May 30, 2005
Could the petroleum joyride - cheap, abundant oil that has sent the global economy whizzing along with the pedal to the metal and the air-conditioner blasting for decades - be coming to an end?
Some industry observers think so. They predict that this year, maybe next - almost certainly by the end of the decade - global oil production, having grown exuberantly for more than a century, will peak and begin to decline.
And then it really will be all downhill. The price of oil will increase drastically. Major oil-consuming countries will experience crippling inflation, unemployment and economic instability.
Princeton University geologist Kenneth Deffeyes predicts ``a permanent state of oil shortage.''
According to these experts, it will take a decade or more before conservation measures and new technologies can bridge the gap between supply and demand, and even then the situation will be touch and go.
None of this will affect vacation plans this summer - Americans can expect another season of beach weekends and road trips to Graceland relatively unimpeded by the cost of getting there. Though gas prices are up, they are expected to remain below US$2.50 a gallon (HK$5.15 a liter).
Accounting for inflation, that is pretty comparable to what motorists paid for most of the 20th century; it only feels expensive because gasoline was unusually cheap from 1986 to 2003.
And there are many who doubt the doomsday scenario will ever come true.
Most industry analysts think production will continue growing for at least another 30 years. By then, substitute energy sources will be available to ease the transition into a post-petroleum age.
``This is just silly,'' said Michael Lynch, president of Strategic Energy and Economic Research in Winchester, Massachusetts. ``It's not like industrial civilization is going to come crashing down.''
Where you stand on ``peak oil,'' as parties to the debate call it, depends on which forces you consider dominant in controlling the oil markets. People who consider economic forces most important believe prices are high now mostly because of demand from China and other rapidly growing economies.
But eventually, high prices should encourage consumers to use less and producers to pump more.
But Deffeyes and many other geologists counter that when it comes to oil, Mother Nature trumps Adam Smith.
The way they see it, Saudi Arabia, Russia, Norway and other major producers are already pumping as fast as they can. The only way to increase production capacity is to discover more oil. Yet there just is not much left out there to be discovered.
``The economists all think that if you show up at the cashier's cage with enough currency, God will put more oil in the ground,'' said Deffeyes.
There will be warning signs before oil production peaks, the bearers of bad news contend. Prices will rise dramatically and become increasingly volatile.
With little or no excess production capacity, minor supply disruptions - political instability in Venezuela, hurricanes in the Gulf of Mexico or labor unrest in Nigeria, for example - will send the oil markets into a tizzy.
So will periodic admissions by oil companies and petroleum-rich nations that they have been overestimating their reserves.
Oil producers will grow flush with cash. And because the price of oil ultimately affects the cost of just about everything else in the economy, inflation will follow.
Anybody who has been paying close attention to the news lately may feel a bit queasy at this stage. Could US$5-a-gallon gas be right around the corner?
``The world has never seen anything like this before and so we just really don't know,'' said Science Applications International energy analyst Robert Hirsch in Santa Monica, California.
Still, he added, ``there's a number of really competent professionals that are very pessimistic.''
But there also many experts who see no reason global oil production has to peak at all. It could plateau and then gradually fall as the economy converts to other forms of energy.
``Even in 30 to 40 years there's still going to be huge amounts of oil in the Middle East,'' said Daniel Sperling, director of the Institute of Transportation Studies at the University of California, Davis.
A few years ago, geologists began applying geologist M King Hubbert's methods to the entire world's oil production. Their analyses indicated that oil production would peak some time during the first decade of this century.
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