Author Jeff Rubin says peak oil will shrink trade with Asia

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.”

Comments (20) Add New Comment
seth
Peak oil is in reality a myth as we can easily make oil from coal and oil shale. Of course that would ignore CO2.

Electric vehicles fueled by coal plants, natural gas vehicles, 3 day work weeks, telecommuting, and solar rooftop heating would drastically reduce the need for conventional oil.

Of course, the one thing that would put paid to peak oil once and for all is a massive nuclear attack - a World War 2 type effort mass producing thousands of publicly owned mostly factory built Generation 3.5 reactors all at once at a billion a pop. Within ten years we can be off fossil fuels.
seth
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Evil Eye
And what does Gordo and his clan of Luddites do? Yes, build more highways. I think Gordo & Co. suffer from a grand case of penis envy and won't be happy until we are LA north!
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StephenH
This article is very true. We should go back to assembling goods in the city in which they are going to be used, and if needed to to transport them via either rail or waterway only short distances from there (such as only one city away, etc). If we assembled locally, not only will this reduce oil demand worldwide, but also will solve our trade deficit at the same time. If it were me, to mitigate this faster, I would impose a tax on importing goods that is far higher than the US cost of labor for assembling that item, and make major tax breaks for those who assemble goods and parts in the city they are to be sold in (for example, make all goods to be sold in San Diego be assembled in San Diego). I also would give tax breaks to build goods using parts produced close to home, too.
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Nimby7
A tractor-trailer truck averages 90.5 net ton-miles per gallon.
A 100,000 dwt ship averages 1034.4 net ton-miles per gallon.

From Shanghai to Vancouver is about 6000 miles, so it takes about 6 gallons of fuel to move a ton that distance. By truck on land, that same 6 gallons will only move a ton about 543 miles. In addition, the labor costs of trucking are huge compared to shipping, because each truck needs a driver, while a gigantic ship only needs a skeleton crew.

Conclusion: High oil prices will destroy trade between Alberta and Vancouver before it destroys trade between Shanghai and Vancouver.

The relevant metric is not the percentage of fuel costs relative to total transport costs mentioned by Rubin. That ratio is high for shipping precisely because shipping has such low labor costs per ton.

The relevant metric is the comparative values of net ton-miles/gallon of different transport modes.

The reality is that it costs less to ship a container between China and Felixstowe than it does to then send it on the road to Scotland.

Ocean-based grain and resource trade dates back to the Roman Empire, long before fossil fuels.
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scrower
Film bio: 91Ӣ86Ӣ90. What do these numbers mean? Why do they affect you? Why should you care? Steve Crower, an energy investment banker from Denver, CO, finds a creative way to present the underlying data of the world's petroleum supplies and why we should pay attention to it...

http://www.youtube.com/watch?v=jDIYgG0gSiY
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RICHARD RALPH ROEHL
The No. 1 problem, a problem that overshadows all other problems presently facing humankind (a.k.a.: ewe-man-unkind), is the DOCTRINE OF PERPETUAL GROWTH of the human population and the global consumer economy on Planet-Over-Birth-Earth... an extremely fragile HOST ORGANISM... of FINITE space and FINITE resources.

Perpetual growth in a closed looped system (the Earth) in NOT progress. It is cancer! Full blown cancer! Old Coyote Knose... that humans are clever baboonies, but they are not wise or prescient. They suffer the Achilles heel of tribe-all-eeego arrogance and out dated religious dogmas (a.k.a.: dog-mess). These attributes are rooted in fear in lieu of love. And this is why the Garden of Seed-in the hole (the Earth)is becoming hell!

Ol' Coyote shall leave ewe folks with the following two caveats. And the Knose knows time runs short for ewe! Indeed! Almost seven billion human consumers on the planet today. Wake up fools... or tomorrow the Earth will be a charnal house of unspeakable horror. Deny-all of peak oil, climate change, etc... will not save your sorry asses. These things are happening because of the insane DOCTRINE OF PERPETUAL GROWTH... the cancer.

1. WHERE THERE IS NO INSIGHT, THE PEOPLE PERISH!

2. WHOM THE GODS WOULD DESTROY, THEY FIRST MAKE MAD(off).
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Peter B
Hey if you think technology will save us I have one question for you. How many mechanics do you know who are certified to work on hybrid or electric cars?

The problem is not making this technology. Detroit, China, and Japan can all make it. It is maintaining it. Their just are not enough people who know how to fix this new energy efficient stuff.
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romeogolf
Nimby7, with respect to Alberta-BC trade, you're forgetting rail.

Also, while you are correct in pointing out that shipping by sea is much cheaper than truck, that doesn't mean the rise in fuel costs will be negligible. Goods with low margins, like clothing and consumer products, will not be economic to manufacture across the ocean from where they are sold.

Of course there has been ocean-based trade for millennia, long before the Roman Empire. However, relying on wind power curtails your shipping capability. Transshipment times increase, meaning costs do too.

The other thing to factor in is that not only are we facing peak oil but other resources as well. We may have a certain ocean-going shipping capability, but will there be anything close to the amount of goods available to ship than what we have seen in the past thirty years?
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derek k
nimby7,

the logic works as long as vancouver is the final destination for all those chinese goods. in the more likely event that it is not, whatever shipping expenses apply to bc goods going to alberta (or where ever else) also apply to chinese goods arriving in bc, after having the cost of sea-transport tacked on. unless the final market is a port, sea shipping is not an alternative to ground shipping, it is in addition to it.
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nimby7
romeogolf,
What rail? Canadian rail is unreliable, lacking capacity, and already maxed out carrying products like coal and potash etc.

If it will be uneconomic to manufacture goods with low margins, like clothing and consumer products, across the oceans, it will be even more uneconomic to manufacture them within Canada, for exactly the same reason. Moving the products from, say, Vancouver to Alberta or Saskatchewan will take as much fuel (or far more) than moving the same products from China. In addition, you have the problem of high labor costs of trucking and manufacturing in Canada.

The bottom line is that people in deep rural areas like Saskatchewan are going to get absolutely mauled by price inflation. This will be due to: a) the high expense of moving goods to them, and b) the highly dispersed layout of rural communities, where you have to drive 20 miles to the supermarket etc. If you're driving more than 3 miles to the supermarket, that drive itself consumes as much fuel per item as transporting the same items halfway around the world.

Port cities along the pacific rim will continue to thrive, as they always have, due to the ease of trade. Vancouver will find itself linked more closely to Asia, Australia and California than the inner Canadian provinces.

Your comment about wind is a red herring. Peak oil is about somewhat more expensive fuel, not a complete and immediate loss of all forms of fuel. There are still very large remaining reservoirs of oil, gas, coal, heavy oil, tar sands, uranium etc. Fuel driven shipping is going to be with us for a long time yet.
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Nimby7
derek k,
You're confused about the argument. Mr. Rubin says that peak oil will make cross-ocean transport uneconomic. That means that trade between BC and Alberta will also become uneconomic, for precisely the same reason, due to the inefficiency of land transport.

Therefore, trade between BC and Alberta will not have any advantage over trade between China and Alberta because both will be too expensive to continue.

It's impossible to have both: dying trans-pacific trade and thriving intra-Canada trade.
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Jeff C
Or, it could be that those who predict exponential growth in knowledge about alternative sources of energy will be correct, and in seven or eight years, we will have economic solar energy available, thus ending dependence on oil.
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Klaus
We are depleting a limited resource, and we are accelerating the rate of depletion. We are releasing large amounts of CO2 and CH4 into the atmoshpere, changing it and causing un-intended consequences.
Renewable Energy Technologies, and sustainable practises are the only answer that we have. All else is stupid denial. This is a test for homo sapiens, if we truely are sapiens as we claim, or just stupidus. Homo oeconomicus is one sub-group of homo stupidus, as the concept of money is an abstract creation of the human mind, and can not in itself feed anyone.
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Freddy Hutter
Rubin's positions on future crude production & Energy Prices can only bring one to the realization that his irrational exuberance and rationalization of oil & gas price fundamentals is akin to the analysts that promoted tech stocks via pie-in-the-sky revenue projections and ludicrous forward Price/Earnings Ratios thru the dotcom bomb.

CIBC is a better place w/o analysts like him that base their targets on momentum ... not analysis of the underlying fundamentals.

As outlined by NIMBY, Rubin has no foundation for his dire warnings on globalization even if crude prices rise. Worse, his high price scenario is based on the ago old folk lore of Peak Oil.

He fails to mention that the dozens of failed Peak Date predictions. Or, that 2008 was the 20th consecutive year McPeaksters have declared that production would never rise from "today".

Seemingly agenda driven, the author chose to ignore the dozen predictions for Peak Oil made by geologists. Instead, we got the "speaking tour & book sales" version.

At TrendLines Research, we post monthly updates of the Average of the 20 most recognized forecasts: currently 93-million barrels per day in 2023 (compared to 84-mbd in 2009).

Another seasonally updated chart is the Average of 21 recognized estimates of URR (ultimate recoverable resource). It reveals that: (a) Reserves have doubled since 1982; (b) URR has doubled since Y2k; (c) albeit only 30-Gb (billion barrels) are extracted annually, there are 2,582-Gb remaining. These charts and many others available at http://trendlines.ca/energy.htm

In short, these alarmist claims have been around forever and are easily dismissed when compared to data and explanations by real geologists.
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romeogolf
Nimby7, your argument looks like Swiss cheese.

1. Maxed out rail: who is to say there won't be more investment in rail as road transportation gets a lot more expensive? Who is to say cargo will grow when people will be less able to afford to buy frivolous consumer goods?

2. Asia vs. Canada: why just compare the two? If low-margin consumer goods are uneconomic to manufacture in Asia, of course they aren't viable in Canada either. If there's going to be a shift in location, it will be to Latin America. So all that freight that came from Asia and went through Vancouver and Prince Rupert to the East Coast won't even touch us up here.

3. Wind: you were the one talking about ocean-based trade before fossil fuels. I was merely pointing out that in comparison to fossil fuels, wind power has a much lower capacity for trade. I didn't say anything about there not being alternative energy sources.

Nevertheless, your comments about peak oil indicate that you don't understand it. When the IEA says conventional oil will peak in 10 years (http://www.independent.co.uk/news/science/warning-oil-supplies-are-runni...), I would be deeply concerned because supply will not follow a bell curve and it also takes a lot of time to transition our infrastructure and society, especially when it is so overwhelmingly dependent on cheap fossil fuels.

I find your conclusion to be wildly optimistic and a very unsound basis from which to plan public policy. One plans for the worst and hopes for the best. In your scenario, you plan for the best and, thus, will get the worst.
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romeogolf
Freddy Hutter, given the liberal use of hyperbole in your comment, I would say you are simply engaging in an ad hominem attack in order to promote your own business. This does nothing for your credibility.

As for predicting peak oil, it is a difficult thing to do, given changes in supply and demand. Nevertheless, peak oil will happen. As oil is a finite resource, this is inevitable. And after surveying over 800 of the world's largest oil fields, I think the IEA has a bit more credibility than an averaging of forecasts.
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Freddy Hutter
Obviously, romeogolf did not take the time to read the IEA World Energy Outlook released in November 2008: it predicts oil will not Peak before 2030 and will rise to 107 million barrels/day from today's 84mbd.
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romeogolf
I find your generalization, Freddy Hutter, to be misleading. All oil is not created equal and, therefore, will not command the same price. I'm certain you are fully aware of this. Therefore, I put more stock into what the IEA's own chief economist said the other week. His warning about the need to prepare now for peak oil was unambiguous.
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Freddy Hutter
The term used was "supply crunch" ... not Peak Oil. He mused that the present low crude prices plus the state of the capital markets could cause a postponement of some Megaprojects. The IEA fears that 2015 production may be only 89mbd (compared to 84 today) whereas Demand could be 93 if the Recession abates; resulting in another price spike.

84 today. 89 in 2014. Peak of 107mbd in 2030. Yes, i agree the IEA believes in Peak Oil. They have projected Peaks since 1998. Unfortunately for McPeaksters ,,, it's just not "imminent" Peak Oil.

72% of All Liquids is regular conventional oil. It peaked in 2005 @ 68mbd and is in terminal decline. It is down to 61 today and will be only 50% of total production in 2030. That is the only flow (of 12 streams) where peak is an issue.
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dave baldwin
I wish I knew Jeff's view on 'peak demand' - lots of people are claiming that global oil demand will conveniently peak at the same time as supply around 2030.
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