A well-known economist and author says the B.C. government is looking in the “rear-view mirror” by spending vast sums of money to become a gateway for more trade with Asia.
In an interview in a downtown Vancouver food court, Jeff Rubin, a former chief economist with CIBC World Markets, told the Georgia Straight that in the coming years, “triple-digit” oil prices will make it far more expensive to ship goods here from Asia.
“Trade is going to become more and more regional than transoceanic,” he predicted.
Rubin’s new book, Why Your World Is About to Get a Whole Lot Smaller: Oil and the End of Globalization (Random House Canada, $29.95), describes in detail the impact of oil prices on shipping costs. For example, he notes, when oil prices rose from US$30 per barrel to US$100 per barrel, the average daily fuel bill of a cargo ship went from US$9,500 to US$32,000.
“As oil climbed to [US]$100 per barrel, fuel costs became almost half the total cost of shipping something by sea,” Rubin writes.
As the Straight went to press, oil was selling at US$71 per barrel. It has swung from a high of US$147 to a low of US$33.87 over the past year.
Rubin said he became interested in the theory of peak oil several years ago when he met petroleum geologist Colin Campbell, who cowrote a landmark article on oil supplies in Scientific American in 1998. Campbell suggested that major oil producers such as Iran, Saudi Arabia, Iraq, and the United Arab Emirates inflated their “proven reserves” even though they hadn’t made any significant new discoveries.
Campbell also predicted that oil prices would rise sharply in the early part of the 21st century because demand would outstrip supply. “He had a huge influence on me,” Rubin said. “The traditional way of looking at this from an economist’s standpoint is every scarcity is self-correcting because higher energy prices will bring forth new supplies.” He noted, however, that this isn’t the case if the supply doesn’t exist.
Rubin’s book chronicles depletion of global oil reserves at the same time as demand has increased sharply in oil-producing countries. He notes that Russia has helped fill a growing gap in supply in recent years but claims that its production has peaked.
“If we can’t grow world production above 86 million barrels a day, we may not be able to grow world GDP [gross domestic product],” Rubin said. “The single most important thing to prevent peak oil from becoming peak GDP is to go back to local economies.”
That’s because producing goods locally will reduce shipping costs. But the B.C. government’s Gateway Program is based on the belief that trade with Asia will continue to expand. It includes a new Port Mann Bridge, widening Highway 1 from Vancouver to Langley, a new four-lane South Fraser Perimeter Road, and the North Fraser Perimeter Road project.
According to a Metro Vancouver report, the B.C. Ministry of Transportation and Infrastructure has secured 110 hectares of agricultural land for the South Fraser Perimeter Road and the Golden Ears Bridge projects.
Rubin, however, said that there will be greater demand for farmland because soaring fuel costs will make food from China far more expensive. “Don’t expect the politicians to get it before you get it,” he said. “Triple-digit oil prices will be a wake-up call to people who are otherwise deaf.”