That said, we need to start investing in alternatives now.”

In his book, Kunstler outlines a vision for the economy that may emerge when sustainability becomes an imperative. It is a landscape of smaller cities and reclaimed agricultural lands. “The American economy of the 21st century may actually center on agriculture, not information, not high-tech, not ‘services’ like real estate sales or hawking cheeseburgers to tourists. Farming,” he says. And without that agrarian base, the local economy will be powerless to support Hawai‘i’s population even at current levels. “The Hawaiian economy of the 20th Century,” he says, “may very well come to be seen as an historical anomaly.”
The government and the military are the state’s largest employers, eclipsing even tourism, which many find alarming. “I’d hate to think that [a military economy] is what we’re turning Hawai‘i into, but that’s what we’re doing,” Curtis says. Perhaps more worrisome is the implication that Hawai‘i is already in the process of becoming a welfare state, reliant on an influx of U.S. taxpayer dollars to keep the economy afloat. If exports to the mainland and tourism itself become less viable as a result of a petroleum crisis, that problem could be expected to increase.

Zagar, who has consulted for the Hawaii Department of Business, Economic Development and Tourism on the world oil situation, is cautiously pessimistic.
“The roof doesn’t have to fall in,” Zagar says, “[but] the situation could run amok and the worse case scenarios—world war, the collapse of the global economy, the end of air travel as we know it—are possible if intervention by governments does not happen very soon.” That intervention, Zagar says, should include exploration of all alternatives, mandatory conservation, increased investment in local agriculture and manufacturing, and an overall effort to raise public awareness of the coming changes. “Of the 20 million barrels a day of oil consumed by the U.S. out of a world total of 84 million, 9 million is for gasoline,” says Zagar. “Half the new vehicles sold in the U.S. are gas-guzzling SUVs, mini-vans and pickup trucks. How long will it take to change the mindset of the average American to use less and conserve more?”

Zagar is hopeful that governments will step in early enough to avert the most cataclysmic consequences of the oil crisis. “ Hawai‘i is blessed with solar, wind, geothermal and tidal energy sources,” he says, “and should exploit them to the fullest.”