The end of cheap oil: Are you ready?:

A few years ago, I discovered “Hubbert’s Peak,” a theory that the world’s oil production will decline in this decade as oil becomes harder to find and extract from the ground. That discovery made me realize that my profession for the last 35 years, supply chain management, was woefully unaware of and unprepared for a development that would change the way we do business forever.

My discomfort started around the time oil prices increased from $34 per barrel in January 2004 to $53 per barrel in October of that year. During that same period, I attended two of the premier educational events in the supply chain world. Of the 300-plus breakout sessions offered at those events, not a single one discussed the oil situation and its potential impact on the supply chain.

My perspective on the looming oil crisis may be unique because of my family background and birthplace. I was born into a railroad family and began my supply chain career as a railroad clerk at age 16 in a rail yard in Dallas, Texas. Growing up in Texas brought me into contact early with the oil “bidness,” as we say in my home state. I remember seeing gas flaring off oil wells at night, and the smell of petroleum wafting in the air. Back then, Texas pumped more oil than any other region in the world. The state was so influential in the oil industry that the Railroad Commission of Texas, which regulates oil production in the state, was the model for today’s Organization of the Petroleum Exporting Countries (OPEC).

But what most profoundly shaped my view was my experience in 1973, when I was working for a tank-truck carrier in Houston and saw oil prices triple as a result of the Arab oil embargo. I watched as rising oil prices and shortages caused high inflation, recession, unemployment, rationing, plant closings, transportation equipment shortages, and long lines at gas stations. At that point, I knew at a gut level that oil is the lifeblood of our economic system; that high oil prices have an undeniable impact on that system; and that as a supply chain professional, I should know what was going on in the oil patch.

I am now convinced that, unlike the events of 1973, the situation we face today is not a short-term predicament. It’s a multifaceted problem. It is unlike anything we’ve encountered before. It is non-negotiable. It will not be easy. It will change everything.

The time to prepare is short because reducing our dependence on cheap oil will take decades. Supply chain professionals will have to examine alternatives to current practices and consider new strategies in preparation for the end of the era of cheap oil.

To put it bluntly, the wolf is howling outside the door and may already be in the room.

Hubbert’s Peak is about what goes on underground, but global demand, geopolitics, the health of the oil industry, and the environment are aboveground factors that add complexity and risk. This article will look at each of these factors, examine alternatives, and suggest mitigation strategies in the context of supply chain performance.

I’m always on the lookout for peak oil primers we can force on suggest to friends and relatives, and this one is well above average. It’s a little on the long side as these things go, and it ventures just a bit closer to panic mode than I’m normally comfortable with, but I wouldn’t hesitate to e-mail a link to it to those on my personal distribution list (which I will as soon as I finish this post).

Those who do likewise will get 50 bonus karma points, so fire up that e-mail client and get crackin’, people.