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If
folks thought this recession has been a doozy,
they may want to consider the one that could hit in a decade as the demand
for oil permanently exceeds production.
The
International Energy Agency says in a report that the 800 biggest fields
around the world that comprise three-quarters of all reserves have already
hit peak. Moreover, the pace of the decline in production is about twice
that of what it was in 2007. That means that the so-called peak oil theory
whereby global oil demand meets declining production is 10 years away, all
according to the agency's chief economist Fatih Birol.
In
an interview with the British newspaper The Independent, he says
that the production at existing sites is down 6.7 percent a year. That's compared
to 3.7 percent in 2007. If the bleeding were to stop, he says that the
world would need the equivalent of four more Saudi Arabias.
He adds that a reasonable mind could conclude that oil will surpass $200
barrel by 2020 and consumers will pay $5 a gallon.
"One
day we will run out of oil, it is not today or tomorrow, but one day we
will run out of oil and we have to leave oil before oil leaves us, and we
have to prepare ourselves for that day," Dr. Birol
was quoted as saying. "The earlier we start, the better, because all
of our economic and social system is based on oil, so to change from that
will take a lot of time and a lot of money and we should take this issue
very seriously."
Critics
counter that peak oil is decades away. In the intervening years,
technologies will improve while oil-based substitutes will be developed. Canada's
tar sands, for example, are plentiful and thought by some to be a viable
alternative to Middle Eastern oil.
But
environmentalists are warning that the reliance on oil sands is unsound.
The extraction of those resources consumes a lot of water and energy and
only compounds the issue of global warming. In fact, the International
Energy Agency's 2008 World Energy Outlook says that the world is trending
toward higher temperatures and as such advocates green energy solutions and
conservation -- not more oil production.
While
the Obama administration does not have an official position on the peak oil
theory, it is nonetheless inclined to propose the positions offered by the
energy agency. Toward that end, it is pushing higher fuel efficiency
standards and the development of green energy alternatives, chiefly those
that would be geared toward the transport sector.
"It
will be especially important because the global economy will still be very
fragile, very vulnerable," Birol told The
Independent. "Many people think there will be a recovery in a few
years' time but it will be a slow recovery and a fragile recovery and we
will have the risk that the recovery will be strangled with higher oil
prices."
Global
Lifeblood
Oil
is clearly the lifeblood of international commerce. As supplies dwindle and
as demand rises, prices go up. Countries will therefore be competing for a
shorter supply of oil. For the United States that's a big problem:
It has 2 percent of the world's reserves, consumes 25 percent of its oil
and imports two-thirds of the oil it uses.
The
U.S. Department of Energy predicts the peak will occur in 2037. But in a
report on the subject, it says that nearly all of the largest oil fields
have been discovered and that production is past its prime in some areas.
As such, the cost to find new discoveries is getting expensive. But the
"rollover" at the peak to lower levels of production is likely to
be gradual and not a sharp point capable of being broadcast at the time.
Robert
Esser, director of global oil and gas resources
for Boston-based Cambridge Energy Research Associates, disagrees with the
peak oil theorists. He says that the world is not running out of oil
anytime soon, if ever. His group envisions an "undulating
plateau" in two to four decades. The current model to determine
"peak oil" is flawed, he adds, and fails to incorporate
technological, economic and regulatory evolutions.
He
especially disputes the thinking that says global production will top off
in the coming years, noting that his firm's analysis shows a substantial
build-up of liquid capacity in the same time frame. An increasing share of
oil supplies will come from non-traditional sources that include oil sands
and from ultra-deep water. Indeed, he projects that world oil production
capacity has the potential to rise from 84 million barrels per day now to
as much as 108 million barrels by 2015.
"Peak
Oil theory is garbage as far as we're concerned," says Esser, in an interview with Business Week
online.
Times
and technologies will change. But the fact remains that the unmitigated
demand for oil can't continue forever and particularly with declining
current oil supplies. That's why a host of reputable sources say that the
peak oil theory is real, although their estimates vary as to when it will
happen. Some say that it is too late. The International Energy Agency says
it will occur in 10 years. Others say it will take decades.
The
answer therefore is not to ignore the problem; rather, it is to confront it
head on by forming a collaborative effort between the public and private
sectors and allocating the financial resources to expand the portfolio of
green fuel options. It will be a complex and expensive solution. But that
course will ultimately seem penny wise when compared to the consequences
from an oil-starved world.
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