Jackson Free Press

Janice Taylor fills up the gas tank of her Ford Navigator once a week. The Navigator's tank is capable of holding well over 40 gallons, and with gas at even the cheaper outlets running more than $2 a gallon, Taylor kisses a whopping pile of cash goodbye almost every time she visits the pump.

"I mean, my God, that's a $100 bill every time I fill up," Taylor shouts. "There ain't no way I can afford to take my car to work anymore with prices like this."

Taylor says lately she and her husband have been sharing the services of his five-year-old Toyota Camry. She says the Navigator is probably on its way to a trade-in within the year if gas prices don't improve. She adds that she's only owned it about seven months.

"I don't think I would have bought it if I'd known prices were going to be like they are, looking back on it," Taylor says.

Dealers Feeling the Heat
Taylor is one of many Jacksonians who are coming to this realization, and some car dealerships are already feeling the consequences.

Ford and GM, in particular, are getting hit nationwide. Even as sales were expanding for the industry, they were shrinking at G.M. and Ford. The decline was the sharpest at General Motors, which is the world's largest automaker, falling 7.7 percent from the same month a year earlier, primarily because of a weak demand for SUV's. The drop in SUV popularity also hurt Ford, which sold 5 percent fewer vehicles in April compared to a year ago. Standard & Poor's Ratings Services even went so far as to cut its corporate credit ratings for both General Motors Corp. and Ford Motor Co. to junk status, a nasty whack that will increase borrowing costs and limit fund-raising options for two of the nation's biggest automakers.

"I can't even sell some of our biggest sellers from four months ago," admits one salesman who preferred anonymity to openly forecasting bad numbers at his dealership. "Some of the big SUVs that made our budget—we just can't sell them anymore."

Other dealerships, whose companies had the foresight not to focus exclusively on the SUV fad, are seeing marked increases in sales of economy cars.

"We've noticed a big (increase) in demand for our diesel vehicles, which average 50 miles a gallon on the highway," says Tommy Jones, sales manager at Hallmark Imports, a dealership that carries Volkswagens. "We see lots of people coming in here wanting to trade in their SUV's for our smaller cars. We can't keep our diesel Volkswagens on the lot anymore. Demand is much greater than supply right now."

Emerging, Harsh Reality
The Associated Press reports that on May 5 U.S. crude oil prices had "tumbled" by more than $8 a barrel since early April when they soared to a record high above $58. The decline in prices is due in part to a steady increase in U.S. oil inventories and OPEC promises to keep the global market adequately supplied. President George Bush met with Saudi Crown Prince Abdullah last week, urging oil-producing countries to expand production to help ease prices. Though the price did drop immediately, Bush's cozy ties with Abdullah may be only a Band-Aid for what will soon be revealed to be a severed leg.

The greater problem, according to some geologists and former oil prospectors, is more disturbingly permanent, and something that no amount of international schmoozing is going to resolve.

An example of the emerging, harsh reality may be found in 1970, back when America reached its peak in oil production—the point at which half the total oil known to have existed in a field or a country has been consumed, beyond which extraction goes into irreversible decline. During that decade, the U.S. could find no new oil wells to tap and step up production. Gas jumped in price, spending us into a flurry of economic despair and the ravages of stagflation. Back then, however, America found a savior in the Middle East as Saudi Arabia entered into a personal contract with the U.S and stepped up production.

This time, according to some industry professionals, Saudi Arabia is about to reach its own peak—and there's no new Saudi Arabia to save us.

British petroleum geologist Colin Campbell is the former chief geologist for Amoco, vice president of Fina, and has worked for BP, Texaco, Shell, ChevronTexaco and Exxon in a dozen different countries. A group of Swiss financiers recently asked him to frankly describe the end of our age of oil, and Campbell did it. The scenario he put to them was awful.

"There is basically no spare capacity to increase production in the world anywhere," Campbell told the JFP from the comfort of his home in Ireland. "That's not to say that production could not be (temporarily) ramped up in the Middle East, but conditions are not there such to make that likely, nor do those countries have any particular motive to do so I think their physical limits are quite serious, and it would be in their interest to preserve what they have as long as possible. That said, the underlying pressure on the price of gas is upwards."

'Interesting' Economic Crashes
It doesn't take a crystal ball to see how the price of gas can affect an economy, Campbell says, and warns us all to get ready for a very bumpy ride.

"(Gas prices) are rising now and there's nothing to stop her continuing to rise," Campbell predicts, and says that the economy is too easily influenced by even the hint of ridiculously high oil prices. For this reason, he believes the U.S. economy is likely to drop away from us long before oil scarcity knocks the price at the pump up to an intolerable price.

"You know, economic crashes are interesting things," he says. "The actual decline of oil is only 2 or 3 percent a year. This is not any cliff or catastrophe in itself, and you'd think with any kind of intelligent management, it could be handled. But the first half of the age of oil has seen an enormous proliferation of trade, industry, transport, agriculture and almost everything you could think of including financial capitol, all because of cheap oil."

Financial capitol, in particular, was created by banks that lent more money than they had on deposit in a system that should've rightfully crashed a long time ago were it not for cheap oil fueling constant economic expansion. Oil was the energy that made the wheels turn because it allowed tomorrow's expansion to finance the collateral for today's debt.

"Well, these banker fellows whom I've been meeting with recently are beginning to wake up and say 'my God, if the economy is not going to grow in the absence of more cheap energy, then that will diminish the credit of this enormous debt that the world lives under,'" Campbell says.

Denial, and Then …
Denial is usually the first step in coming to grips with death, even in the case of the death of a world economy. The first question we inevitably ask is, "Is Saudi Arabia really reaching its peak in production?" Not according to Saudi oil drillers—but Campbell and others are quick to point out that Saudi oil drillers have very good reasons to keep something like that under wraps.

Bank of Montreal analyst Don Coxe is the first mainstream number-cruncher to say in April that Saudi Arabia's—and thus the world's—biggest field, Gharwar, is in irreversible decline. Coxe dismissed Saudi claims that the country could produce extra capacity to satisfy surging demand in China and India, saying that Saudi promises to increase production last year failed to appear. Saudi international petroleum company Aramco had pledged an extra 500,000 barrels of oil immediately and an extra 5 million barrels per day by 2012. The new oil was heavy and sulphurous, however, and only a few refineries had the spare capacity to use it. Also, the 5 million barrels per day of new production by 2012 turned out to be additions of only 2.5 million barrels to Saudi output.

Worse yet, Coxe said he believed Gharwar may have been damaged by poor management, bringing the oil peak all the closer to reality. The common Saudi practice of pumping water into the well to increase the rate of output prematurely kills the well. Also, sucking out large amounts of oil at the maximum rate can damage the geological structure of the field itself. Basically the hole falls in on itself, making large amounts of oil within it un-extractable.

Middle Eastern oil drillers are well aware of this, and have for that reason occasionally stepped down oil production in past years. Now, however, Saudi fields are cranking up production like never before, caving in to renewed, desperate calls of faster oil to keep the world economy rolling, such as Bush's recent request to Abdullah.

Doomsday Scenarios
Campbell himself admits that he often fudged the numbers when he worked in the industry, partly to boost the company's share prices with "good news" results.

"I do not think that I ever told the truth about the size of a prospect. That was not the game we were in," he confessed in an earlier interview. "As we were competing for funds with other subsidiaries around the world, we had to exaggerate." He added that both companies and countries were guilty of the tactic.

If the warnings of Campbell, Coxe and other alarmists can be believed and prices are inevitably heading up to $6 or more a gallon in the next several years, where does that leave American suburbia? How will the new prices treat a 20-mile commute out of the city? England and Germany are already dealing with steep gas prices, but England and Germany have not been decimating their inner cities and fleeing to suburbs hours away from their workplaces for decades.

The very best scenario has inner cities seeing an influx of a new tax base from the suburbs and a rapid deluge of gas-sipping cars, but that's only a piecemeal prediction. Other fortune-tellers are much less optimistic.

Ron Swenson, designer and webmaster of energycrisis.com, offers a host of nasty foreseeable futures—and many of them involve an economy drastically different from the one we're currently in.

"I think that if the price of oil goes offline and people can't get the stuff, we'll have a collapse of tourism, then the collapse of communities, and then (will come) the food crisis," Swenson says, adding that a vast number of Americans will fatally suffer in such a system.

His prediction is no less than a doomsday scenario. Oil is absolutely tied into every facet of the world economy. Oil has become the new slave labor. It makes the fertilizer that grows our food. It gets that food to our supermarket. It is the sole reason America and the industrialized nations do not see the mass starvations that are already happening elsewhere. It is oil that allows our population to surge and be sustained. Swenson says we're out on an artificial limb that was only allowed to get this long because of cheap oil—but that oil is about to get real scarce, and too expensive for our delicate economy to tolerate.

"There's no question about a die-off," Swenson laments. "There are 50,000 people dying every day from starvation (outside America already). We're beyond that stage where we can isolate ourselves from the rest of the world. We use a quarter of the oil resources, the copper and all the things that are used around the world and as the world's big user, we're the one's who're going to be suffering. The bigger we are, the harder we fall. A die-off is not a question. The only question is how bad it's going to be."

The price of gas, as the supreme economic engine, will apply to everything. It is possible in the near future to discover an apple costing $4. An egg may become a luxury item unless you own a hen. Eating beef may become an impossibility unless your backyard contains a cow. Other changes will soon apply. Even the structure of the nation's public education system may tumble, possibly sooner than later. Consider the cost of busing hundreds of students every weekday.

Aghast in Jackson
Jackson Public School's financial officer Sharolyn Miller tries not to think about it.

"The price of gas for our vehicles is $822,000 for the fiscal year to date from July 1, to yesterday. Our average is much cheaper than if we were paying pump prices," said Miller, whose estimate is based upon a gallon price of about $1.70.

"If you look at some 300 buses and another 200 and some odd vehicles and see $800,000 so far you could see what even a $4 a gallon price tag would do to us. It would bust our budget. It would be a significant impact, especially with us not knowing where our revenue would be next year so we could not plan for the next year."

The federal government claims to be on alert for the incoming oil peak. U.S. Rep. Chip Pickering, R-Miss, was recently in town, attending a forum on the environment at the Mississippi Natural Science Museum. Pickering, who is vice chairman of the House Energy and Commerce Committee, offered a sample of his committee's plan to combat the problem. Pickering's political policies are an accurate gauge of the Bush Administration's national policies, which he commonly mimics. Pickering's energy plan, outlined in the House of Representatives Energy Policy Act of 2005, likewise serves as a mirror to the White House.

"We're trying to increase domestic production of oil and gas, whether it's looking at Alaska, giving greater incentives for exploration and production here or looking at deepwater and the Gulf of Mexico," Pickering said. "Also, we need to concentrate on more long term goals, possibly the nuclear technologies or the development of hydrogen fuel."

Unfortunately, those long-term goals come off as short-sighted considering Alaska's untapped oil fields in Arctic National Wildlife Rescue (ANWR) will only net us 16 billion barrels according to a 1985 survey by the U.S. Geological Survey (USGS), enough fuel to keep our cars going for about six months if we relied solely upon it. Pickering's hopes for future oil fields off the coast may also be overly optimistic considering that no new significant fields have been discovered since the 1960s, even with an army of oil prospectors already desperately combing the planet. Nuclear technology comes with its own set of drawbacks. Not only is one reactor capable of making hundreds of square miles unlivable for hundreds of years in the event of a meltdown, but uranium fuel is itself a very finite resource, just like oil. Plans to involve hydrogen as a significant fuel source are also similarly hamstringed by the hard reality that the brunt of our hydrogen fuel today comes from patently finite reserves of fossil fuel like natural gas.

Democrats are demanding more emphasis on financial incentives for renewable energy in the 2005 Energy Bill, but while politicians battle over how to handle the problem, the economy is likely already suffering the first few twinges of pain from the dying oil wells of the Middle East.

"We're more or less at a physical peak right now," says Campbell. "I suspect that this year we'll (first feel the vestiges of the coming collapse.) It may even turn out that 2004 production reached the all time maximum. One can't be sure if it's last year, this year or next year, but it's fairly imminent."