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Canada’s top economist Jeff Rubin predicts $225 for a barrel of oil by 2012

Abdullah062509_optQ&A with Jeff Rubin


VANCOUVER — Sitting in the restaurant of Vancouver's posh Fairmount Waterfront Hotel, the former chief economist for one of Canada's largest banks doesn't seem like the typical apocalyptic peak oil theorist.

But in his new book, "Why Your World is About to Get a Whole Lot Smaller", Jeff Rubin argues that globalization, fuelled by cheap oil, is finished. In the book, Rubin contends the current global recession is a result of expensive oil, rather than subprime mortgages in the U.S.

Frequently ranked as Canada's top economist, Rubin predicts that one barrel of oil will cost 225 dollars by 2012. Other analysts consider that number outlandish; the conservative National Post newspaper, where he was frequently quoted as an economic expert before leaving his job at CIBC World Markets, accuses him of "anti-materialism" and "Big oil paranoia."

But in 2000, Rubin correctly predicted that oil would top 50 dollars per barrel by 2005. And, in 2005 he got it right again, forecasting prices would top 100 dollars per barrel in 2007.

Rubin sat down with IPS at his hotel after giving a lunch address to the Vancouver Board of Trade.

IPS: If Iraq's security situation improves, and its cheap oil comes back online for export, could that stop your prediction of 225 dollars per barrel by 2012?

jeffrubin062509_optJeff Rubin: Not even close. Nor would it stop the prediction that exports from OPEC (the Organization of Petroleum Exporting Countries), instead of growing, are likely to fall by about one to one and a half million barrels per day over the next four or five years.

It's not just about depletion [of OPEC oil fields], though depletion is playing a key role. It is also about the explosive growth of oil consumption in OPEC countries themselves. This is the reason why exports have not grown from OPEC in the last five years; they are in effect cannibalizing their own exports.

IPS: If the world economy can function with oil at 140 dollars a barrel, are there not huge reserves of unconventional petroleum — oil shale in Utah, heavy oil in Venezuela's Orinoco belt and deep offshore deposits — that become viable to exploit?

JR: What happened to the world economy when oil hit 140 dollars? Is this deepest recession in the post-war period really about the U.S. subprime mortgage market? Or is it about 140-dollar a barrel oil? I'd argue it is about a 140-dollar barrel of oil.

What blew up Jeff Rubin's bonus last year? That was about [subprime mortgages in] Cleveland. But blowing up Jeff Rubin's bonus and blowing up global GDP are two very different gigs.

IPS: At what point does the price of oil make export-driven globalization untenable?

JR: The model as we know it peaked in 2007. If we measure globalization by the percentage of world GDP that is an export or an import, 2007 will mark the peak of a past age.

You are going to see less and less container ships. All of those containers are about one thing: a wage arc. Moving your factory from someplace where you pay folks 30 bucks an hour to somewhere where you pay folks 30 bucks a week is great, if it's just about wages.

But what moves those container ships is oil. At 150-200 dollars per barrel, the wage arc becomes pennywise and a pound foolish because what you save on a wage bill you more than spend on bunker fuel.

IPS: Some analysts estimate that 25 percent of the world's hydrocarbons are located in the Arctic and will soon be open to exploitation due to, ironically, global warming.

JR: The stuff in the Arctic is a drop in the bucket. You are losing sight of what the Cambridge Energy Research Associates and Exxon don't tell you about. They hold big press conferences to talk about ‘oh we just discovered the Jack Field — 10,000 feet under the hurricane ravaged waters of the Gulf of Mexico, isn't that fantastic'.

They don't hold press conferences [to announce] ‘see this field here? It has been producing for 50 years. It's about to run dry.'

Every year we lose four million barrels a day [of production due to depletion]. Over the next five years, we are going to have to find 20 million barrels a day of new production, just so that we can [continue to] consume what we consume today.

IPS: Even if you are correct that supplies of cheap oil are dwindling, couldn't increased efficiency make up for shortfalls in production?

JR: We think that efficiency leads to conservation but history has shown that is not what happens.

The average engine today is 30 percent more efficient than the engines produced before the OPEC oil shocks [of the 1970s]. Yet, the average [North American] vehicle consumes just as much gasoline in the course of a year.

Back in the 1970s, we [North Americans] used to drive about 9,000 miles a year, now we drive 12,000. Back in the 1970s, we weren't living in the far-flung suburbs. All those gains in efficiency have led us to, ever more efficiently, consume more and more oil.

IPS: What do you think is a bigger threat, peak oil or peak water?

JR: Peak water is a whole other ballgame. But let me tell you a place where peak oil and peak water intersect: the Canadian oil sands. To produce one barrel of synthetic oil, you have to burn 1,400 cubic feet of natural gas, schlep two tonnes of sand [and] pollute 250 gallons of water.

Just like carbon emissions, water is free. If you are an oil sands operator and you pollute 250 gallons of water, it is costless.


Comments (5)
5 Saturday, 11 September 2010 00:21
Perknoy Yashidakish
Gotta like Rubin who pulls no punches. What's strange right now is the economy is starting to move again, and with it the illusion that we are moving back to business as usual. Just wait though, because when oil goes sky high in price again, we'll be doing the whole dumb great recession jig again. But this time the world's govt's won't be able to borrow trillions from each other, because that wad has already been spent. We'll just have to suck it up and take it.
4 Sunday, 15 November 2009 15:42
Ron C.
are the name of the game here. We have exceeded the planet's carrying capacity and nature has it's way of dealing with that. Also, we've gone from energy returned on energy invested of 100:1 at the beginning of the Petroleum Age to less than 10:1. When it reaches 1:1, all profit potential will be gone and we end up living in a post-petroleum waste land of derelict machines and structures grown over by vines and billions dead and dying. But the pain will be felt long before 1:1. And it's way too late to fix it now.
3 Thursday, 02 July 2009 04:33
Indeed overpopulation is the fundamental problem, and no one wants to talk about it. Exponential growth is coming to an end, the first time in all human history. The future will be Zero growth, or Negative growth, and that is a very different world than what we have ever known.

It is 'peak everything' which is nothing more than saying we have over grown our finite system. People like to believe that 'free energy' is just around the corner. Irelevant. All of the minerals are running out. Copper ore quality has fallen 10 fold. Silver has about 14 years more left in the ground. We can't make more elements. Fish catches are down 80% in much of the oceans.

The next 20 years will be nothing like the previous 20.
2 Thursday, 25 June 2009 19:10
The Truth
You are most likely right Vincent. We have overshot our carrying capacity by billions. These people will not die off silently like the elk of St. Matthews Island. A revolution is coming. The social system will be reconsidered and modified. Let us hope we can get it right or at least pretty close.
1 Thursday, 25 June 2009 14:05
Vincent Kosik
About time someone out there told it like it is and not some pie in the sky dream.
One aspect Mr. Rubin overlooked was carrying capacity of the human population. We have overreached the mark by billions. If a true solar steady state society was achieved perhaps two billion humans would be the number on our planet.
Unfortunately, that is out of vogue subject now-a-days so nature will adjust that figure. Remember Nature is a lot less forgiving than Jesus.
God help us!

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