Why Your World is About to Get a Whole Lot Smaller: What the Price of Oil Means for the Way We Live
By Jeff Rubin
Virgin £18.99, 304 pages
FT Bookshop price: £14.39
This is a book about the implications of Peak Oil: the theory that the world’s oil production is past the highest level it will ever reach, or very close to it.
Merely by writing that sentence, I have ensured a healthy crop of angry correspondence for the FT. Believers in Peak Oil are quick and often intemperate in defence of their views.
Their zeal is understandable. If you had uncovered a truth that would mean the end of civilisation as we know it, but were being universally ignored, you too might seem a little wild-eyed. Yet that intensity often makes it hard for the Peak Oilists to get their message across.
It does not help that many of them are engineers and scientists, unskilled in the subtle arts of persuasion. Some, who stockpile shotgun shells and tins of beans with grim satisfaction, seem actively to relish the prospect of a harsher but simpler world after society has broken down.
Others have made dogmatic assertions about future oil production that have been proved wrong. For financially literate FT readers, the Peak Oilists’ credibility is further undermined by their suspicion of market forces. “Economist” tends to be a term of abuse in Peak Oil circles.
Yet for all their crankiness, the Peak Oilists are on to something. Energy supplies of all kinds, and oil in particular, are becoming increasingly problematic. And there is a profound public complacency about the extent to which our economies are dependent on reliable supplies of cheap energy – supplies that are becoming ever more difficult to guarantee.
That is why Jeff Rubin’s book is so welcome. As former chief economist at investment bank CIBC World Markets, he brings a perspective to the debate that is original, engaging and persuasive.
Won over by Colin Campbell, a geologist who was one of the founders of the Association for the Study of Peak Oil, Rubin has become a convert to the belief that we are heading for an era of energy scarcity. Yet his assessment of the implications of that historic shift, while sobering, is ultimately reassuring.
The world economy will change profoundly and the transition may be painful. But, he argues, the new world could be “a lot more livable and enoyable than the one we are about to leave behind”.
Unlike many discussions of Peak Oil, Why Your World is About to Get a Whole Lot Smaller is light on detailed geological and technical argument. The most important point about oil supplies is not whether the precise peak in production comes in 2015 or 2020, or has already passed. It is that it is inexorably becoming more difficult and expensive to bring new oil on to the market.
Compared to the reserves that have provided our oil supplies for the past century and a half, the new fields now being found are smaller, or more technologically challenging, or both. A growing proportion of global supply comes from “unconventional” sources such as Canada’s oil sands, where huge energy inputs are required to create a usable form of crude.
Meanwhile, although demand for oil may have fallen sharply this year, that pull-back is surely only temporary. In the long run, economic development in China, India and other countries, including the big oil producers of the Middle East, will bring them closer to levels of oil consumption in the west.
The result, Rubin argues, is that as the world economy recovers, the oil price will soar again. The top of the cycle last year was close to $150 per barrel; in the next cycle, it could be $200. The one after that is likely to be higher still. At the time Rubin was writing, in March this year, oil was about $40 per barrel . At close to $70 today, his analysis already looks prescient.
The best chapters of his book, however, are its extrapolations of what the world of higher oil prices will look like. Distance costs money – and the higher the price of fuel, the more distance becomes a barrier.
This means that expensive oil will make our world smaller in many ways: cities will have to become more compact so that people use their cars less; consumers will have to buy more locally produced goods instead of exported ones. As a result, says Rubin, globalisation, “a fancy word for moving your factory to the cheapest labour market in the world”, could go into reverse.
For countries that rely on long-distance exports, this will threaten their prosperity. For western manufacturers fighting to compete with cheap Chinese imports, it would be welcome. For the world as a whole, however, growth will be slower, as the power of comparative advantage – countries concentrating on what they do best – is blunted.
There will be compensations, however. Curbing energy use will make it easier to cut greenhouse gas emissions. More compact cities not dominated by cars will be better places to live. And as people start “going local”, looking to their regions and neighbourhoods rather than the wider world, they may take better care of their communities.
This book paints a vision of a world of energy scarcity that seems more appealing than the apocalyptic warnings of many Peak Oil believers. Rubin also fails to tackle the threat of a bitter struggle for resources as countries and individuals try to grab for themselves the dwindling reserves that remain, which some experts see as a real risk. No doubt Rubin will draw flak from the more extreme end of the Peak Oil movement for his Panglossian optimism, the economist’s perpetual failing.
For the rest of us, his book is a thought-provoking introduction to a future that, sooner or later, the world is inevitably going to enter.
Ed Crooks is the FT’s energy editor