You know how oil is made, right? Old dinosaurs and plants decay for thousands of years and turn into that golden sludge we have become so addicted to. So then you know that "Are we running out of oil?" isn’t really the question. Since the planet is finite, there isn’t an infinite supply.
The question is posed by the NYT Magazine this past Sunday was "When will we run out of oil?" (Link: The Breaking Point – New York Times). The answer may be "soon".
The article, which is the one thing from this past weekend you ought to read if you missed it, is an excellent treatise on the production capacity of the world largest oil producer, Saudi Arabia.
The article deals with the base question, "Is there enough oil?" first. The answer, of course, is "eventually no, our demand will outstrip the supply." More interesting is the question, "Will we run out of oil, or will the markets make it too expensive before the supply runs dry?" As one interviewee in the article stated, "The Stone Age ended long before we ran out of stone". The Petroleum Age will end long before we run out of oil. Although the concept of running out of stone is absurd, it’s clear that we will still have oil long after it’s no longer cost-effective to depend on it.
This is because the oil markets are hyper-sensitive to anything and everything that might affect the price of ready oil. They understand that we don’t necessarily have enough refineries to process all the oil we can pump. When they sense this, the price of oil goes up. And they also understand that the demand for oil globally is increasing as more countries start to enter the Petroleum age, and that this demand is outstripping our ability to pump oil from the world’s reserves. And when they sense this, the price of oil goes up.
The problem, of course, is that every year it gets harder and harder to pump oil out of old wells. The days of simply sticking a drill into the ground and catching the oil as it spits out the top of a well are gone. Nowadays petroleum companies are pumping an increasing number of things into the wells (freshwater, saltwater, air, etc) in order to force the oil to the surface.
With all oil reservoirs, as they begin to empty out, you have to work harder to get the oil out, and Saudia Arabia is working very very hard to pump oil from their wells. For some countries, if you try too aggressively to pump too much oil out, you can actually damage the reservoir, permanently losing access to some of the oil. (Other countries in the middle east have already suffered this fate) Furthering the suspicion that they may be in trouble, the Saudis have been very secretive about the state of their reserves, suggesting that they are in a state that would cause oil analysts to consider them to have a weak future should they ever be allowed an independent outside audit.
But wait, aren’t we drilling and finding new reservoirs of oil all around the world every year? Sadly, none of the recent discoveries will make much of a dent in what is needed to support the world’s growing thirst for oil, much less America’s.
What seems likely is that very soon, the world’s demand for oil will outstrip it’s ability to pump, refine, or transport it to market. And when that happens, long before we’re out of oil, our hyper-efficient markets will start to price oil as the precious commodity that it truly is. Oil will cost not $60 per barrel, but $120, or even $180. Gas prices will jump from $3 / gallon to $9 per gallon, which might finally cause Americans to change their behavior and have negative consequences for our economy because of the sudden transition.
All you environmentalists out there may be cackling that we finally get what we deserve until you discover that everything you buy, even the "green products" from your local Whole Foods, are all carted there by truck, and everything goes up $1 or more to account for the gas surcharge. You may find it expensive; poor people will simply begin to slip into starvation.
Interestingly, the article only makes a short mention of something you hear a lot about whenever the White House is concerned about the price of gas: the Saudis ability to regulate the supply and price of oil by dumping more of it on the market. For years, whenever the price of gas has jumped, either because of the threat of impending war in the Middle East, or because a tanker has sunk somewhere, the Saudis and the White House have announced that they will drop enough oil onto the market to regulate the price back to pre-hysterics jitters.
Not only does it appear that the Saudis may lose the ability to change the supply to moderate the price, it may already be gone. For the last six to nine months the White House and the Saudis have been saying, as oil prices have climbed, that they can sell enough oil to moderate the price, and for the last six to nine months, oil prices continue to rise to record levels. If they had the ability to moderate the price, why isn’t it going down?
Better put in that order for a hybrid now….