In early 2008 as oil passed $US100/barrel I predictions it might reach $200/barrel within 2 years and petrol $5.00/litre within 3 – 5 years. From a high of $147 in July 2008 the price then plummeted to just over $32 in December. However long term I believe prices will continue upwards because demand will continue to increase while supply will not.
Oil production has, or is peaking. Most of the world major fields are in decline including the North Sea, Mexico, Saudi Arabia and Russia, and of course the USA where production topped out in 1970 and has now halved.
Every drop of oil has already been created and producers have found all the easy stuff. World capacity is about 85milllion barrels a day (mbpd). Any major new discoveries, or new technologies will only slow the decline in production. In the long term it's all downhill.
Low prices have severely curtailed exploration so new discoveries are now insufficient to replace the oil we are already pulling out of the ground. New discoveries will need high prices to justify the huge expenditures involved.
The high prices of 2008 suppressed demand as has the most severe downturn since WW2,. Yet the International Energy Agency estimates crude demand has fallen by only 2.47 mbpd or about 3%.
From a low of $32 last December, crude is nearly back to the 2007 average of $US72.36. As $32 is also well above the $US19.84 low following the 2001 dotcom crash it seems the whole pricing structure has ratcheted up significantly over the past decade. .
The worlds biggest oil consumer the USA accounts for over 20 mbpd or ¼ world production, and China which is still growing rapidly even in these difficult times, may move into top spot in just a few years.
We use petroleum for plastics, pharmaceuticals, home heating, and thousands of other applications. The World Energy Council calculates 7% of world oil is used for electricity generation. Replacing this with renewable solar, wind, tidal, and geothermal or even nuclear or coal must be given priority.
The biggest use however is transportation. In the USA it is estimated 50% of petroleum consumption is used for transport, and the figure may be even higher in New Zealand.
Oil is not going to run out any time soon but it could become very expensive. One US study found petrol prices need to quadruple for demand to halve. The inelastic demand for oil is means it takes large price changes to cause relatively small changes in demand. Or small changes in demand can force quite large changes in price, as evidenced by weakened demand and plummeting oil prices after the $147 peak. A return to very high oil prices could plunge the world back into recession. The very high fuel prices of 2008 probably contributed to the present economic downturn as people stopped travelling, and were forced to give up normal purchases so they could fuel their cars.
While environmentalists, planners and governments damn the motor vehicle we need to accept two realities. The world aspires to owning a car, and motor vehicles are a huge driver of economic prosperity. Much of the improvement in living standards over the past 100 years has been the result of improved transportation.
While public transport is far more fuel efficient, congestion and parking difficulties seem more important reasons for its use. The fact public transport needs subsidies and the support of draconian anti car measures suggests it is failing to respond as it should. Artificially encouraging public transport may in fact be distorting the situation.
If we want to retain any semblance of life as we know it we need a new approach because the fuels we now use are not a long term option. Alternative fuels must be developed. They must be portable and storable. Biofuels and hydrogen have both been touted as solutions but there are huge costs involved setting up the infrastructure . Biofuels may compete with food supplies, while hydrogen poses massive technical problems.
In the short term smaller vehicles and diesels offering greater fuel efficiency and lower CO2 emissions seem the most practical solution. Longer term electric cars are probably the only option. For the moment batteries have insufficient storage and are slow to recharge. A huge amount of research is targeting the problems. Some lightweight sports vehicles now boast up to 400Km between charges and in Israel a network of quick exchange battery stations is being developed. Generation and distribution can be built on existing electricity systems.
Meantime if we want to retain the style of living to which we have become accustomed and limit the extent to which central planning controls our lives, we must cut consumption to maximise the remaining life of the finite oil reserves that exist while we decide then implement viable long term solutions.
