According to the Army Corps of Engineers, world oil production has peaked. This means that there will never be a higher yearly yield of oil then we’ve seen in the past. Since demand has been rising every year, pushing production higher, it also means that, now, there is a permanent supply shortage. Not one of those temporary ones that it will be relieved by an influx of crude sometime in the future, but a permanent one will affect the price for as long as there is demand.
The last time the US faced a significant supply shortage was during the 1970s. That was when US oil production peaked and we became dependant on foreign oil. During that time, the price of oil went up about 850% in seven years. I remember that time. I remember $0.35/gal gasoline. I remember people junking their big solid steel American-made cars and going to the smaller lighter weight imports that got better milage.
I’m sure that some people in Buffalo remember it as the time just before the steel jobs or automobile jobs declined. Maybe some remember it as just before the Mobil Oil Refinery on Elk Street or the Ashland Refinery in Tonawanda were closed. We’ve seen this happen before. We live in a petroleum based economy and higher oil prices mean a loss of jobs.
So what are we going to do about it this time? The graph above shows three lines. The pink line, partially covered by the yellow is the actual oil prices for the years 1999-2006. The yellow line is the projected price of oil based on standard inflation. So without a supply shortage (before peak oil production) that would mean that 2008 oil prices should be about $60/barrel and 2009 should see about $65/barrel.
The red line shows the percentage increase that we saw in the 1970’s when US oil production peaked. If the peak occurred in 2007, we’d see oil around $92/barrel for 2008 and around $125/barrel by 2009. It’s 2008, and oil is over $100/barrel and the Chairman of the Federal Reserve has warned Congress that rising oil prices will hurt the economy.
But if the Army Corps of Engineers is correct, this is just the tip of the iceberg and we are headed straight for it. It doesn’t take a great deal of imagination to come up with the kinds of economic impacts this might cause for Buffalo. The costs of goods being shipped here will go up as the fuel costs increase. That means more expensive goods here, while fewer Buffalo-produced goods are purchased elsewhere. Almost anything that is connected to the automobile industry will suffer as the price of gasoline goes up. The list goes on.
Food will go to local markets rather than be trucked other places; not a bad thing if you live in Western New York. Locally produced goods will become a better deal compared to those from other places, even where the labor is very cheap, particularly if the products are heavy or bulky. Local businesses which use local materials will enjoy a competitive advantage which will grow substantially each year as oil becomes more expensive.
This is where having established recycling industries and alternative energy industries will give Buffalo an edge. The materials are already here, so it is like having steel, aluminum, plastic or glass mines in our own back yard. With renewable energy they can be processed at lower cost and not send any money out of the area for either energy or material. If Buffalo has the infrastructure in place, the material will come here to be processed rather than to other cities which have to build an infrastructure while costs soar and revenues plummet.
A large part of Buffalo’s Golden Age was based on this kind of a combination: raw materials, the energy to process them (often the hands of the immigrants) and the transportation hub. As the cost of oil skyrockets, Buffalo’s fortunes could be pulled skyward if only it moves to take advantage of these green industries. It has happened before.
But to make the strategic investments necessary to make it happen, everyone is going to have to work together. The elected officials can’t try to make this a divisive issue to pit one constituency against another. Labor organizations can’t try to use this as a way to regain their political power. This is not something that can be hatched in a backroom; it will take the engagement and the cooperation of every group in the city because it will take the cooperation of the entire city to make it work.
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