Why is the global economy constrained by the energy cost of energy?
Copyright Â© 1998 Nando.net
Copyright Â© 1998 Scripps Howard
(September 5, 1998 00:55 a.m. EDT http://www.nandotimes.com) -- Oil, the "black gold" of the world economy, is almost insanely cheap but it won't be for long, warns a small but growing band of doomsayers. Based on a controversial theory, they fear world oil demand will begin to exceed supply as early as about 2010.
That might revive sights not seen since the "oil crises" of the 1970s: "car jams" at gas stations, Saudi Arabian princes buying U.S. skyscrapers, and news stories about inventors whose cars allegedly burn corn oil, wood chips or beets.
"Anybody who wants to drive their motor home up to Alaska better do it now while the supply of oil is cheap," says veteran oil geologist L.F. "Buzz" Ivanhoe. "It's not a joke. I hope I'm wrong as hell, but I fear that I'm not."
Such claims have sparked a debate among oil geologists, economists, engineers and industry officials, most of whom insist there's plenty of oil left for many decades to come.
Nowadays, the world is awash in cheap oil. Prices are so low that they are hastening the collapse of the economy of Russia, a major oil exporter.
San Francisco Bay Area residents -- not satisfied with eternally blue skies, excellent restaurants, high employment and adoring tourists -- whine about paying $1.31 for a gallon of regular unleaded gas.
They're living in a fool's paradise, the doomsayers say. Mechanical engineer Ron Swenson, president of EcoSystems Inc. in Santa Cruz, uses the World Wide Web to warn about "the coming global oil crisis."
While the American Petroleum Institute insists that the world's known oil reserves increase every year, Swenson dismisses such talk as "a play on words."
"Between 1973 and today, we have consumed a quarter of the world's entire endowment of oil from the beginning of history until the end," says Swenson, who received his master's in mechanical engineering at Stanford. "If we've consumed a quarter of our oil in that time, we don't have more oil; we have less."
But such fears of a post-millennium oil crunch are "primarily bunk," replies economist Mike Lynch of MIT, an expert on oil supply trends. Lynch laughingly recalls past flubbed forecasts of an oil apocalypse. One of the leading present doomsayers is Colin Campbell of Petroconsultants in Geneva who, Lynch says, "predicted in a 1989 article ... that world (oil) production had peaked ... and that the price would go to $40 to $50 (a barrel) in the early 1990s. "And now," Lynch said, "it's about $12 to $13."
The fate of oil supplies is starting to attract attention in the scientific community. "The Next Oil Crisis Looms Large -- and Perhaps Close," is the headline on a four-page story in the Aug. 21 issue of Science.
Pessimists like Ivanhoe "gained a powerful ally this spring when the Paris-based International Energy Agency (IEA) of the Organization for Economic Cooperation and Development (OECD) reported for the first time that the peak of world oil production is in sight," said author Richard Kerr.
According to Kerr, even with exploitation of huge new reservoirs such as the Caspian Sea, some experts think that "between 2010 and 2020 the gush of oil from wells around the world will peak at 80 million barrels per day, then begin a steady, inevitable decline ... ."
The latest doomcasts are based partly on a controversial forecasting tool developed in the 1950s by M. King Hubbert of the U.S. Geological Survey, who died a decade ago. Hubbert forecast -- correctly that the nation's oil production would peak about 1970.
Hubbert's disciples have updated his calculations by using high-speed computers and far richer databases. They argue that oil demand will begin to exceed supply sometime in the next two decades.
But Lynch calls the Hubbert curve "very simplistic ... (It) relies on certain assumptions that don't work." While oil-supply forecasting is extremely difficult and complicated by political choices and unexpected global events, Lynch expects the world to have enough oil for the next 300 years. He says new technologies will allow oil geologists to extract fuel from presently unappealing crustal sources, such as tar sands and oil shale in Canada.
Lynch and many other economists overrate technology's promise, Swenson argues. Rather than trying to find ways to exploit oil shale and tar sands -- which would be costly and environmentally risky -- he prefers to develop alternative energy sources such as solar and wind power.
"It isn't just the 'left wing kooks' who say this," jokes Swenson, who has written about the subject for a conservative periodical, National Interest. "These economists are not grounded in reality."
The nation should begin preparing for an oil crunch -- perhaps by developing oil resources or alternative energy sources -- lest a future price surge severely damage the world economy, says Ivanhoe, who coordinates activities at the M. King Hubbert Center for Petroleum Supply Studies at the Colorado School of Mines in Golden, Colo.
"If the captain on the Titanic had had a few hours to change his course, he wouldn't have run into the iceberg," Ivanhoe says. "It's when he doesn't have enough time to prepare that all hell breaks loose."
By KEAY DAVIDSON, San Francisco Examiner, distributed by Scripps Howard News Service