On the front page of this morning’s FT:
The world is facing an oil supply “crunch” within five years that will force up prices to record levels and increase the west’s dependence on oil cartel Opec, the industrialised countries’ energy watchdog has warned.
In its starkest warning yet on the world’s fuel outlook, the International Energy Agency said “oil looks extremely tight in five years time” and there are “prospects of even tighter natural gas markets at the turn of the decade”.
The IEA said that supply was falling faster than expected in mature areas, such as the North Sea or Mexico, while projects in new provinces such as the Russian Far East, faced long delays. Meanwhile consumption is accelerating on strong economic growth in emerging countries.
The problem is exacerbated by the fact that supply from non-members of the Organisation of the Petroleum Exporting Countries will increase at an annual pace of 1 per cent, or less than half the rate of the demand rise.
some countries will be better prepared than others. California could be one of them. Several European countries, however, show you can have a thriving economy when gas costs $7.50 a gallon or more (as in the UK), basically because the cost of getting around is still lower than in the US: the UK government’s 2007 fuel economy database lists 595 mainstream car models at better than 40 miles per US gallon (combined urban/extra-urban), 89 at better than 50mpg (US), and several just shy of 60. The top hybrid (Prius) comes in at No. 10, by the way. By comparison, the EPA’s 2007guide for the US has less than 10 models that exceed 30mpg, with only the Prius and Civic Hybrids better than 40.
An empirical sense of compelling economic forces and the historical ’cause and effect’ machinations of geopolitics tells me that the pending world-wide difficulties in making oil-supply meet oil-demand can result in serious regional conflicts and a more general world confrontation.
I also sense that the executive and legislative branches of the United States government will not be proactive and wise in meeting this pending crisis.
Instead, our politicians will continue to ‘push and shove’ and ‘jockey’ for immediate political advantage. They lack the ‘love of country’ that is required to place one’s personal career aside and do what is best for those who elected them.
They will not only discuss arranging the deck chairs on the sinking Titanic, they will fight over the music that will be played when the Titanic enters port.
As in the days of Noah…
As in the days of Lot…
If “the global war on terror” is a bumper sticker, then “global warming” is a rock concert. Unlike just about everybody, i don’t fault Bush on Iraq, because I think he “lost” that war not in Baghdad, but in New Orleans. My disappointment with our President, and the Congress is the long list of key issues wherein they have abjectly failed:
–the energy crisis
–border security
–social security
–education
–health care
Our dependence on foreign sources of energy which could be held hostage by radical Islam has the potential to be a world ending event.
Hey, William #2, not a bad list. I would also add that he lost mainly by NOT COMMUNICATING his intentions and game plan (selling it to the public) on Iraq. He was too much into “me against the world” rather than US against the islamofascists/terrorists. As a result, we don’t know who the heck to believe now. Personally, I think the war in Iraq is going a lot better than the media and the democratic party leadership is telling us, but not as good as Bush proclaims. However, I STRONGLY disagree with Harry Reid that we need to make plans to pull out. That would be a huge mistake.
As to oil, the problem in the U.S. is the lack of sufficient refineries. Every year you hear of prices going up because of supply/demand, or a company closing a refinery for maintenance causing prices to go up. We need to a) build more refineries, absent red tape hold-ups and b) increase domestic production by drilling in ANWR and other areas. Technology is there to make sure that this is done in such a way as to protect the environment.
Peace!
Jim Elliott
What we really need, though it won’t happen because it violates Green Dogma, is to have a mass roll out of electric cars recharged by power from nuclear reactors. Additional capacity from coal plants, while perhaps useful in the short term, will also lead to problems. But both energy sources, coal and uranium, come from politicaly stable places like the US, Canada, and Australia. Should other sources like solar, tidal, etc mature into viable alternatives to fossils and fission that’d be great but they aren’t there yet or anytime soon.
The painful but somewhat-less-bad scenario based on standard economic notions of supply and demand:
— Oil producers begin demanding higher prices, anticipating that future prices will be even higher. (Insofar as you can sell later at a higher price, you have less reason to sell now at a lower price.)
— Higher prices will restrain demand and heighten incentive to reduce reliance on oil.
— The prospect that oil prices will remain high for the foreseeable future will accelerate investment in new energy production (e.g., oil exploration) and in new energy-saving technology. Memories of the mid-1980s collapse of oil prices has left oil companies wary of developing marginal oil fields that would become unprofitable if oil prices significantly fell.
— Rising production and tempered demand will mitigate price increases and supply problems.
Markets can be messy but, if they have good information work and are allowed to work, they can adjust. They did so during the 1980s and can do so again, albeit at a higher price level.
Still, a very painful scenario—and a reminder of how we, in using energy profligately, reap what we sow.
I think the “energy crisis” is a bumper sticker.
A political catch phrase. Something to worry about.
Brand new oil discoveries are being found every day.
If this were REALLY TRUE…..the people with the money—the real
money…would be buying all the oil they could. And they are not. So, the really smart people in this world, do not believe this bunk.