We’re now forced to go to very inhospitable environments to find more petroleum to feed the world’s voracious appetite. Perhaps the most salient of examples is the horrendous BP Gulf of Mexico oil spill, still gushing as I write this (June 2010). We, the people of industrialized countries, are so desperate to find more oil, that we now do things like go to the Artic, and risk severely damaging not just the Gulf of Mexico, but the pristine Artic National Wildlife Refuge as well. It’s peculiar that this doesn’t seem to strike most people as insane. That we are so dependent on petroleum that we would cause what may well be the most severe ecological disaster in America’s history in order to get more of it for our fix, that doesn’t seem to get many people talking about getting off the stuff. If they do talk about it, many people say things that only reinforce our existing dependency, words such as “drill baby drill.”

Meanwhile, those who would offer a fantasy, about how the peak oil conversation is a just a lot of hot air, they are given great prominence and a high pulpit from which to preach their fantasy. Perhaps most prominent of these are the economists who believe in a world without limits, where every resource has a readily-available substitute, and where every problem will be worked out by “the market.” They disparage conservation efforts with fancy theories like Jevons Paradox, which says that it doesn’t matter much if energy efficiency improves, because people will just use more of the fossil fuel involved. We will regret that we made them the high priests of American society. Meanwhile, the loyal and hard working geologists, environmentalists, and contingency planners that have been sounding the alarm about peak oil are largely ignored. For the most part, there’s not even an attempt to refute the statements of these Paul Revere types — they are simply ignored. So what’s really going on here?

We’re up against the power of denial. This stubbornness and unwillingness to deal with reality is actually quite dysfunctional. If you were a passenger driving in a car with a friend, who was under the influence of a few drinks, and he or she seemed to have fallen asleep at the wheel, would you try to wake them up before the car you were both in crashed into something hard and immobile? Or would you just sit there, remaining silent? The analogy is actually quite apt. We — the people in the developed world who are so very dependent on petroleum — are on a crash course with reality.

Unless we start dealing with this reality immediately, and do so quite intensely, we are going to bring on much more serious repercussions than would have been suffered had we told the truth and promptly dealt with the problem. Some of these severely negative effects are probably unavoidable, given that we have ignored the problem for decades. But we make them still worse, the longer we wait to get out of denial. These repercussions include massive unemployment, a crashing stock market, a crashing real estate market, and widespread bankruptcies. I’m talking about shortages and rationing of motor fuel, blackouts of the electrical grid, and the failure of government to do much of anything about it. I’m talking about still more environmental degradation, shortages of other natural resources, and a surging population whose basic needs are not being met. In some places, widespread hunger, and even starvation, is also likely to result. I’m not making this stuff up, just summarizing what we’re clearly headed for.

Many of us humans tend to deny what’s going on when we don’t like it. We fall into this place of being frozen and paralyzed by our fear. I’m not a psychologist, but I would guess it has something to do with the desire to avoid pain. But the pain of confronting the truth is going to be nothing compared to the pain of the collision just ahead on the road.

The task for us all starts with an end to our preoccupation with our self, with a going beyond our selfishness. We need to stop putting our own feelings (discomfort about what the future will bring, looking foolish, being wrong, whatever) ahead of what’s right, ahead of what needs to be done, ahead of what would be respectful of both nature and future generations. We need to start envisioning what life is going to be like for our children, and our children’s children, if we don’t quickly change the direction in which we are speedily traveling. This visioning process has an official name: scenario analysis. To help us with this effort, there is a large body of research and a large body of experience already available in the contingency planning community. But even those people who are not working in the contingency planning field can and should still prepare their own future scenarios.

It’s time that we started modeling a new type of human being, and here I’m talking about someone who is willing to put their petty selfish feelings aside, someone who is willing to roll up their sleeves and get down to work doing the work that must now be done. I’m talking about a new type of human being, a more evolved human being, someone who deeply gets that we are all in this together. This human being knows that what we do today (such as driving a SUV long distances to commute to a job) has a significant impact not only on themselves, but also on other human beings, on animals, and on nature.

This new human being will also need to admit that there are no shortcuts, that to create a certain result, such as a new economy that is no longer dependent on petroleum, a great deal of serious work must be done. Denial and stubborn refusal to grapple with the truth does not make it go away. Denial of the truth does not mean that the truth is an illusion, it only means that the individual adopting this strategy is ill-prepared and poorly-adapted to the reality of what’s happening. The part of us that thinks we can deal with something by denying it, that is the part that thinks that we can use shortcuts, thinks that we can get away with cutting-corners. That is magical childish thinking, and it’s time for all adults in the industrialized countries to start thinking like, and acting like, responsible adults.

Denial can be tricky, and it does this in an effort to try to maintain its position of prominence in the consciousness of those who have adopted this dysfunctional position. For example, that part of us that likes denial, also likes to color issues in black-or-white (dualistic) terms. For example, either peak oil is a non-issue that we shouldn’t even to talk about, or else we’re all going to die as a result. If today you believe that it’s a non-issue, then you rationalize that you might as well continue your denial. If instead today you believe that everybody is going to die as a result of peak oil, then you can figure “there’s nothing to be done, so why bother worrying about it?” And so you then are back to denial, with perhaps another mask put over the truth. It’s only in grappling with reality, which will be something in between these two extremes, that we can discover what for us would be a right response to peak oil.

It’s time that we all looked at our own personal process surrounding denial of the reality of peak oil, and for that matter, our denial of peak natural resources as well. What part in each one of us has been selfish and unwilling to broaden our perspective to include our impact on other beings and the planet? What part of us has been thinking that we could get away with shortcuts, when we know darn well that we can’t? What part of us has been engaging in mind games, like dualistic thinking, in order to be able to continue with our denial?

To the extent that we can move through these blocks to encountering the truth, in its full impact and implications, to that extent we can start to evolve into the new type of human being that we all potentially are. And by the way, I’m working on it too. For us all, this will require on-going effort to keep confronting the truth as it is revealed. I hope to see you all, the new human beings, after we get through these turbulent times.

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Charles Cresson Wood, MBA, MSE, CISA, CISSP, CISM, is a technology risk management consultant with Post-Petroleum Transportation, in Mendocino, California. His most recent book is “Kicking The Gasoline & Petro-Diesel Habit: A Business Manager’s Blueprint For Action” (see www.kickingthegasoline.com).

In 2009, the Obama administration granted BP a special exemption from a legal requirement that the oil company perform an environmental impact study (EIS) exploring the results of drilling in the Gulf of Mexico with its platform called Deepwater Horizon. According to the Washington Post, the Department of the Interior’s Minerals Management Service (MMS) gave BP a “categorical exclusion” so that it might promptly commence drilling with Deepwater Horizon, even though MMS knew that an EIS had not been completed. The MMS report claims that the ecological consequences of an oil spill could be ignored because such an event was “unlikely,” and besides, “no additional mitigation measures” would be needed in the event of a spill.* We now know that this was a horrendous mistake. Here, as in many other cases, the questions people ask are instrumental in creating the future they manifest.

This cause and effect relationship — between the questions they ask, and future they create — applies to contingency planning in all domains, and on all levels of potential damage. Said differently, successful contingency planning is critically dependent on creating realistic scenarios about what the future might look like. The relationship that many businesses, non-profits, and government agencies have today with Peak Oil is much like the relationship that the MMS had last year with the possibility of a massive oil spill in the Gulf of Mexico. Many organizations are unquestionably aware of very serious oil related problems looming on the horizon, but they have not yet integrated realistic scenarios into their internal contingency planning efforts. As a result, they remain dangerously exposed to very serious losses — including going out of business.

These organizations are, by default, waiting to see what type of losses will ensue, waiting to see how painful and expensive these losses will become. Perhaps then they will be compelled to take action to do something about Peak Oil? As the massive oil spill in the Gulf of Mexico so clearly shows, this is a very dangerous and ill-advised strategy. Instead of waiting to see what will happen next, we should all be asking ourselves: “How horrendous, how destructive, and how ultimately-suicidal does the evidence have to be before we all agree that the age of cheap oil is over?”

It’s one thing to be preparing contingency plans for a future scenario that has a very remote possibility of happening, perhaps an airplane crashing into the headquarters building of an organization in question. It’s another thing entirely to plan for something big that we know definitively will happen, and will happen within the next five to ten years. Peak Oil is a certainty — the only open question from a probabilistic standpoint is: “When, over the next few years, will serious adverse impacts will be experienced?” Many organizations are driving completely blind because they haven’t seriously analyzed these things, so management at these organizations now has no idea how serious the adverse impacts will be. These organizations are in effect guaranteeing that the problems will be a whole lot worse than they need to be, because they haven’t yet gotten their act together to transition to other energy sources, to prepare contingency plans, and to take similar steps enabling them to weather the metaphorical storms ahead.

Likewise, it’s generally acceptable (from a standard of due care standpoint) if an organization doesn’t do contingency planning for relatively-low-negative-impact scenarios, such as an isolated incident of violence in the workplace. It’s an entirely different matter if an organization fails to do planning for a high-negative-impact scenario, such as a massive oil spill that threatens to decimate the economy in a major portion of the country, and that threatens to make thousands of animal species extinct. Similar to the massive oil spill in the Gulf of Mexico, Peak Oil involves many high-negative-impact scenarios that absolutely must be anticipated and planned for. These high-negative-impact scenarios include massive unemployment because the petroleum-dependent system on which we depend can no longer be maintained in the wake of petroleum wars, embargos, shortages, rationing, terrorism, and high prices. Other Peak Oil related scenarios include bankruptcy of critical suppliers and major customers, because they can no longer profitably participate in an energy infrastructure based on low-cost petroleum fuels. Airlines and long-distance trucking firms are now acting as canaries in the mine — their recent mergers and bankruptcies have been caused by the prominent position that petroleum-based fuels play in their cost structures.

In an age where so many decisions are dictated by the numbers, it is surprising that so many organizations still fail to do Peak Oil related contingency planning. In fact, it is illogical NOT to do this type of planning, and the numbers prove this position. Many organizations do contingency planning for low-negative-impact events like an isolated case of workplace violence. And many organizations do contingency planning for very-low-probability events like an airplane crashing into a building. But these same organizations are often at the same time failing to plan for the high-negative-impact, and virtually certain, impacts of Peak Oil. For the detailed mathematical calculations substantiating this analysis, see my blog post on this topic (http://kickingthegasoline.com/contingency-planning/the-irrationality-of-not-preparing-contingency-plans-for-peak-oil/).

The construction of future scenarios is dependent on asking the right questions. The questions we ask will inform the scenarios we construct, and the extent to which they are realistic or not. Many of us have been asking old-fashioned and ill-informed questions, and as a result, the contingency planning scenarios that we have created are most unlikely to come to pass. For example, asking the same questions about deep water oil drilling that one asks about shallow water drilling, that approach has been shown to be ill-advised, dangerous, and obsolete.

Among the old-fashioned and ill-informed questions that we have been asking is this favorite of politicians: “How can we sustain economic growth and expansion?” Efforts to sustain economic growth and expansion with fossil fuels will only create more hardship, more damage to the environment, and more straining to keep things going when we can no longer do that. Fossil fuel production, in fact production of the vast majority of non-renewable natural resources, is peaking if it is not already on the down-slope (its status depends on the resource you are talking about). This means that fossil fuels and non-renewable natural resources will be much more expensive in the future, that is if they are available at all. Efforts to keep our current petroleum-dependent economy going with these non-renewable resources will only cause more damage and pain. The horrendous spill of oil in the Gulf of Mexico is just one of many examples showing that we cannot keep going with this same approach. A much more empowering question is instead: “How can we meet basic human needs, and how can we continue our basic business activities, and how can we reduce our adverse impact on the environment (climate change for example), when there is much less energy available, and when the energy that is available will be commanding a much higher price?”

Another ill-informed and old-fashioned question that many people are still asking is: “In the wake of energy shortages and high prices, how can we maintain the globalized transportation and distribution system that we currently employ?” Continuing to ask this question will likewise only make life painful, exceedingly difficult, and ultimately impossible to sustain. The upcoming high energy prices, and intermittent shortages of energy, mean that the production, transportation and consumption of goods will be done, in the near future, on a much more localized basis. It will soon be neither economically viable, nor ecologically sustainable, to continue our current globalized transportation and distribution system. A much more empowering question to instead be asking is: “How can we produce essential goods and services locally so we don’t need to rely on the fossil-fuel-dependent globalized transportation and distribution systems?”

Yet another ill-informed and old-fashioned question many of us have been asking is: “How are we going to replace all the fossil fuel energy we currently use with renewable energy systems?” The fact is that fossil fuels, particularly petroleum, are incredibly dense and packed full of energy, and there is no good renewable energy system that we know of which can fully replace them. In other words, we can’t help but have our standard of living adversely impacted in a big way by declining energy availability and escalating energy prices. We must instead be talking about energy descent, or using much less energy than we have been using. A much more empowering and realistic question to be asking therefore is: “Given that we will have much less energy to consume in the years ahead, and given that what energy we do consume will probably be much more expensive, how can we retool local businesses so that they are ecologically sustainable, and resilient in the wake of the many changes that they will be going through?”

As it turns out, there are a significant number of old-fashioned and ill-advised questions that we have been asking, questions that are dangerously distorting our anticipated future scenarios. It is only through realistic questions that that we can create credible scenarios, and through these realistic scenarios, then go on to create truly responsive contingency plans. Businesses, non-profits, and government agencies need to seriously scrutinize the questions they have been asking, need to seriously question the validity of the assumptions they have been making, and need to deeply understand that the future will not be just more “business as usual.” With appreciation to Rob Hopkins, the founder of the Transition Towns movement, this author signs off with a request to all businesses, non-profits, and government agencies: please start asking the right questions.

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Charles Cresson Wood is a technology risk management consultant with Post-Petroleum Transportation, in Mendocino, California. He is also the author of the book entitled Kicking The Gasoline & Petro-Diesel Habit: A Business Manager’s Blueprint For Action (see www.kickingthegasoline.com).

* For purposes of this discussion, let’s ignore reports that government regulators falsified safety inspection reports, were awarded bonuses for rushing oil-drilling permits, and approved the final permit for BP’s catastrophic drilling operation in fewer than 10 minutes.

The public has known about the threat of markedly diminished oil supplies since 1956. Over the last 50 years, the notion of more limited future supplies of oil has been fiercely debated in public forums, and now the data clearly shows which side was right. Now we see that there is no longer any dispute, now we see that we are on a plateau, where we are unable to increase world oil production, regardless of the price that this oil fetches in the marketplace. To verify the correctness of these statements, direct your browser to the web site of the conservative US Government agency called the Energy Information Administration. In spreadsheets of the world oil production numbers, you will see that world oil supply has been about 74 million barrels per day since 2005. Note that this production did not markedly change, even though the price spiked up to $147/barrel in July 2008. A variety of high-credibility scientifically researched reports discuss the seriousness of our current situation, our position at the peak of world oil production. For example, you might reference “Peaking Of World Oil Production: Impacts, Mitigation, & Risk Management” by Robert L. Hirsch et al, and “Global Oil Depletion — An Assessment of the Evidence For Near-Term Peak in Global Oil Production” by the UK’s Energy Research Centre.

With all the credible evidence that peak oil is real, not a “theory” as some would have us believe, why is it that organizations such as the Federal government have steadfastly refused to draw up contingency plans to deal with the impacts of peak oil? There is no doubt that, as a society, we have dragged our feet way too long, and because it takes years to change many elements of our energy infrastructure, many of the desirable transitions to alternative energy cannot now be achieved. So now we are forced to do the best we can, now we must deal with the repercussions of our extensive dependence on petroleum (fully 50% of America’s energy comes from petroleum). At the same time, that same vital substance will soon get very expensive, will get increasingly scarce, and the delivery systems for providing it will become increasingly unreliable. So at the very least, we should get real, and do a risk assessment and figure out how we will be affected, and then draw up situation-specific contingency plans. To refuse to undertake this important activity is illogical, as the numbers provided below clearly indicate.

Let’s compare the peak oil situation to three scenarios for which most large organizations have already prepared contingency plans: (1) a widespread flu pandemic, (2) a serious incident of workplace violence, and (3) a fire in a work related building. The calculations shown below are rough-and-ready, use a back-of-the-envelope style, and are intended only to make the point asserted in the title of this article. These calculations provide a numerical indication that our society’s commonly held perception about the risks related to peak oil is dangerously out of kilter with reality. To be more specific, these three planned-for threats are one to two orders of magnitude less likely than peak oil, and they will cause one to one hundred orders of magnitude less damage than peak oil.

According to Risk Management Solutions (RMS), a consulting firm specializing in catastrophe risks, when it comes to a H5N1 (avian flu) pandemic worse than the 1918 pandemic, occurring this year (2009), the probability is 20%. They estimate that the mortality rate in the 1918 influenza pandemic was 0.67 percent in the USA. While losing 1% of an organization’s staff would be inconvenient and difficult, cross-training and backup staffing, combined with procedural documentation, should allow other staff members to successfully get the work done. Of course, in such a scenario many people are sickened but don’t die, and their absence from the workplace could also cause an adverse effect. According to the Centers for Disease Control and Prevention, the 1918 pandemic involved some 20% of the population getting sick. While productivity in most organizations would definitely take a major hit, and many people would choose to work from home rather than risk exposure on public transportation or in other public places, an absence from work of a few weeks would in most cases not have any serious long-term impact on organizational profits, financial viability, or ability to serve a mission. So this threat, one that has not occurred over the last 90 years, has a relatively low probability of happening, but when it does occur, the impact will be significant, but short-term in nature, and most likely the impacts will be manageable.

In terms of a serious incident of workplace violence, let’s look at the statistics from the US Department of Labor Statistics. Let’s focus on the most serious of these incidents involving homicide of workers. According the 2003 Training Manual published by the International Foundation for Protection Officers, for even the most dangerous occupations such as taxicab drivers, the annual rate of workplace homicide is only 3.5 for every 100,000 workers. That’s roughly 0.0035 percent of the workers… pretty unlikely. Rates were significantly lower for other occupations such as retail clerks. Of course, nonfatal workplace violence can result in serious injury and psychological trauma. According to the Bureau of Justice Statistics, in the late 1990s (the most recent years for which data are available), some 1.8 million workdays per year were lost across the USA as a result of nonfatal acts of violence. According to the Teamster’s Union, this time away from work represents some $55 million per year of lost wages. That sounds like a large number, but maybe not when you consider that the actively working population of the USA in 1995 was 87.2 million people. You can calculate that these people worked roughly 50 weeks a year, five days a week, or a total of 21.8 billion days per year. So we’re talking roughly 0.0083 percent of workers losing any workdays due to any type of reported workplace violence. So this threat has a very low probability and when it does occur, the impact is restricted to a relatively small number of people. Certainly an incident of workplace violence is traumatic and upsetting for those directly involved, but for the vast majority of workers at the same firm where such an incident occurred, it’s relatively easy to get back to work after such an incident. The dollar impact of workplace violence is significant in its broader implications, and is estimated at $13.5 million in medical costs, according to Carmen A. Paludi writing in her book Understanding Workplace Violence. Yet this number pales in comparison to (and is less than 0.007 percent of) total employer contributions to medical insurance plans nationwide, which were estimated at $200 billion by the National Federation of Independent Businesses (NFIB).

Last on our list of exemplary threats is a fire in a work related building. According to data from the National Fire Protection Association (NFPA), most deaths are caused by smoke inhalation, not by burns. While many people fear death by fire, perhaps imagining death in a crowded theater, the deadliest fires are those that engulf whole forests or cities, or that take place in a confined areas like a steamship or an airplane, or in industrial settings such as a mine or chemical plant. NFPA says that four out of five fire-related deaths occur among civilians in the home. In 2007, US fire departments responded to 399,000 home structure fires, which means that there were about 100,000 fires in workplaces (ignoring other public places to be conservative). NFPA says that, in the USA, some 2,865 people died in home fires in 2007, and so by implication approximately 716 died in workplace fires in 2007 (using the same ratio between home and work). During the same year, some 13,600 injuries occurred due to home fires, and this means that, using the same ratio, there were roughly 3,400 injuries in work related fires. Property damage from the home fires in 2007 was estimated at $7.4 billion, so property damage from work related fires very roughly in the vicinity of $1.85 billion per year (approximately $544,000 per workplace fire). If we use the US Census Bureau estimate of the total US population in 2007, of about 301 million people, we see that an individual has a chance of dying in a work related fire of roughly 0.00023 percent, and a chance of being injured in a work related fire of 0.00112 percent. Thus the chances of individuals dieing or being injured in a work related fire are very low, but if a fire occurs, the damage to property can be quite significant. Since the working environment may also be damaged by fire, and normal work activities may thus be unable to proceed, it is prudent to have a contingency plan for this type of threat.

Now let us turn to the peak oil threat, about which we have no historical statistics, because something like this has never happened before (no doubt that’s a problem when it comes to people believing that it will happen, or that it has happened already). There is no doubt about it, peak oil is going to happen. So we are dealing with a 100% probability (maybe you are a hold-out and you still believe the issue is when). A report by Chris Nelder posted on the Energy Bulletin web site, archived 20 October 2009, summarizes various sessions at the Association For the Study of Peak Oil (ASPO-USA) conference held in Denver in 2009. He indicates that most experts now believe we have already reached peak world production, in 2005, as indicated earlier in this article. He goes on to indicate that depletion rates are now estimated to be between 5.0% and 5.5% per year. That’s right, total worldwide oil production is expected to decline 5.0-5.5% per year. This decline rate is expected to accelerate to 6.5% per year by 2014. These estimates are more or less in line with official estimates publicly acknowledged by the International Energy Agency (IEA). According to petroleum geologist Chris Skrebowski, to lose this much oil in a single year would be equivalent to the loss of 4 million barrels per day (mbpd), which is somewhat like the sum of all the biofuels, all the tar sands, and all the heavy oil now produced. Or, seen another way, it is like losing the entire North Sea’s oil in 14 months. It will be a huge challenge for the world to adapt to such rapidly declining fuel supplies. So from a probabilistic standpoint, there is no arguing with the actual oil production statistics, they show that it’s happening — it’s real and it’s happening now.

In terms of the impacts of peak oil, each and every organization is going to have to calculate these consequences themselves (they vary based on business model, products and services produced, types of technology deployed, etc.). A business impact analysis (BIA) is a standard and recommended approach to contingency planning where we look at “what if” scenarios. For example, if gasoline was $10/gallon, what would that do the ability of workers to commute by personal car or truck? Similarly, if petro-diesel fuel was $10/gallon, what would that do to the organization’s shipping costs, and how would that eat into profits if the firm was unable to increase prices? Through this type of an analysis, every organization is going to need to come to terms with the impacts of peak oil, which are going to be pervasive, and are going to be hitting us all very hard. There will, for instance, be short-term impacts, such as shortages of petroleum that cause manufacturing plants to shut down. And there will be long- term impacts, which result from feedback loops as the short-term impacts work their way through the economy. One example of the latter would be significant inflation for goods that are made with the aid of petroleum including food, clothing, building materials, and pharmaceuticals.

Just to get a rough sense for what we’re up against, consider the research of Steven Kopits, Managing Director of the UK based energy consulting firm Douglas-Westwood. His calculations indicate that whenever the price of oil exceeds 4% of the US Gross Domestic Product (GDP), and that currently is about $80/barrel, it triggers a recession. Recession followed the high oil prices experienced after the 1973-74 Arab oil embargo, the Iranian Revolution of 1978, the Iran-Iraq War of 1980, and the First Persian Gulf War of 1990. Recession also occurred after the oil price shock of July 2008. While there were certainly other influential causes of the recession of 2008, the research of University of California economics professor James D. Hamilton confirms that of Koptis, indicating that high oil prices are a greatly-under-appreciated cause of the most recent recession. If these calculations are even roughly on target, the so-called “green shoots” indicative of the growing economy will soon be trampled by rising oil prices. We will be locked into a cycle of higher oil prices causing recessions, which in turn will lower consumption, which will then lower oil prices, which will lead to less oil exploration, which then restrict the supply of oil, which then causes the price of oil to rise again, and around we go (until we get off of petroleum). So economically we are talking about the macroeconomic loss of billions, if not trillions of dollars, because we are locked into this petroleum-dependent spiraling down cycle.

At individual firms, using the change in corporate profits reported in the State of Texas as a rough indicator of corporate profits nationwide, we see that profits decreased 18% in the one-year period ending in July 2009. For a large business such as IBM, which reported pre-tax annual profits of $16.7 billion in fiscal 2008, a drop of 18% in profits amounts to $3.0 billion dollars. On a personal level, this reduction in business activity, occurring since the recession began in December 2007, according to the Bureau of Labor Statistics, has resulted in the loss of 7.2 million jobs nationwide. While some of this unemployment is probably due to problems with derivatives and mortgages, this number nonetheless provides an order of magnitude sense for the unemployment that peak oil can, and probably will, cause. So, relative to the minor and short-lived consequences of the three other threats described herein, peak oil is going to have a gigantic and long-lasting impact, not just for organizations, but also for families and individuals.

So, we see that three major risks cited here (flu pandemic, workplace violence, and workplace building fire) for which organizations spend a lot of money doing contingency planning are far less of a threat than peak oil is. This is true from both a probability standpoint and from a total dollar impact standpoint. Yet, surprisingly, most organizations are still not seriously engaged in peak oil contingency planning. Clearly we have a pressing need for people’s perceptions about the risk of peak oil to change. One way that the reader can do this with the managers at his or her place of employment is to make reference to the numbers. The author invites the reader to make use of the numbers contained herein as a starting point for these discussions.

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Charles Cresson Wood, MBA, MSE, CISM, CISSP, CISA, is a technology risk management consultant with Post-Petroleum Transportation in Mendocino, California. He focuses on the strategic planning, risk assessment and contingency planning issues related to peak oil and climate change. His most recent book is entitled “Kicking The Gasoline & Petro-Diesel Habit: A Business Manager’s Blueprint For Action” (see www.kickingthegasoline.com). Working in the technology risk management field for 30 years, he is the author of over 330 articles and seven other books. His speaking and consulting work with 120+ organizations has taken him to 20 different countries around the world.

By Charles Cresson Wood

Many decision makers in business and government continue to erroneously believe that peak oil is a “theory” that will not substantially affect them or their organizations, at least not any time in the near future. Accordingly, they continue to drag their feet when it comes to adjusting to the new reality of declining petroleum supplies. This behavior is not only dangerous, it is likely to make the process of adjusting to the peak oil situation much more painful, expensive, and difficult than it needs to be.

Petroleum is America’s most important fossil fuel energy source. Fully 50% of the energy consumed in the United States comes from petroleum. Virtually every modern business process in America today is supported by petroleum. A short list of the products manufactured with petroleum include: pharmaceuticals, clothing like shoes and panty hose, fertilizer for food, foodstuffs like bubble gum, office supplies like elastic bands, cosmetics like lip stick, packaging like plastic bags, household items like wax paper, and sports equipment like golf balls. The most important products made from petroleum are gasoline and petro-diesel, and these are used to manufacture, distribute, service, recycle, and dispose of virtually all products. Of course these two fuels are also used by virtually 99% of people when they drive their cars and trucks to and from work. Most importantly, the peak oil problem is a problem involving declining supplies and increasing prices for liquid transportation fuels.

Peak oil will affect business and government in many ways: some will have an immediate impact, and some will bring impacts through longer-term feedback loops. In the short run, employees may not be able to get to work because gasoline or petro-diesel may simply not be available (older readers will remember the long lines at gas stations in 1970s, which is when we should have started the serious transition away from petroleum). Some employees, particularly those who make relatively low wages and commute from the remote suburbs, will simply quit their jobs because the high price of fuel will make it uneconomical to keep their current jobs. Shortages, rationing, as well as both foot-dragging and corruption in the government agencies that will oversee liquid fuel distribution, will also most likely lead to a break down of truck-based just-in-time inventory systems, on which so many businesses have come to rely.

In the longer term, to save fuel and thereby save money, many businesses will be supporting more employees as telecommuters rather than workers who show up in the office. Globalization as we know it, where products are shipped all over the world, will also be reversed. Many products will increasingly be made locally and shipped much smaller distances. Already we see evidence of this trend in the increasingly-popular local food movement. Air travel will be severely curtailed and soon become the exclusive privilege of the political ruling class, the military, and the super-rich. Longer-term impacts will also include increasing prices for inputs to most every process, and these increasing prices will have a ripple effect throughout the economy, reducing profit margins, and forcing high-cost organizations that have not yet adjusted to the new post-peak-oil reality out of business.

The question that business decision makers should be wrestling with is not: “Is peak oil a theory?” Instead, they should be asking: “When and how will peak oil affect my personal life, and when and how will it affect my organization?” The data from many credible sources is clear — peak oil is happening now. For example, the conservative Federal government agency called the Energy Information Administration publishes worldwide production statistics for conventional oil. Production has been on a plateau since 2005, at about 74 million barrels per day. The inability to increase production flies in the face of increasing demand from developing countries such as India and China. These statistics underscore the fact that new high-tech technology, such as computer models to locate underground petroleum deposits, is not going to take care of the peak oil problem.

In spite of a dramatic run up in prices in July 2008, up to $147/barrel, the high price of oil has not resulted in more oil coming to market. As the world economy picks up steam, we are now (October 2009) going through another run up in the price of oil — oil prices per barrel have roughly doubled in the last six months. This run up in prices will soon result in another recession, at least in the USA, because the American economic system cannot, the way it is currently configured, deal with very high costs for energy. This run-up-in-oil-prices-and-then-crash-in-recession cycle will continue until we actually move to other sources of energy.

Many people erroneously listen to the economists when they should be listening to the geologists. According to classical theoretical economics, if the price of a commodity increases, then more of it will be brought to market. But this did not happen in July 2008, and it will not happen in the years ahead. This is because oil is a limited resource, and the classical economic theory doesn’t take scarcity into consideration. Thus, the market is not going to take care of oil shortages on its own. The fantasy of a perfectly correcting market mechanism is not going to save us here.

When it comes to peak oil, the Federal government is asleep at the switch, and tied up in knots by the corporate powers that be, those who want to maintain the status quo because they are making so much money under the current way of doing business. It is a sad reflection about how government American-style has failed us, but there is currently no prominent politician willing to rock the boat, no politician who is willing to tell the hard-to-hear truth about peak oil.

Each individual, family, and organization is going to need to orchestrate their own transition away from petroleum. The change will take a long time, because we are so very entrenched in a system that relies to such a great extent on petroleum. There is still a window of opportunity for us to make changes to critical petroleum-dependent systems in areas such as health care, military services, and transportation systems. The less low-cost petroleum that is available in the future, the less surplus resources we will have to help us bring about the transition away from the petroleum-based American way of life. Thus the more we procrastinate with this transition, the more difficult and expensive the transition will be.

I recent wrote an article discussing the reasons why the downward slope of the peak oil curve was going to be a whole lot steeper than many people anticipate. Although I have published a lot in this area, the editor of a well-known and highly-respected contingency planning journal rejected my article saying that: “This is not a contingency planning issue.” I was flabbergasted. It is this myopic and limited-distance way of looking at the world that must be changed soon. Instead, every organization needs to get underway with a risk assessment (aka business impact assessment) to determine how peak oil will affect their operations. Once this organization-specific viewpoint is obtained, organizational managers and planners can move on to preparing contingency plans. At that point organizations can also develop a new set of strategic objectives which, if they play their cards right, could even bring competitive advantage to those organizations who have the foresight to embrace the new peak oil reality and adjust now to the post-petroleum future.

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Charles Cresson Wood, CISA, CISM, CISSP, MBA, MSE, is a technology risk management consultant with Post-Petroleum Transportation, in Mendocino, California. His most recent book is entitled Kicking The Gasoline & Petro-Diesel Habit: A Business Manager’s Blueprint For Action (see www.kickingthegasoline.com).

By Charles Cresson Wood

One of the big risks in the financial world, that caused our current banking crisis, was the level of exposure taken on through derivatives. For example, AIG admitted that they did not include certain scenarios in their models about the risks associated with the selling financial instruments such as these. They knew these risks existed, but they didn’t closely examine them, and as a result they didn’t factor them into their decision-making. The bloodbath we are all suffering is the result.

The same problem is found in the information security and business contingency planning fields. In the information security field, we worry about intruder break-ins, the latest zero-day attack, and some new phishing attack used to perpetuate identity theft. Our examination of risk is superficial, and it does not consider what would happen if we don’t have electricity to run a data center for an extended time. Likewise, in the contingency planning area, we worry about workplace violence, a fire in the headquarters building, and a chemical spill that keeps people away from the manufacturing plant. Again, we still fail to come to terms with the systemic risk that underpins everything that we do: the extent to which our economy is dangerously dependent on abundant and low cost energy.

While there are certainly other systemic risks, one of the most serious and unexamined risks that is not getting the attention it deserves is the fact that we are running out of petroleum. The International Energy Agency, a part of the United Nations, wrote a report in October 2008, which indicates that world oil production is now declining at the rate of 9.1% per year. This can’t help but have a profoundly negative impact on business and government. But where are our scenario analyses? Where are our transition plans to alternative energy? Where are our contingency plans, enabling us to deal with rapid increases in the price of petroleum-based fuels, rationing, and intermittent shortages?

It’s time we honestly dealt with the fundamental systemic risk on which the industrialized nations of the world have been built: the fact that we are running out of fossil fuels. People need to know that we do have viable solutions that can be used to deal with this risk, such as 12 different commercially available alternative fuels. It remains to be seen whether we will adopt these technologies before massive structural damage is done to our economy because we insist on remaining in denial about the systemic risk that we face. It is time to brace ourselves for the Bernard Madoff Ponzi scheme equivalent of a meltdown in the energy area.

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Charles Cresson Wood is a technology risk management consultant based in Mendocino, California. His latest book is entitled Kicking The Gasoline & Petro-Diesel Habit: A Business Manager’s Blueprint For Action. More information can be found at www.kickingthegasoline.com. 

By Charles Cresson Wood

The average US price of gasoline, according the US Energy Information Administration, was down to $2.22/gallon as of 10 November 2008. Current prices are all too reminiscent of those experienced by consumers in 2005. When it comes to the world oil production decline, many consumers look at the declining retail cost of gasoline, and conclude that things are just getting back to normal, that there is nothing to worry about. Much the same thing happened after the oil embargo in the 1970s. At that time, the price of gasoline went back down, and nearly everybody then forgot about our dependence on foreign suppliers, forgot about shortages, forgot about price controls, forgot about small fuel-efficient cars, and forgot about alternative fuel technologies.

The capacity of the human animal to deny bad news, to look the other way, to obscure the facts, and to otherwise avoid having to deal with negative information is amazing. Humans keep leaping at any little piece of information that supports this tendency, making that scrap of information out to be the justification why the scientifically-validated predictions of high petroleum prices, shortages, rationing and the like must have been wrong. Just because retail gasoline prices went down doesn’t mean that world oil production is not peaking. Just because retail gas prices recently went down doesn’t mean that we are not all going to be forced to transition away from petroleum on short order. Just because retail gasoline prices went down doesn’t mean that we don’t have an economy-wrecking peak oil crisis on our hands, a crisis that is coming on very rapidly, and we Americans as a country, are almost entirely unprepared.

The price went down because we had a significant contraction in the worldwide economy, not because producers found a whole lot more petroleum. So the demand went down dramatically, while the supply held approximately steady, actually went down some. If you speak to people in the large oil companies, they will tell you all about how oil is getting a whole lot harder to find these days. For example, a front-page article in the 30 October 2008 issue of The Wall Street Journal details the problems that Chevron is having finding significant new deposits of petroleum. So the situation about the peaking of world oil production is not a secret – to the contrary, the information is widely available at this point in time. But, with the exception of those conversions mandated by laws and regulations, virtually no businesses and virtually no government agencies are initiating efforts to convert to alternative fuels. So the issue is not the lack of widely available reliable information about this problem, the issue is whether we will be able to overcome human nature.

So how can we overcome human nature? If decision-makers genuinely understood that it took over 100 years to create the petroleum infrastructure that we use now, they would also appreciate that it will likewise take a long time to transition to alternative fuels. It takes a long time to set-up alternative fuel infrastructure such as in-house fuel refining facilities, in-house fuel storage tanks, in-house fueling stations, new parts for vehicles so that they can accommodate alternative fuels, new maintenance devices, etc. These new facilities need to be researched, evaluated, selected, ordered, received, installed, and tested. In addition, staff needs to be trained, safety procedures need to be changed, and a wide variety of other changes need to take place. Under the best of assumptions, all this can take a year or two. Business firms and government agencies will not be able to simply switch to alternative fuels when they discover that the gas station down the block is no longer selling petroleum-based fuels. If they are going to avoid many unnecessary costs associated with last minute transitions, if they are going to avoid severe business interruption problems, if they are going to avoid damaging their relationship with customers, they must seriously get underway with the transition now.

The need to start now is further underscored by the fact that there are no good substitutes for petroleum-based fuels. By that I mean that businesses and government agencies are not going to be able to use alternative fuels with all of the same equipment, the same distribution systems, the same suppliers, etc. A lot of this will need to be created, modified, and rearranged. An easy switch to alternative fuels is furthermore problematic because the alternative fuel supply chain is largely undeveloped in America today, with the exception of ethanol. Thus organizations will not be able to simply go out and buy sufficient quantities of electricity, hydrogen, ethanol, straight vegetable oil, natural gas, propane, bio-methane, butanol, DME, synthetic liquid fuel, or some other commercially-available alternative fuel when they have finally acknowledged that there is no gasoline or petro-diesel available. If organizations wait to convert until there is a severe crisis, it will be too late to economically, methodically, and rationally convert to alternative fuels. Besides everyone else will be trying to accomplish the same conversion at the same time. When everybody finally gets that we are in a crisis situation, no doubt demand for alternative fuel technology and alternative fuel will far exceed demand, and many organizations will have to wait a long time for the equipment and expertise that they need. Some will not be able to survive the wait.

As an exercise, I recommend that the reader engage management in the preparation of a scenario analysis at their organization. What would happen if gasoline or petro-diesel fuel were all of a sudden unavailable? What would happen if this shortage continued for a week, a month, or a year? How soon would the organization go out of business? How prepared is the organization to weather such a business interruption? The performance of such a scenario analysis is also a good opportunity to inform management about the real situation regarding the oil supply. For example, the reader can convey the fact that the worldwide supply of petroleum is predicted, by the International Energy Administration, to decline 9.1% in 2009 — that is unless producers significantly increase their investment in producing infrastructure. That is not a typo, the correct number is 9.1%, and each subsequent year will see yet another decline in the petroleum available worldwide. All this cannot help but have a very adverse impact on business activity. Ask management at your firm how long they are going to wait before they do something about this very serious matter.

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Charles Cresson Wood, MBA, MSE, is an alternative fuels consultant with Post-Petroleum Transportation in Sausalito, California. His most recent book is Kicking The Gasoline & Petro-Diesel Habit: A Business Manager’s Blueprint For Action. You can find out more about the book at www.kickingthegasoline.com

By Charles Cresson Wood

It is human nature to resist change when such a change involves anything else but known and desired results. We see evidence of this all around us, even in the U.S. Congress. When it comes to getting off of petroleum-based fuels, Congress has dragged its feet for decades. While special interest money no doubt also encouraged this foot dragging, we have now reached a point where the world is in an undeniable oil crisis.

According to statistics from the Wall Street Journal, the price of crude oil has increased 95% in the last year alone. No matter where you stand on the environmental issues related to oil, the peak oil theory, dependence on foreign sources for oil, military conflicts to secure the supply of oil, etc., it is clear that the supply of oil cannot any longer keep up with the demand. The rapidly escalating price of oil is a straightforward indicator of this fact.

Those who have taken the time to investigate the world oil situation (I recommend Richard Heinberg’s The Party’s Over) will come to the conclusion that we must get off of oil and we must do this rapidly. Unlike other major energy transitions, such as wood-to-coal and coal-to-oil, moving from oil to alternatives will be forced and rapid. In addition, there is no single substitute for oil to which the world can move en masse and this makes the transition more complicated and difficult.

There are in fact eleven commercially available alternative fuels that can substitute for petroleum-based fuels. These include electricity, hydrogen, ethanol, butanol, biodiesel, straight vegetable oil, dimethyl either, biomethane, propane, natural gas, and synthetic liquid fuel.

One way that we can overcome the resistance to change mentioned above, a way that we can encourage the transition to these — often cost-competitive — alternative fuels, is to show management that there are actually many proven tools that can be used to assist with the transition. The approach we take should undoubtedly involve three major initiatives, all of which are complimentary and all of which should best be pursued simultaneously. We must be pushing conservation of petroleum-based fuels, we must be increasing the efficiency of vehicles still using petroleum-based fuels and we must also be rapidly transitioning to alternative fuels.

Efforts to conserve should involve the provision of incentives to use public transportation, carpools, vanpools and car-sharing. Organizations should also encourage telecommuting, computer-based training, Internet conferencing tools, as well as adopt policies that discourage business travel unless it’s absolutely necessary.

Organizations should also encourage workers to move closer to the workplace and bike and/or walk to work. In addition, organizations should adopt staggered working hours to allow workers to avoid traffic jams where fuel would be consumed needlessly. A compressed workweek should also be encouraged to reduce the total number of miles driven.

The internal systems within organizations should also be changed to create new incentives to conserve fuel. One of these recommended incentive systems involves a charge-back accounting system, where departments are charged for the fuel consumed on their behalf. Modern information systems such as trip routing and scheduling systems and computer-assisted satellite navigation systems, should also be deployed to reduce the miles driven to achieve specific business objectives.

Efforts to retrofit existing vehicles that still burn gasoline and petro-diesel fuel, so that they are much more efficient, should also be pursued. When a variety of new technologies are deployed, it is now possible to create vehicles that get well over 100 mpg of gasoline. Plug-in hybrids one of many possibilities. Individually these new technologies can increase the efficiency of vehicles 5-10%, but collectively they increase efficiency dramatically. These technologies include hybrid electric systems, self-inflating tire systems, nitrogen tire inflation, low-energy tires, reduced truck idling electric power systems, speed limiters, direct injection systems, electric water pumps, adaptive cruise control, continuously variable transmissions and idle start/stop systems.

In addition, procedural and policy initiatives taken inside an organization can substantially improve the efficiency of vehicles that still run on petroleum-based fuels. These include adopting regular, strict maintenance schedules for existing vehicles and adopting strict energy-efficiency policies for purchasing, renting, and leasing vehicles.

The use of short-term rentals as opposed to purchases of infrequently used vehicles can also reduce costs and fuel use. Shifting a supply and distribution transportation system so that it relies on local carriers and less oil-dependent carriers can also produce substantial savings as well as lessen an organization’s dependence on petroleum. Other internal policies, such as mandatory use of the most efficient vehicle available, can also substantially reduce fuel consumption and send an important message to workers.

The transition to alternatives can also be accomplished with many existing management tools and techniques. For example, an oil-dependency inventory can be conducted to identify all those internal business processes that are dependent on petroleum-based fuels. Using this analysis, a business impact analysis (BIA) can then be performed in order to determine what would happen in various future scenarios. Such a BIA can reveal the likely results if the cost of petroleum were to increase 50%, 100%, or even 250% beyond current levels, and also examine what would happen if petroleum-based fuels were unavailable or if they were rationed. This information can then be used to clearly show top management why alternative fuels are now both necessary and essential.

Other tools, such as the triple bottom line (TBL or 3BL), can be used to help make a case for moving to alternative fuels. Now adopted as a standard by the United Nations, this approach goes beyond traditional financial accounting, by examining people, planet and profit, in order to come up with a means for fully measuring success in an organization. The TBL approach can be used to examine projects — such as the transition to alternative fuels — as well as to provide an annual report to shareholders, the public, government regulatory agencies, business partners and other constituencies.

Many other proven management tools and techniques can assist with the transition to alternative fuels. These include business-interruption-related contingency planning techniques. While much work, such as the inventory of petroleum dependencies mentioned above, needs to be accomplished before a credible petroleum shortage contingency plan can be developed, well-known techniques for validating the completeness and workability of such a plan are now available. With these validation techniques, an organization can make sure, via testing, that its employees are able to work from home, rather than coming into the office, in the event that petroleum-based fuels are not available (as happened in the 1970s during the Arab oil embargo). Such a contingency planning effort should also tie in with existing crisis management systems, so that management will be able to quickly coordinate staff, communicate with outsiders, and make necessary decisions.

Management within today’s organizations needs to see the big picture, to understand that we can and must now make the transition away from petroleum. It is time that we all confronted the myth that it is too difficult, too costly or somehow impractical to convert to alternative fuels. We have the alternative fuel vehicle technology, we have the transition tools and techniques, now we just need the management awareness and commitment to seriously begin the transition process within business firms, government agencies and non-profit organizations.

Charles Cresson Wood is an alternative fuels management consultant with Post-Petroleum Transportation, in Sausalito, California. His most recent book is Kicking The Gasoline & Petro-Diesel Habit: A Business Manager’s Blueprint For Action. You can contact him, and learn more about the book, through www.kickingthegasoline.com.

A different version of this article appeared on 7 July 2008 in Renewable Energy World; http://www.renewableenergyworld.com/rea/news/reinsider/story?id=52973.

By Charles Cresson Wood

In one of America’s most famous business newspapers, a recent article explored the causes of the run-up in food prices (1). One economist was alarmed because some countries — such as Vietnam and India — are now restricting exports of food, and/or increasing tariffs on exported food, in an effort to ensure that their populations are adequately fed. This economist is quoted as saying “Countries should, in general, rely on trade for food security.” In the eyes of this and many other economists, the free market should instead be used to most efficiently allocate food among the world’s population.

This suggestion is not practical, realistic, or in the best interests of the countries now worried about food security, or for that matter, worried about the security of any other essential commodity such as petroleum. This economist’s suggestion is a classical economist’s dream, where perfect markets instantly allocate resources, where consumers have perfect information, and where countries with special advantages end up being the low-cost providers of certain products. In today’s world situation, countries that follow this mantra of the free markets cult are acting in a way that is bound to damage not only their international competitive advantage, but also the welfare of their businesses and citizens.

As much as those who push “free trade” and globalization would like it to be otherwise, the world market for commodities has many “imperfections” as the economists would call them. These involve problems such as import restrictions, export restrictions, duties, taxes, subsidies, and other serious impediments to the rapid and efficient flow of commodities. The absence of free and open information about the state of these markets is another major impediment to today’s markets operating as this economist suggests.

The focus of this conversation needs to be shifted, from striving to live up to an economist’s dream, to contingency plans that will be able to support a country in the midst of sky-high prices for commodities. These contingency plans must also take into consideration current an future resource wars (such as the war in Iraq), the soon-to-arrive commodity shortages, the anticipated commodity embargos, and the other reflections of the fact that many natural resources are now quite limited in supply. The “leave it to the market” approach has gotten countries like Haiti into serious trouble, where they no longer grow enough of their own food, where they have become dangerously dependent on other countries. The “leave it to the market” approach is what has gotten the United States into a position where it is dangerously dependent on foreign countries for petroleum.

The contingency plans I am talking about should involve a clear articulation of the ways that an absolute minimum amount of food, fuel, and other essential commodities will be produced domestically. In those situations where it is not currently possible to produce these essentials domestically, the contingency plans must articulate a rapid transition plan to a new technological system where a country can in fact provide for a minimum of its needs domestically. Only with such an approach is there any hope of insulating a country and its people so that they will not seriously suffer wherever there is trouble in the broader worldwide marketplace.

For example, the United States must now move to alternative transportation technologies that are no longer dependent on petroleum. There are now eleven alternative fuels that are commercially available, notably electricity, ethanol, butanol, bio-methane, bio-diesel, straight vegetable oil, natural gas, propane, hydrogen, di-methyl either (DME), and synthetic liquid fuel. According to studies done by the Energy Management Institute, many of these fuels are now cost-competitive with petroleum-based fuels. The widely discussed plans of both Boone T. Pickens and Al Gore point in the direction of this conversion away from petroleum that must now take place.

So strategic planners, futurists, and management decision-makers should not put their faith in the teachings of classical economics, which claims that an additional supply of a good or service will always automatically come forth in response to an increase in price. Petroleum provides a good example. The price of crude oil has gone up over 100% over the last year. Yet, the total world production of oil has not substantially increased. This is because it doesn’t matter what the price is, when geological constraints on the total amount of oil in the world hold back production, as is the case right now, only so much oil can be produced. All this means that decision-makers should not stand-by and wait for the price of oil to come back down signifcantly, expecting the market to take care of the problem. To the contrary, they should get underway with their own organization’s transition to alternative fuels.

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Charles Cresson Wood is an alternative fuels management consultant and the author of “Kicking The Gasoline & Petro-Diesel Habit: A Business Manager’s Blueprint For Action.” Information about the book, and the way to reach him, can be found at www.kickingthegasoline.com.

(1) See Scott Kidman’s article entitled “Food Crisis Forces New Look At Farming,” The Wall Street Journal, 10 June 2008.

A recent front page story in the Wall Street Journal* reported how Dow Chemical had raised prices on a wide variety of its products, some as much as 20%. Dow blames its soaring costs for energy, noting its oil and gas costs grew by 42% in a single year. Dow blasted Washington for policies that have led to higher energy costs. But the blame does not rest solely on the shoulders of government. Businesses and individuals have also been dragging their feet when it comes to transitioning to petroleum substitutes. With increasing demand and decreasing supply, the market price of petroleum is now signaling that it’s important that all these parties rapidly transition to alternatives.

For years, the International Energy Administration (IEA) projected optimistic numbers about increasing supplies of petroleum. It assumed supply would continue to match increasing demand. But, recently, the IEA has significantly revised its oil supply numbers to reflect a much more pessimistic situation.

Faith Birol, the IEA’s chief economist stated, “This is a dangerous situation.” These days, even the conservative IEA is beginning to recognize that the world’s supply of oil cannot keep up with increasing demand. The predictable result from market-based economics is that prices will continue to rise. Reflecting this new reality, the price of crude oil has risen 95% over the last year. Whether or not the world is now at, or will soon reach the zenith of its oil production capacity, a concept known as the “peak oil theory,” it is clear that producers cannot keep up with world demand as it stands today, which is increasing at about 2% per year.

Some say this is a political problem. President Bush’s recent visit to Saudi Arabia, where he requested more oil production, is an indication of this viewpoint. Others say it is a logistical and investment problem — that producers have not sufficiently invested in exploration and infrastructure. And it is true that much of the existing infrastructure is old and needs replacement or upgrading. This also explains part of the problem, but it is not the major driver of higher prices. Still others say the U.S. must exploit the oil found in environmentally protected places, such as the Arctic National Wildlife Refuge. But all of these suggestions simply postpone an inevitable reckoning with the truth, and do not fix the fundamental problem: that petroleum is not an infinite resource and supplies are now unable to keep up with increasing demand.

If Fortune 500 businesses such as Dow Chemical are serious about containing rising costs, they must now switch to other sources of energy. There are for example eleven commercially-available fuels today that can be used instead of gasoline and petro-diesel: hydrogen, ethanol, butanol, bio-methane, natural gas, propane, bio-diesel, straight vegetable oil, di-methyl ether, electricity, and synthetic liquid fuel. In many cases, according to a three-year study done by the Energy Management Institute, these fuels are now cost-competitive with petroleum-based fuels.

It is time for business leaders, such as those at Dow, to stop looking to the government for a quick fix to the petroleum problem. A reality-based, market-driven approach should involve organizations, as well as individuals, taking this matter into their own hands, converting to the viable alternatives that are now available. It is now possible for a business to make its own fuel, store and distribute its own fuel, and maintain and manage its own vehicles using alternative fuel technology. This is for example possible with bio-methane, which can be manufactured from agricultural by-products, animal excrement, municipal garbage dumps, and other waste streams. Even if you aren’t concerned about global warming carbon emissions, improving air quality, reducing toxic chemicals in the environment, reducing the skewed balance of trade, reducing military and political conflicts over oil, or even the prospect of shortages and rationing, the possibility of containing rapidly increasing costs should now prompt us all to initiate a rapid transition away from petroleum.

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Charles Cresson Wood is an alternative fuels management consultant with Post-Petroleum Transportation in Sausalito, California. His most recent book is entitled Kicking The Gasoline & Petro-Diesel Habit: A Business Manager’s Blueprint For Action (www.kickingthegasoline.com).

* See the 29 May 2008 issue, p. A1, “Chemical Prices Jump, Fueling Fear Of Inflation,” by Ana Campoy and Leslie Eaton