Asking The Right Business Questions About High Gas Prices
July 30, 2008
By Charles Cresson Wood
The notion of “peak oil” — which holds that the world’s production of oil is at it’s all-time high this year, or within a few years — has recently become credible in the business community. While most everybody will agree that petroleum is a depleting resource with a limited supply, the question many now wrestle with is: “How much more oil is there left in the ground?” Considerable debate wages about the real level of petroleum reserves, and how many more years it will last.
Unfortunately this discussion is a distraction from the practical questions that business managers should be asking. A much better question to ask would be: “How much longer will it be before our organization starts to suffer serious adverse impacts because the world supply of oil is dwindling?” When I make reference to serious adverse impacts, I am talking about, among other things, rapidly escalating costs associated with petroleum fuels, and fuel shortages occasioned by geo-political events such as resource wars and embargos.
While there is unquestionably plenty of oil left in the world, that doesn’t mean it will be worthwhile for anyone to extract and refine that oil. Already oil companies are being forced to go to inhospitable areas, such as the Artic, in order to find more oil. Likewise, wells are being drilled at depths of more than 10,000 below sea level. That oil companies must go to these great lengths is indicative of the fact that it is getting much more difficult, and considerably more expensive, to find large oil fields. At the same time, supplies in many of the world’s major oil fields — such as the Cantarell oil field in Mexico — are now rapidly depleting, and as a result, these fields are no longer producing at the rates formerly observed.
Another more revealing question to ask would be: “Even if we are able to find more oil, will it be worthwhile for us to extract, transport, and refine that oil into gasoline, diesel fuel, and other sources of energy?” A lot of the oil being discovered these days is considerably less desirable than the light sweet crude that used to be widely pumped out of the ground. In other words, the easy-to-reach most-easily-processed oil is in increasingly short supply. A great deal of the oil now being extracted from the ground is “heavy oil” which is more difficult and more expensive to refine. The tar sands in Canada provide a good example of this difficult-to-handle oil. There comes a point where the energy obtained from these efforts is only equal to the energy expended in order to get this new energy. At this point, we will stop extracting the oil from the ground because it no longer makes sense to do so. This is a physics question, not a geological question about how much oil remains in the ground. The point where we stop extracting oil is going to be reached much sooner than the time when all oil supplies have been extracted.
It is time for organizations to seriously consider the impacts of continuing to use petroleum fuels when their competitors are starting to convert to alternative fuels. These impacts include the inability to make timely deliveries to customers, the loss of an image that the organization is environmentally progressive and community-minded, the inability to meet government mandates for the use of alternative energy technologies, being forced to go to the black market in order to get petroleum-based fuels, having profits and budgets which are at the mercy of increasingly volatile petroleum prices, having to pay much higher carbon taxes, being at the mercy of geo-political and ethnic disputes over which the organization has no control, and being distracted by the problematic petroleum situation rather than attending to the important business issues. So if management at your organization has not yet started to seriously consider how the rapidly changing petroleum situation will impact the organization’s future, it is paramount that they begin this process in the very near future.
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Charles Cresson Wood is an alternative fuels management consultant based in Sausalito, California. His latest book is called “Kicking The Gasoline & Petro-Diesel Habit: A Business Manager’s Blueprint For Action.” You can reach him via www.kickingthegasoline.com.
This article appeared in the Salem-News.com, (Salem, Oregon), 11 April 2008, http://www.salem-news.com
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