Vail Valley Voices: Cheap oil fueled our boom
Vail, CO, Colorado
Editor’s note: This is the first of two parts dealing with Eagle County’s energy future.
While many Colorado Rocky Mountain communities were rich in natural resources such as silver, gold and industrial metals and such towns flourished in the 19th century, these resource plays were finite and unsustainable.
Virtually all of these towns fell into sharp depression when resource plays failed until the cheap-oil-fired winter recreational boom commenced in the 1960s and the marketing and rise of downhill sport skiing began to lift these areas out of depression.
Eagle County and Vail, with no prior mineral resources, rely upon “imported prosperity” and have since their transition from sheep farming into a “world-class ski resort” 50 years ago.
Winter tourism, like any tourism business, requires massive excess wealth production in the areas from which tourists originate, along with inexpensive, easily available transportation systems to deliver the tourists themselves.
As winter sports became popular and affordable, ski areas became trendy and real estate development added to the resurgence of old towns. Development of Rocky Mountain communities accompanied this tourism development trend.
By 2007, Vail Valley real estate sales totaled over a billion dollars a year. Homes near ski slopes were often built out to sizes of over 12,000 square feet and required teams of staff to support. Ancillary businesses providing high-end furnishings, wall and window coverings and other related services flourished. Hundreds of people were employed within ancillary service businesses – snow shoveling, lawnscaping, interior decoration, mechanical maintenance.
A mini-feudal estate economy rose up around Vail’s primary vacation property developments.
Ironically, many resort community developers borrowed from Walt Disney – not his cartoon characters but his finance schemes, originally developed to finance Florida’s Disney World. Developers formed special taxing districts, borrowed tens of millions of dollars from tax-exempt municipal bond buyers and spent the bond proceeds to pay for the infrastructure costs of their new developments, using none of their own money. End-of-the-deal resort home purchasers have picked up the tab for the interest and principle payments due to the lenders through higher mill levies in their new neighborhoods. The local county clerk acts as their tax collector. It was a sweet deal. For a while.
Things have changed a lot since this bubble popped in 2008 and over the past four years. Many people still do not know why it popped.
Global conventional oil production peaked in 2006, resulting in a shocking increase in the price of the energy that provided the foundation of modern economic growth.
Modern financial markets collapsed in 2008 when faced with real oil energy costs of $140 per barrel.
The 2006 collapse in exponential growth in real energy input undermined the ability of fractional reserve and leveraged markets to support themselves since real economic growth, requiring a growing cheap energy supply, is required to service the cost of borrowed money. When one sees the end of growth in underlying cheap energy, financial growth cannot continue.
New oil reserve discovery peaked in the 1960s. New production cannot exceed past production when new discovery of resources does not continue and existing fields begin to deplete. The pinch is real and physics demands that the present stasis or “bumpy plateau” in global oil production eventually give way to terminal declines in production, as new production fails to overcome the decline in older fields.
Imported oil is becoming especially problematic, since exporting nations face not only declining production figures but increased demand locally from their own populations. Exports are now falling faster than production declines.
Since the local economy as we’ve known it has been a result of imported prosperity, a change in real wealth impacted our local area immediately.
Those of us wishing to remain in this local area must recognize that the world’s business model is changing.
We really must work to develop an alternative economic model locally, an alternative to a dependence upon the wealth transfer we’ve enjoyed, our use of imported money over the past 50 years.
Bill Sepmeier is a longtime local who now lives on Sweetwater Creek.