The price of oil
A barrel of crude oil still costs more than a barrel of Coke or a barrel of Perrier water, as the website of the Organisation of Petroleum Exporting Countries (OPEC) helpfully points out.
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 thirty years. But the next thirty 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 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.
The surge of economic growth in industrialising Third World countries means that global oil consumption has risen from 59.7 million barrels a day in 1985 to 69 million b/d in 1995, and 75 million b/d 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.
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 alternative sources of energy to carry the load that is now borne by oil, it will simply crash in ruins.
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 ten or fifteen 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 eighteen-month period; just a steady rise towards, 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.
What has driven the huge gyrations of oil prices over the past three decades has been the fact that whenever OPEC's deliberate strategy or incidents like the Iranian revolution or the Gulf War drove them up, the industrialised countries would invest more in their own (higher-cost) oilfields. Increased non-OPEC production, together with a recession caused by the high oil prices, would then cause a world glut of oil and bring prices back down.
But there are no more North Seas and Alaskan North Slopes waiting to be developed. The West can pull off this trick at most once more - and maybe not at all.
OPEC's share of the world's remaining proven reserves has gone up from 67 per cent to 78 per cent in the past ten years. Moreover, even within OPEC, power is shifting towards the big Middle Eastern oil producers with relatively small populations. At the moment, OPEC as a whole supplies 41 per cent of the world's oil. By 2010, its Middle Eastern members alone will account for half the world's production.
Unlike OPEC members like Venezuela, Nigeria, and Indonesia, who need every dollar they can squeeze out right away, the cartel's Middle Eastern members (with the exception of Iran) are countries that can afford to restrict production in the short-term in order 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.
The writer is a London-based independent journalist whose articles are published in 45 countries.
( Jordan Times )
By Gwynne Dyer
© 2000 Mena Report (www.menareport.com)