By: Jim Taylor
High oil prices? You ain’t seen nothin’ yet!
So the price of oil hit $100 a barrel? If you’re
upset about that, how are you going to feel when it hits $200? Or $2000?
Because if
you think the price of oil won’t go any higher, think again.
Consider a few very simple
facts. (I’m using the word “oil” loosely here, to include natural gas, propane,
bitumen, etc.)
First, the supply of oil is
finite.
I don’t know exactly how much
there is. Estimates vary wildly. But even the most optimistic estimates have to
admit that the supply of oil is finite, because the planet itself is finite.
A certain brand of religious
extremist believes that God made oil. Therefore God can keep on making as much
oil as we need. Oil cannot take 300 million years to create, they insist,
because God only made the earth 6,000 years ago.
I suspect they left their
brains in “Park.”
Some people believe we can keep
finding new sources of oil. Yes, we can. But to keep pace with rising
consumption, we would have to find bigger and bigger reserves. That’s not
likely.
“All the easy oil and gas in
the world has pretty much been found,” said Exxon’s William J. Cummings, three
years ago. “Now comes the harder work in finding and producing
oil from more challenging environments and work areas.”
Depleting supplies…
Second, we are already running out of oil.
The amount of new oil
discovered each year peaked in the 1960s. New discoveries have not balanced
increased consumption since 1980.
The International Energy Agency
estimates that 9 of the world’s 21 largest fields are already in decline. The Worldwatch Institute observes, in its State of the World
2005, that oil production is declining in 33 of 48 oil-producing countries.
As far back as 1956, a
geophysicist named M. King Hubbert devised a theory
called “Peak Oil.” Basically, it was a graph, a bell curve,
that balanced oil discoveries against oil consumption to show how oil
production would rise to a peak and then decline.
Hubbert’s
graph proved remarkably accurate in predicting that
But his general concept holds.
The oil industry now agrees almost universally that there will be a peak. Some
claim it won’t come for another 20 years; others believe we have already passed
it.
Regardless of who guesses
closest, oil will certainly become more scarce as time
passes.
... and
increasing demand…
Third,
demand will continue to increase.
Improved efficiency will save
some gasoline. But as more people drive cars – and as
Biofuels
like ethanol may supplement gasoline. But corn – especially the genetically
modified varieties controlled by firms like Monsanto – depends on heavy
applications of fertilizer. Fertilizers come from oil.
In the industrial world,
farmers expend about ten units of oil-based energy for every unit of food
energy they produce. Corn-based ethanol will actually consume more oil than it saves.
One-fifth of all oil production
goes into pharmaceuticals, solvents, fertilizers, pesticides, and plastics. Especially plastics.
I see no reduction in our use
of plastic packaging. Or in our dependence on plastic water pipes, foam insulation
for our homes, synthetic fibres for our clothes and
fabrics…
If anything, the reverse is
happening. Metal and natural fabrics are being replaced by synthetic
imitations. Car components once made of wood or metal are now plastic.
Bluntly put, many of our
conservation efforts cannot proceed without a continued supply of oil.
... equals
higher prices
At
this point, the economic laws of supply and demand kick in.
Economic principles are not
Holy Writ. They can be manipulated – and have been. But there’s an underlying
truth—when demand exceeds supply, prices will rise.
On a small scale, this happens
every long weekend. When families need extra fuel for car trips, the price of
gasoline at the pumps jumps a cent or two. Because of higher
demand.
On a larger scale, free-market
oil prices tripled in 1973, during the OPEC oil crisis.
Demand did not increase. Nor did oil reserves suddenly shrink. But OPEC could squeeze the supply.
In coming years, supply will
inevitably decrease; demand will increase.
Hubbert’s
“Peak Oil” graphs put this situation in perspective. If production peaked in
2005, as some statistics indicate, world oil production in 2030 would be about
the same as in 1980. But in the meantime, world population will have roughly
doubled. Industrialization, which is heavily oil-dependent, will have increased
even more.
Corporate competition
You, as an individual consumer, will have little
influence on oil costs. The corporate world will drive the agenda.
Corporations have an even
greater aversion to death than humans. Manufacturers will compete viciously for
declining supplies, hoping to drive their competitors out of business before
they themselves expire.
Imagine how much General Motors
would pay to corner the last available reserves, if only to ensure that
U.S. Vice-President Dick Cheney
would never be considered a left-leaning alarmist. But in 1999, while still CEO of Halliburton, Cheney forecast: “There will be an
average of two per cent annual growth in global oil demand over the years
ahead, along with, conservatively, a three per cent natural decline in
production from existing reserves.”
Do the math yourself.
More radical estimates suggest
an annual decline as high as eight per cent. Which would
reduce oil availability by half, in just nine years. As one industry
commentator mused, “If a five per cent cut caused prices to triple in the
1970s, what do you think a 50 per cent cut is going to do?”
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Copyright © 2007 by Jim Taylor. Non-profit use in congregations and study
groups permitted; all other rights reserved.
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