The Oil Crunch - NYT 5/7/04

[Guest guest]

Another expert writes about the effects of impending oil depletion in the

coming decades.

I thought his closing recommendation would ring a bell with many on the Cow

conference:

 

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So what should we be doing? Here's a hint: We can neither

drill nor conquer our way out of the problem. Whatever we

do, oil prices are going up. What we have to do is adapt.

 

*****************************

 

Wonder what strategies he's thinking of for adapting.

I know what ours is: improve and increase the application of ox power.

 

ys

 

hkdd

 

 

***********************

 

New York Times

 

The Oil Crunch

 

May 7, 2004

By PAUL KRUGMAN

 

 

 

Before the start of the Iraq war his media empire did so

much to promote, Rupert Murdoch explained the payoff: "The

greatest thing to come out of this for the world economy,

if you could put it that way, would be $20 a barrel for

oil." Crude oil prices in New York rose to almost $40 a

barrel yesterday, a 13-year high.

 

 

Those who expected big economic benefits from the war were,

of course, utterly wrong about how things would go in Iraq.

But the disastrous occupation is only part of the reason

that oil is getting more expensive; the other, which will

last even if we somehow find a way out of the quagmire, is

the intensifying competition for a limited world oil

supply.

 

 

Thanks to the mess in Iraq - including a continuing

campaign of sabotage against oil pipelines - oil exports

have yet to recover to their prewar level, let alone supply

the millions of extra barrels each day the optimists

imagined. And the fallout from the war has spooked the

markets, which now fear terrorist attacks on oil

installations in Saudi Arabia, and are starting to worry

about radicalization throughout the Middle East. (It has

been interesting to watch people who lauded George Bush's

leadership in the war on terror come to the belated

realization that Mr. Bush has given Osama bin Laden exactly

what he wanted.)

 

 

Even if things had gone well, however, Iraq couldn't have

given us cheap oil for more than a couple of years at most,

because the United States and other advanced countries are

now competing for oil with the surging economies of Asia.

 

 

Oil is a resource in finite supply; no major oil fields

have been found since 1976, and experts suspect that there

are no more to find. Some analysts argue that world

production is already at or near its peak, although most

say that technological progress, which allows the further

exploitation of known sources like the Canadian tar sands,

will allow output to rise for another decade or two. But

the date of the physical peak in production isn't the

really crucial question.

 

 

The question, instead, is when the trend in oil prices will

turn decisively upward. That upward turn is inevitable as a

growing world economy confronts a resource in limited

supply. But when will it happen? Maybe it already has.

 

 

I know, of course, that such predictions have been made

before, during the energy crisis of the 1970's. But the end

of that crisis has been widely misunderstood: prices went

down not because the world found new sources of oil, but

because it found ways to make do with less.

 

 

During the 1980's, oil consumption dropped around the world

as the delayed effects of the energy crisis led to the use

of more fuel-efficient cars, better insulation in homes and

so on. Although economic growth led to a gradual recovery,

as late as 1993 world oil consumption was only slightly

higher than it had been in 1979. In the United States, oil

consumption didn't regain its 1979 level until 1997.

 

 

Since then, however, world demand has grown rapidly: the

daily world consumption of oil is 12 million barrels higher

than it was a decade ago, roughly equal to the combined

production of Saudi Arabia and Iran. It turns out that

America's love affair with gas guzzlers, shortsighted as it

is, is not the main culprit: the big increases in demand

have come from booming developing countries. China, in

particular, still consumes only 8 percent of the world's

oil - but it accounted for 37 percent of the growth in

world oil consumption over the last four years.

 

 

The collision between rapidly growing world demand and a

limited world supply is the reason why the oil market is so

vulnerable to jitters. Maybe we'll get through this bad

patch, and oil will fall back toward $30 a barrel. But if

that happens, it will be only a temporary respite.

 

 

In a way it's ironic. Lately we've been hearing a lot about

competition from Chinese manufacturing and Indian call

centers. But a different kind of competition - the scramble

for oil and other resources - poses a much bigger threat to

our prosperity.

 

 

So what should we be doing? Here's a hint: We can neither

drill nor conquer our way out of the problem. Whatever we

do, oil prices are going up. What we have to do is adapt.

 

 

Bob Herbert is on vacation.

 

http://www.nytimes.com/2004/05/07/opinion/07KRUG.html?ex=1084940242&ei=1&en=3c8

f17e762e75c47

 

 

 

 

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