In the recent article "How long will the world's oil last" by John W. Schoen, Americans and the world are being put on notice in regards to the world's vastly declining oil reserves and there almost certain negative impact on societial issues. America reached its crude oil production capacity in 1970. Now people such as Princeton University geologist Kenneth Deffeyes are claiming that the world has only until November 2005 before it too reaches its crude oil production capacities. Still some individual's such as Morry Adelman, an MIT economics professor, contend that " there is plenty of oil around as long consumers are willing to pay the price to produce it". Basically, whether we as a society are willing to face the facts or not, the world's supply of oil is not keeping up with demand anymore.
Oil is a vital part of our economy. Some would argue the most vital part of our economy. I believe we must either open up to the idea of drilling in places that up to this point have been off limits or speed up the exploration of other alternatives that will likely take the place of crude oil when it runs out. Geologists claim that half of the world's oil reserves have been depleted. Some three trillion barrels will have eventually been removed from the earth. Americans presently consume 25% of the world's oil usage per day: some 20 million gallons. There are websites like dieoff.com that believe the world will become anarchist and return to Stone Age like conditions when the oil dries up. The one thing people are agreeing on is that neither Bush or Kerry are going to be debating this issue in the upcoming Presidential debates. The reason: there are no simple answers and neither candidate wants to break the bad news to the American public. We, as the American public, cannot ignore this problem because it will not simply go away. Any suggestions?
2 comments:
I wouldn't panic yet, or any time soon.
Oil prices are not high in real terms. Even if they were, a price run-up would only be a problem if it was caused by supply scarcity. But that doesn't seem to tbe case this time around: this is the best year for world GDP growth since the early 1970s. That will push up the price by itself.
Now, here is a nasty thought. OPEC was able to exert its market power in the 1970s (the last time GDP growth was this high). Do you think it possible that they will push up prices even more this year, because demand is so high?
Also note that there is a lot of oil in shale and tar sands - literally thousands of years worth. High prices make it economical to extract this ... and right now western Canada is thriving because of this.
From an economic perspective, it is also just plain dumb to make statements about future supplies by dividing known reserves by consumption (that's a slam on the sources, not on the poster). By this logic we'll all starve because the food in our refridgerator will only last us for another week! Shortages lead to future increases in supply.
We also have a special problem in the U.S. - we haven't built a new refinery in 30 years. Currently, our refineries are all operating near capacity. When they do, supply will be inelastic in the short run. That's also a good recipe for a price run-up.
Lastly, and this is off the economics point, geologists don't even have a solid theory of where oil comes from. They know where coal comes from (decaying plant matter) but that turns out to be a poor explanation of where oil comes from (for those of you who had a little chemistry, if you count up where the carbon, hydrogen, and oxygen atoms went, it doesn't work out - unless the Earth is exuding huge amounts of oxygen, which it isn't). Nonetheless, this is the accepted explanation among geologists. Increasingly, geologists are exploring the idea that oil is a waste product of bacteria living under the surface of the Earth. If this is the case, then we may never run out anyway.
I wouldn't panic yet, or any time soon.
Oil prices are not high in real terms. Even if they were, a price run-up would only be a problem if it was caused by supply scarcity. But that doesn't seem to tbe case this time around: this is the best year for world GDP growth since the early 1970s. That will push up the price by itself.
Now, here is a nasty thought. OPEC was able to exert its market power in the 1970s (the last time GDP growth was this high). Do you think it possible that they will push up prices even more this year, because demand is so high?
Also note that there is a lot of oil in shale and tar sands - literally thousands of years worth. High prices make it economical to extract this ... and right now western Canada is thriving because of this.
From an economic perspective, it is also just plain dumb to make statements about future supplies by dividing known reserves by consumption (that's a slam on the sources, not on the poster). By this logic we'll all starve because the food in our refridgerator will only last us for another week! Shortages lead to future increases in supply.
We also have a special problem in the U.S. - we haven't built a new refinery in 30 years. Currently, our refineries are all operating near capacity. When they do, supply will be inelastic in the short run. That's also a good recipe for a price run-up.
Lastly, and this is off the economics point, geologists don't even have a solid theory of where oil comes from. They know where coal comes from (decaying plant matter) but that turns out to be a poor explanation of where oil comes from (for those of you who had a little chemistry, if you count up where the carbon, hydrogen, and oxygen atoms went, it doesn't work out - unless the Earth is exuding huge amounts of oxygen, which it isn't). Nonetheless, this is the accepted explanation among geologists. Increasingly, geologists are exploring the idea that oil is a waste product of bacteria living under the surface of the Earth. If this is the case, then we may never run out anyway.
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