Much has been written on peak oil theory and the depletion of our oil reserves. From the apocalyptic views at one end of the spectrum (Olduvai theory) to radical denial at the other end (Cornucopian theory), an abundant number of references and theories are readily available on the subject.
Experts argue that traditional oil production has peaked although large reserves remain. Peaking means that the rate of world oil production can no longer increase. From there the rate of production will decrease with time, while oil demand continuously increases with a world population nearing 7 billion.
Obviously, there are profound disagreements between the two sides. If you’ve read Jared Diamond’s book “Collapse: How Societies Choose to Fail or Succeed,” you could conclude that our petro-civilization resembles many aspects of failed civilizations, especially in the area of resource drain and the lack of a collective response to the key issues. Our civilization is driven by an economic system that expects continued and limitless growth. However, during the summer of 2008 when the price of a barrel of oil reached $147, we reached a tipping point for our global economy. The impact on the transportation system and on micro economies and the collapse of global financial systems created a worldwide wakeup call.
We, as a civilization, are totally dependent on oil and fossil fuels. During the summer of 2008, I personally heard the wakeup call and asked my top leaders to gather in our executive conference room. I had a simple question for them. What would happen to our business when the price of a barrel of oil reaches $250? What do we look like in terms of raw materials costs, supply and profitability? Our analysis and relevant contingency planning showed that the business would collapse and most likely disappear if we adopted a wait-and-see strategy. As a team, we then decided to shift some R&D and strategic resources and to embark on a 10-year plan to become less reliant on oil and its derivatives. Today we see the first outcomes of these actions, with products being sold in recyclable boxes instead of plastic buckets as well as with the launch of products containing up to 50 percent natural components.
If you run a business today or sit at the executive decision-making table, have you run this analysis? Do you know how reliant on oil and fossil fuels your business is across the board (transportation, packaging, formulation, etc.)? Have you projected your costs and profitability for when oil does reach $250?
At the macro level, the mitigation discussion (replacing oil with something else) is an important one to have. Current models show that initiating a mitigation crash program would take 20 years and would have potentially severe consequences on population levels, poverty rates and the sustainability of our economic system. Depending on whether you think oil peak theory is fraud or not, the clock has already begun ticking. In a 2006 edition of Money Week, Dr. Ali Morteza Samsam Bakhtiari, a well-known oil expert, proposed four phases of transition away from oil. Each transition phase covers an average of three to four years. At that time, he forecast that oil prices would reach $150 per barrel in the “not too distant future.” He wrote: “preparation should be carried out on individual, familial, societal and national levels as soon as possible. Every preparative step taken today will prove far cheaper than any step taken tomorrow.” In the end, he was right. Oil did reach $150, and it is only a matter of time before it reaches that level again and even higher.
Don’t wait any longer to run this analysis and to lead your business in this long and tenuous process of transformation. You might not be able to fully mitigate the need for expensive chemicals or fuels, but you can make the necessary investments now to render your business sustainable for the next century.
Stephan Liozu is president and CEO of Ardex America Inc. (www.ardex.com), an innovative and high-performance building materials company located in Pittsburgh. He is also a Ph.D. candidate in management at Case Western Reserve University and can be reached at email@example.com.