At the beginning of a new year, the urge to look back and review the one gone by, and consider what the new one will bring, is irresistible. In my review of 2006, one theme emerged, and that is transition.

Politically, it was a year where the Bush administration’s rhetoric about terrorism, and its unwavering commitment to staying the course in Iraq, began to sound tired and out of touch. We started the year with few voices of opposition being heard, but we ended it with a mid-term election rout, and the Democrats back in control of Congress. It was a year when the excesses and corruption of some of the most powerful and wealthy people in America finally came to judgment. Being one of those Californians who got bent over by Enron in 2001, I still feel cheated that “Kenny Boy” Lay died before doing a day of time for his crimes, but at least he and his cronies were brought to justice. From Abramoff to Delay to Foley to all the rest of the rotten bunch, we swept at least some of the corruption from Congress.

It was a year when we began to explore the complex relationships between global warming, major weather events, and fossil fuels. There was the release of An Inconvenient Truth, Al Gore’s superb movie about global warming. We started the year where a substantial portion of Americans still thought there was a real scientific debate about whether global warming was a real problem at all, and where journalists still persisted in trying to portray “balance” when all of the data are really on one side. But we ended the year with millions of people having seen the data for themselves, and having seen the unmistakable trends now under way across the entire earth. We still have deniers, but we have a whole lot fewer of the deliberately confused.

The quality and quantity of data about climate change also improved radically in 2006. We had a sharp increase in the number of studies, and many more results were reported by the press. NASA reported in September that the earth’s temperature is the highest it’s been for a million years. We saw whole populations of whales moving north due to the warming oceans. We watched 750,000 square kilometers of formerly permanent Arctic sea ice melt. We watched huge portions of the Antarctic ice shelves calve into the water. And we learned that the reason we didn’t get a big hurricane season may have been that we had so many dust storms (due to drought) in Africa.

On the energy front, the peak of global oil production started coming into view. All the data aren’t in yet, so it’s too early to say. But the data we do have indicates that the global supply of oil rose less than 0.2% (after consecutive years of 2% gains), while the global demand for oil increased unabated by another 1%. All of the supply increase came from non-OPEC suppliers, mainly in Russia and Africa. But on the whole, the areas that have been expected to make up the shortfall—the Caspian, West Africa, Brazil, and the Canadian oil sands—are not growing quickly enough to make up the shortfall.

It’s possible that 2006 was the global production peak, but it may have been more due to changing consumption patterns than to supply changes. We won’t know for another year or more if that was the case, due to the notoriously bad problems of getting data about oil production from most parts of the world. Kenneth Deffeyes, geology Professor Emeritus at Princeton, a devotee of M. King Hubbert’s who has applied his modeling techniques to global production, famously quipped that the global peak was Thanksgiving Day, 2005. Now it appears that 2005 was, in fact, the global peak of conventional oil, and the increases from unconventional oil (polar and ultra-deepwater, oil sands, natural gas liquids and condensates, etc.) haven’t materialized at the speed, or in the quantities, that had been expected.

Geopolitically, 2006 was very much a year of transition for oil suppliers, seeing Russia, Venezuela and Bolivia all make bold moves to gain greater control over their oil and gas production, and renationalize their assets. The majors like Exxon, Shell and BP were forced out of their investments, and the national governments began increasingly to use their supply as a geopolitical weapon. Just as it did in 2005, Russia’s gas brinksmanship nearly left much of eastern and central Europe in the cold, driving a hard bargain at Christmas, and forcing them to pay nearly doubled prices for natural gas.

Europe, in particular, developed a whole new level of sensitivity about their dependence on foreign supplies, causing the EU’s Energy Commissioner to begin work on a new common energy policy for the EU, and to warn publicly that they face a major energy crisis in the next 20 years unless they do something about it, fast.

This looks, for all the world, like the beginning of a new kind of cold war, where the mere threat of withholding supply is enough to affect the balances of power. As of 2006, national oil companies (NOCs) now control over 90% of the world’s remaining oil. The majors, including Exxon, Shell, BP, Chevron, and all the rest, are in control of a mere 10%.

On the demand side, OECD nations declined by at least 1.3%, due in part to slowing economies, a warmer winter, and gains in efficiency. But non-OECD nations, including the overheated economies of China and India, consumed an aggregate 3.5% more oil—1.3 million barrels per day—in 2006 than they did in 2005. China’s crude imports alone surged 10% higher in 2006, and their economic growth is still red-hot.

The crude oil price spike of 2006 was probably the most noticeable phenomenon, starting and ending the year at $61, but going as high as $78 in July. As the price climbed through the spring, public outcry led some Senators to call hearings and question the heads of Big Oil on their pricing and maintenance practices. But, observing what some have called a “mutual suicide pact” between Congress and Detroit, nobody dared invoke the sacred cow of CAFÉ standards. As the price of crude plunged to $55 and gasoline dropped back into the low $2 range, the pressure let up, and we were back to business as usual before election time. Some analysts took the opportunity to declare (on the basis of absolutely nothing other than a lower oil price) that peak oil theory was dead and discredited.

Explanations for the spike, and the drop, varied widely: an increase in the “terror premium” to which the markets eventually became inured; an expectation of damaging hurricanes that never materialized; the loss of infrastructure from Katrina and Rita plus the temporary shutdown of the leaky pipes in the Alaska, most of which was recovered by the end of the year; and a huge tide of hedge fund money that surged in and surged right back out of the energy complex. Theories were legion.

But almost none of them focused on the fundamentals of supply and demand. I maintain that the Street has still not priced in the reality of peak oil, and continues to be swayed primarily by short term factors like weekly inventory reports. Energy traders still behave like a mass of seagulls, chasing each other’s momentum around on the beach. We strive to be more like Jonathan Livingston, and keep a long view of the situation as much as possible.

Here’s what I see, from a loftier vantage point. The fundamental problems of oil supply and demand got worse in 2006. Population growth is still unchecked and undiscussed. The geopolitical balances of the world are even more unstable now than they were a year ago, and major oil exporters enjoy more control than ever. We’re definitively past the peak in conventional production, and entering the uncertain three-to-five year period just before the absolute global peak. Most of the world now recognizes that climate change and fossil fuel use are inextricably connected, and many have begun serious efforts to switch to renewable fuels and increase the efficiency of our fossil fuel uses. And hardly anybody is still pretending that oil isn’t the reason that our armed forces are in the Middle East.

Awareness of the peak oil problem is still dawning, albeit much more slowly than I would like. We started 2006 with President Bush’s admission that we were addicted to oil, but his comment was about dependency on unstable producers, not about global depletion. And by the end of the year, Congress and the White House had talked much, but accomplished little. For its part, most of the press (with a very few notable exceptions, like the Chicago Tribune and the U.K.’s Guardian) continue to seem muddled about the whole issue, easily led astray by the wild promises of economists and oil industry propaganda.
But on the whole, I think 2006 showed some promise that we can get our heads around these problems and start making tracks toward solutions. We have a very long way to go, but it’s a start.

Next week, we’ll take a look at some of the developments that we can look forward to for the coming year.

Until next time…