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Jeffrey Rubin Headshot

What's Plan B?

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America's Plan A for the future of its oil supply was shaky to start with. Hurricanes, and the devastation they've brought to offshore oil platforms in the Gulf of Mexico, had already put the kibosh on earlier dreams of reversing the nearly 40-year decline in domestic oil production. Ironically, oil production in the Gulf had climbed back to pre-Katrina levels only months before the blowout at the deep-water Macondo well became America's all-time worst environmental disaster.

President Obama won't lift the moratorium on deep-water drilling until the Macondo gusher is, at minimum, fully capped. But whether he lifts it after that may not matter. BP has already lost over 40 per cent of its market capitalization. If Chapter 11 bankruptcy protection is the ultimate sanctuary from the staggering economic and environmental costs the firm will face, how eager will other oil companies be to follow in its deep-water footsteps?

As the days of rupture flow by, not only is the area no longer the answer to tomorrow's oil demand, but before too long it may not even produce the 1.6 million barrels per day that it currently does. Without accessing even deeper fields, like BP's Tiber field, almost six miles below the ocean, the rapid depletion rates of offshore wells on the much shallower continental shelf spell declining production for the Gulf region and for the United States as a whole.

Hopefully Canadian tar sands aren't Plan B. If they are, someone should tell Governor Schwarzenegger and the growing list of other US politicians who claim that fuel is too dirty to burn. The real problem isn't that it's too dirty--at least not for the vast majority of American drivers, who would be happy to burn it--but rather that it's too expensive. That's why BP and the rest of the oil industry were drilling in deep water in the first place.

In the end, Plan B isn't more tar sands production from Canada or Venezuela, or more deep-water production from Brazil or Africa. Whatever comes from those sources will barely cover depletion, and what's left over will be gobbled up by the exploding oil appetites of the BRIC economies.

Plan B can only be less oil consumption. Whether Americans realize it or not, they are already on that path. The disaster in the Gulf is just putting that reality into sharper focus. Last year there were four million fewer vehicles on the road in the United States than there were the year before. In the next decade, there will be 40 to 50 million fewer cars than today. In the process, an economy that once consumed over 20 million barrels of oil per day will find a way to run on 15 million barrels or even less.

Peak supply defines peak demand. That, in a nutshell, is Plan B.