Oil will Rise above $2,000 Dollars a Barrel?

Permit me to drift well beyond the trends of a recent article which stated that China would surpass America’s economy by 2016. America’s economy consumes a quarter of the world’s oil, Europe and Japan another quarter. By 2016, China will consume another leaving India, Latin America and the rest of the world scrambling for the remaining 25%. But China’s growth is doubling every 7 years so by 2023, her share of the world’s output will demand 50%, leaving the U.S., Europe, and Japan and India demanding the other 50%. What does that portend to the rest of the world?

Not much more than a decade away, without some miraculous energy alternative that thus far has not been revealed, there will be great conflict over oil. Much sooner, there has to be a sustained price spike. Surely, the world will attempt to suppress this price hike through alternatives by some yet unknown marvel. However, the world seems to have discounted a potential technological solution and is jockeying jitteringly amongst the oil producing states.

Is America prepared for oil at $500 dollars a barrel? How much would we pay for oil before consuming our domestic alternatives, and what realistic alternatives do we have? We could switch to natural gas for transportation, but that would use our entire reserve within a dozen years or so. We could plug our cars into coal fired electric, but at our rising demand rates, our nation’s reserves would run out within a few decades. These hydrocarbon alternatives would soon find their values rising as quickly as oil. Given the catastrophic conclusion, why aren’t we building wind power, wave power and solar power alternatives at breakneck speed while we still can? The Chinese, following their age old planning horizons, will complete 40 nuclear plants by 2020, and have current plans for 245 reactors. Why?

What if, within our lifetime, the real price of oil reaches $1,000 a barrel, or $2,000? What if gasoline reaches $100 dollars a gallon, Will we pay it? Who could? However, we will soon be forced to understand that the real value of oil is much, much greater than $100 a barrel, and we will willingly pay it.

With the marvel of oil, Americans left the farms and produced a complexity of products and services that extended the quality and length of our lives. In 1776, without oil, 90 percent of us farmed and our average life span was 33 years. Now only 1 in a hundred remain on U.S. farms, and our lives age twice as long, thanks to the benefits of societal specialization brought about by oil.

Oil is the engine of modern life. Oil is now doing the agrarian work of 150 million men in America, plowing and fertilizing the land. About a third of America’s oil consumption goes to food production. What is that worth a barrel? Well at the average American wage and 150 million men, that would put the value of oil at over $2,000 a barrel (gas at $80 a gallon).

Oil truly is Ponce De Leon’s fountain of life. Much of America’s GDP is diverted at an ever escalating rate to healthcare to maintain our 75 year lifespan in the face of epidemics of obesity, diabetes, heart ailments, cancer, and Alzheimer’s. How much more of our GDP would we divert to stave off a return to life spans of 40 years? In other parts of the world, 2 out of 3 people still plow their land and live only 60 percent of an American’s lifetime, even in 2011. Their ability to spend even $100 a barrel is limited.

America spends 5% of our GDP on oil. In Weimar Germany for much of a decade, Rapid inflation caused the Germans to dramatically change spending patterns. 70% of Germany’s wages went to food, 25% to energy and a mere 5% went to housing and all the rest. Given no alternatives to oil’s life giving benefits, America will dramatically increase our oil budget.

While America’s way of life depends on oil, the oil spikes less than a decade a way will most certainly dampen our way. At $4 for a gallon of gas, America complains, yet we still live like emperors of old because oil does the work of 500 men for each of us. At $80 per gallon of gas, most of us will lose our kingdoms. The very wealthy will afford the luxuries of oil, but most Americans will return to the Spartan life lived by much of the world. We will be thankful for the Amish that live among us for they have carried forward the way of the land in America. The Amish today benefit from modern science’s applications of oil but use it otherwise sparingly. As America drifts toward the Amish, we will have to learn how to retain the life giving attributes of oil, while remembering its wonderful king making qualities only as a distant memory.

The U.S. is the breadbasket to the world. However, our ability to keep exporting food will end in about 15 years if the trend in population growth and soil depletion continues. As America pulls back on our supply of food to the rest of the world, the rise in food prices attributable to oil and the world’s resulting unrest in 2011 will intensify. The average world citizen, who gets by on a few dollars a day with much of that going to food will rise up against the hoarders of oil. What will happen when oil prices rise beyond oil’s ability to feed the world? What will happen as the superpowers compete for this already declining resource? What will happen as oil prices above the ability of most Americans to consume it? What great conflicts are on the horizon?