The Housing Chronicles Blog: Envisioning life with oil at $200 per barrel

Sunday, June 29, 2008

Envisioning life with oil at $200 per barrel

When I first wrote about the theory of peak oil last fall, I thought it was at least a couple of years away. But now, for a variety of reasons, the potential impact of oil supplies becoming scarcer while demand increases is rolling out not in terms of years, but weeks. What does this mean for a society which (myopically) assumed cheap energy was something to be tapped forever? A story in the L.A. Times takes it on:

Besides the obvious effect $7-a-gallon gasoline would have on commuters, automakers, airlines, truckers and shipping firms, $200 oil would drive up the price of a broad spectrum of products: Insecticides and hand lotions, cosmetics and food preservatives, shaving cream and rubber cement, plastic bottles and crayons -- all have ingredients derived from oil.

The pain would probably be particularly intense in Southern California, which is known for its long commutes and high cost of living.
"Throughout our history, we have grown on the assumption that energy costs would be low," said Michael Woo, a former Los Angeles city councilman and a current member of the city Planning Commission. "Now that those assumptions are shifting, it changes assumptions about housing, cars and how cities grow."

Push prices up fast enough, he said, and "it would be the urban-planning equivalent of an earthquake."...

Consumer spending has held up surprisingly well in the face of skyrocketing pump prices -- bolstered in part, perhaps, by federal tax rebates. But the same day the government reported a 0.8% rise in May consumer spending, a research firm said consumer confidence had plunged to its lowest level since 1980 -- hinting at the catastrophic effect another big gas price surge could have on retailers and customers

"The purchasing power of the American people would be kicked in the teeth so darned hard by $200-a-barrel oil that they won't have the ability to buy much of anything," said S. David Freeman, president of the L.A. Board of Harbor Commissioners and author of the 2007 book "Winning Our Energy Independence."
BIGresearch of Worthington, Ohio, said more than half of Californians in a recent survey said they were driving less because of high gas prices. Almost 42% said they had reduced vacation travel and 40% said they were dining out less.... Nationwide, $200 oil and $7 gasoline would force Americans to take 10 million vehicles off the roads over the next four years, Jeff Rubin, chief economist at CIBC World Markets, wrote in a recent report...

As for the state's beleaguered housing market, prices are falling faster in areas requiring long commutes -- such as Lancaster and Palmdale -- than in neighborhoods closer to job centers...

Already Californians' mobility is being curbed. Traffic on the state's freeways fell almost 4% in April compared with a year earlier, and ridership on many subway and bus lines operated by the L.A. County Metropolitan Transportation Authority has risen in recent months. But a huge influx of riders would strain aspects of the system, MTA says, noting that many buses are overcrowded at rush hour now. Quickly adding capacity to meet demand from new riders wouldn't be easy, because new buses cost hundreds of thousands of dollars and take up to two years to deliver...

Dramatically higher transportation costs would usher in an era of virtual mobility, or zero mobility, for many workers.
"We're seeing companies go to four-day workweeks, place increased emphasis on working at home, show bigger interest in setting up satellite offices -- anything that gets commute times down and gets people off the road," said analyst Rob Enderle of Enderle Group in San Jose. Videoconferencing, touted as "the next big thing" for years, would finally have its day, thanks to improved technology and a desperation to cut corporate travel budgets.

Telecommuting, or working from home, is easier than ever because of the spread of high-speed Internet access, said Jonathan Spira, chief analyst at Basex Inc., a business research firm in New York. In particular, workers in "knowledge" jobs that can be performed with computers and phones would benefit.
But Gilligan of USC noted that lower-income workers tend to be in jobs that don't favor telecommuting, such as retail and food service.

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