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What Does Oil's New High Mean?

It finally happened this week. The price of oil passed the all-time inflation-adjusted peak of $103.76 that was set in April 1980—and is now three times what it was just four years ago.

What’s going on? This is a record that virtually none of the world’s oil experts predicted, particularly at a time when the world economy is slumping and the demand for gasoline is now dropping in the United States. Some of the blame may go to speculation and the decline of the dollar. But the roots of the problem run deeper.

World crude oil production has actually fallen from 73.8 million barrels per day in 2005 to 73.2 million barrels per day in the first ten months of 2007, according to the U.S. Energy Information Administration. This makes 2005 the peak year for world oil production so far, though it is too early to know if this will turn out to be the all-time high.

In 2007, crude oil production declined in some of the world’s largest oil-producing countries— including Indonesia, Mexico, Norway, Nigeria, the United Kingdom, Saudi Arabia, and Venezuela—due to a combination of geological and political factors.

The fact that the world is having a hard time expanding oil supply fast enough to keep up with even modest demand growth is beginning to be accepted in some corners of the oil industry. The CEO of Royal Dutch Shell and the U.S. industry-dominated National Petroleum Council have both stated that supply constraints are likely to put continued pressure on world oil markets in the years ahead.

Although the dreaded phrase “peak oil” is still used mainly by oil industry mavericks like Matthew Simmons and T. Boone Pickens, their views—if not their language—do appear to be spreading to the mainstream. Last week, oil analysts at Deutsche Bank concluded that steep decline rates of some of the world’s largest oil fields will limit future growth in oil production and could push oil prices to hit $150 as early as 2010.



It’s high time for governments around the world to wake up to the new oil era we have now entered. There are lots of ways to reduce dependence on oil, starting with more efficient cars. But it won’t happen without political leadership.





Christopher Flavin is president of the Worldwatch Institute, an environmental research organization based in Washington, D.C.

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Comments

OPEC claims it is refusing to increase production because it anticipates an economic slowdown. But since the rulers of its members with the greatest oil reserves rely on the political and military support of US for their very survival, and their refusal to increase production is hurting the US economy and eroding its power, there must be a different reason for OPEC's refusal to increase production.

Could it be that OPEC is, in fact, unable to increase production beyond the present level?


Posted by: E. Flanagan on 5 Mar 08

There are no geological only political reasons for excessively high oil prices.
In fact the civilized world (that includes China ofcourse but not Norway and the UK) is having a cold war with the countries you
mentioned above.

The civilized world however is also at war with its own politicians. If we had 80percent nuclear power
in electricity generation ( like France has!) and coal
would be liquified into oil ( it pays for decades in
South Africa now) there would be no high oil price and
enough money around to be invested in alternate fuels
(and be it your famous windmills) and new technologies
without harming low income people in the socalled "rich world"


Posted by: helmburger on 6 Mar 08

Uranium must be mined. Nuclear power produces waste that must be locked up for thousands of years on a planet with historically fluid geographical borders, governments rising and falling, etc. Plus, I'm not sure how well nuclear performs on an energy-balance basis...I would guess not so well due to tons of energy needed to mine and process the ore, transport the fuel, transport and store the waste in facilities with high embodied energy, etc.
Coal must be mined--often through "mountain-top removal" methods. That is enormously destructive, not to mention very bad for the energy balance equation, as is the liquification process.
In addition, both of these methods require large, centralized production facilities, which is inherently undemocratic, literally putting all of the power in the hands of a tiny few. Centralized production is also less efficient than distributed production, due to losses in transmission lines and it leaves the country more vulnerable to terrorist attacks due to lower grid resilience and availability of easy targets that enable lots of damage with a single strike. Also, centralized energy production requires billions more in infrastructure costs which get passed on to the consumers in the form of higher taxes or higher electric bills.

Of course it would APPEAR people like me are at war with our own politicians--we have no opportunity for a dialogue to discuss all of the points I laid out. The only people our high-level politicians are having an energy-related dialogue with are lobbyists for those interested in centralized power production methods. The best we can do with our current politicians is a few massive wind farms and solar concentrator arrays--a world of improvement over coal and nuclear, but still a far cry from distributed energy production.

As far as high oil prices go, HOORAY!! Anything it takes to encourage people to start considering more intelligent energy choices is a good thing. I'm biting the bullet and paying a premium for an electric vehicle now so that the price will go down for everyone else as production ramps up. Also, I am actively involved in city planning methods that focus on green building and intelligent infrastructure to reduce the need for transportation and other unnecessary energy use in the first place. A dollar spent in this realm is worth waaaay more than a dollar spent on renewable energy, electric vehicles, etc. It's a solution that creates more solutions as opposed to a solution that creates more problems (like nuclear and coal).


Posted by: greensolutions on 9 Mar 08



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