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The Price Of Oil Should Keep Going Up
Source: St. Louis Post-Dispatch
Publication date: 2000-09-25
Arrival time: 2000-09-26
FOR all the screams of anguish about the recent steep rise in price, oil is actually selling at the moment for around its average price over the past 30 years. But the next 30 years are going to be very different, because we will soon be running out of the stuff.
Three years ago, geologist Craig Bond Hatfield of the University of Toledo </pages/cnniw/coOverview.nsp?coID=61885&ID=cnniw&scategory=Energy> calculated that even if global oil consumption remained steady, worldwide oil production would go into absolute decline by 2036.
But it isn't remaining steady; it's going up each year, so the deadline is a lot closer than that.
There has been some progress in the West in economizing on the use of oil, mainly because the "new economy" gets a lot of its growth in areas that don't use large amounts of energy. But Western oil consumption hasn't actually fallen, and elsewhere it's soaring.
The surge of economic growth in industrializing Third World countries means that global oil consumption has risen from 59.7 million barrels a day in 1985 to 69 million in 1995 and 75 million barrels a day this year. When you factor in this continuing growth in consumption, according to Hatfield, the date when total world production peaks moves up to 2011.
No doubt there is more oil still to be discovered, but the trend line is undeniable.
Since 1985, each year's newly discovered oil reserves have amounted to only about 40 percent of that year's global oil consumption. By now it's down to 25 percent.
Even the conservative International Energy Agency now agrees with Hatfield's figures, estimating that somewhere between 2009 and 2012 global oil production, after rising steadily for 140 years, will peak and start down again.
By 2020, about one-fifth of the predicted consumption will have to come from "unidentified unconventional" sources (i.e. they have no idea where it's coming from).
By 2040, according to other studies, total global oil production may be down to less than half what it is now.
What will this do to the global industrial economy that we have built largely on oil over the past century and a half? Well, if we don't have time to develop and put into place alternatives sources of energy to carry the load that is now borne by oil, it will simply crash.
Alternative energy sources can be developed. We even have a good idea what sorts of technologies would be involved, from solar power to fuel cells.
But we will need a very long time to shift an entire world's industrial plant and transportation system over from oil. So if we are not to have the Crash of all time in 10 or 15 years, two things must start happening soon: serious oil conservation measures, to give us more time for the transition, and a big push to get the alternative technologies out of the labs and onto the streets.
IN a market-driven economy, that means the price of oil needs to go up and stay up. No more wild fluctuations between $8 and $35 a barrel within an 18-month period; just a steady rise toward, say $40 a barrel by late next year, and then further gradual rises towards about $60 per barrel by 2005. Is this break with the traditional pattern possible? Yes, because power is moving back towards OPEC, whose long-term interest is in sustainable higher prices.
There are no more North Seas and Alaskan North Slopes waiting to be developed. OPEC's share of the world's remaining proven reserves has gone up to 78 percent from 67 percent in the past 10 years.
Moreover, even within OPEC, power is shifting toward the big Middle Eastern oil producers with relatively small populations.
At the moment, OPEC as a whole supplies 41 percent of the world's oil. By 2010, its Middle Eastern members alone will account for half the world's production.
Unlike such OPEC members as Venezuela, Nigeria and Indonesia, which need every dollar they can squeeze out right away, the cartel's Middle Eastern members (with the exception of Iran) can afford to restrict production in the short term to push prices up.
It's wonderful when the world's long-term best interest coincides with your own self-interest, so they probably will.
And will these higher prices slow down the growth of the world's industrial economies? Of course they will -- but it's generally a good idea to slow down when you're driving straight towards the edge of a cliff.
This wasn't true 1 1/2 years ago. And next year it will become false again. |
