Letter Re: More Evidence of Peak Oil Decline–Preparing for Much Higher Gasoline Prices

Dear Jim and Family,
Bad news from the largest oil field in Mexico. The Canterell field, formerly reported to decline at 2% last August, 6% in October, and 11% in December has been rated at 25% today. Oil production has dropped from 1.99 million barrels per day to 1.5 million barrels per day.

This is a very bad thing. Most of that oil goes to the USA via NAFTA treaties. There are no fields to replace it, and since Mexico has 51% leftist leanings, no oil company will risk investing there (Pemex was formed from seized foreign oil investments, most of which were from the USA). Losing half a million barrels of non-Middle Eastern supply makes us more susceptible to interruptions from hostile nations like Iran and Venezuela, and unstable nations like Nigeria.

This also has secondary effects. Most of the money in Mexico comes from oil wealth. Without the oil, Mexico, the nation with one of the highest birth rates in the world, will be needing to find other sources of income for their 1 million young men turning 18 each year. Without the oil wealth to pay for social services, the collapse there will either cause them to come to the USA seeking jobs (just as the USA is entering a recession due to energy costs and the collapse of the housing bubble), or further fuel revolution in Mexico. Mexico is already unstable since the race for president and ruling party was hotly contended and claims of voting fraud rang very loudly, particularly in the South where leftists openly battle with the Federales.

Let’s assume that any internal issues in Mexico stay there, and that conditions in the USA don’t cause a higher number of illegal immigrant labor. Even without that, losing 1/2 million barrels per day in 6 months, and possibly another half million by July of this year is going to hurt the USA quite a bit. That’s an Iraq worth of oil. If things get more messed up in Mexico, the oil may stop flowing temporarily, thus removing 1.5 million barrels per day from the market and driving the price up until demand for those barrels is removed. This generally means the third world is bid off the market. It also means that you may see $6/gal gasoline, maybe later this year. Who knows? It’s too uncertain to invest in crude oil futures.

The thing about predicting gasoline prices is we know the price will rise, but we don’t know when, or if $6 will be just a few days before it races past that number for a higher price. Supply and demand rule, and if you paid the same price per volume for gasoline that you do for beer, you’d be looking at around $32/gal. And beer won’t push you two dozen miles surrounded by 3,000 pounds of steel, rubber, and plastic. Gasoline is more useful, so will inevitably cost a lot more, eventually to cost what its actually worth for the work it can do. This will leave a lot of cars empty of fuel, sitting in your driveway rusting forlornly with only 30 more payments. My advice is to start offloading your excess vehicles sooner rather than later, and if it comes to a choice of going into debt for a hybrid and someday tossing the guzzler for scrap metal: the math says the guzzler is a better deal. The price of fuel will rise faster than the hybrids can accommodate and debt for a vehicle will make less and less sense when unemployment follows energy scarcity and transportation problems. If you must maintain your personal travel freedom, there’s always motorcycles, which get 60 mpg. If you insist on your car and can live with the loss of freedom, you can carpool which effectively doubles or quadruples your fuel efficiency (if you carry three passengers). It’s not very macho and it’s painful to your freedom, but it’s better to have a job than not. And some mobility is better than none. We’re all going to have to get used to much more limited mobility in the next few years.

And I shudder in anticipation of “travel papers” and other documents limiting travel in the name of fuel efficiency, homeland security, or whatever other excuse they choose. Sincerely, – InyoKern

JWR Replies: Reading through the SurvivalBlog Retreat Owner Profiles, you will notice that nearly every one of them has a “economy runabout” car listed. I think that is a wise approach. Also, don’t overlook mountain bicycles with panniers and/or light cargo trailers, the new generation utility trike-bikes with cargo platforms and/or cargo trailers, and of course horses. These alternatives may not be speedy or convenient, but they require no gasoline.