Ryan ChartrandThe era of cheap oil is over. This statement shouldn’t come as a surprise to most of you, given the $4 a gallon you just paid to drive back to school. However, in a few years that $4 a gallon (stemming from $100 a barrel oil) will look pretty darn cheap. Why? Because as tight as the oil markets are currently, they are about to get a lot tighter over the next few years, resulting in much higher prices.
According to the International Energy Agency (IEA), oil markets are entering a period of intense pressure from both supply and demand factors (excess world demand and limited supply).
In its 2007 report, the IEA calculated that world demand for oil will grow by 2.2 percent annually over the next five years, while supply will only experience a 1 percent growth. This 1.2 percent discrepancy between supply and demand, while seemingly small, has caught the attention of several prominent groups. For example, the renowned investment bank Goldman Sachs (think the exact opposite of Bear Sterns in terms of financial IQ) recently noted that the oil squeeze could push prices to as high as $150 to $200 a barrel within the next few years – meaning $6 and $8 a gallon of gas for Americans.
On the supply side of the problem there is unfortunately very little that can be done. The IEA report indicates that most of the world’s largest oil fields are declining in terms of their production capabilities, despite our best technological efforts to salvage them.
According to the report, oil production in three out of the five largest oil fields in the world are beginning to decline in production capacity and new fields aren’t being discovered fast enough to replace them (there have been only two “major” finds since 1990).
Furthermore, future unconventional sources of oil, such as Canada’s tar sands, cost considerably more to develop than drilling does. Ultimately, whether or not people agree with the idea that we’re running out of oil, the IEA reveals the dirty truth that we’ve at least run out of cheap, easy-to-access oil.
On the demand side of the problem, it basically begins and ends with the U.S., which consumes more than 20 million barrels of oil every day (approximately 25 percent of the world’s daily production). That number is nearly three times the amount of the second largest consumer, China, which uses 7 million barrels. However, as bad as our current demand for oil is, our government’s complete inaction for the past eight years to avert this crisis is far worse.
During the 2000 presidential election, then-Republican nominee George W. Bush constantly described the Clinton-Gore administration as wimpy with no coherent vision, and one that was at the mercy of “foreign governments and cartels” (this was when oil prices were at $1.30 a gallon!).
The irony, of course, is that eight years later, under this president’s “strong and wise” leadership, the U.S. now consumes 15 percent more oil than it did in 2000. In fact, our reliance on oil has gotten so bad that in 2006 President Bush bluntly said, “America is addicted to oil.” Call me gloomy, but when a former alcoholic and cokehead (which the president was) says America is “addicted,” you know that America is in a lot of trouble.
However, even with all this negativity surrounding our oil dependency, many crude oil substitutes do exist, making me optimistic about America’s chances of “kicking the habit.” For example, liquefied natural gas is emerging as a cheap, abundant and environmentally friendly (clean-burning) alternative to traditional crude oil. Furthermore, electric-gas hybrids continue to be redesigned and incorporated into traditional vehicle designs (making them actually look stylish). Even more exciting is the prospect of sugar-based ethanol, a fuel which single-handily turned Brazil into an energy independent country, since sugar ethanol is 200 percent stronger than the corn-based ethanol we use. Additionally, hydrogen, solar power and many other technological innovations regarding energy are all becoming available for the future.
The next step, of course, is to develop a comprehensive national strategy that incorporates most of these aforementioned alternatives into our daily lives. To do so, we need considerable government assistance and leadership from the next president, because this current administration clearly doesn’t want to do anything that really solves the problem.
Fortunately, both Democratic candidates, Obama and Clinton, have pledged tens of billions of dollars that will help fund, develop and implement alternative energies during their respective administrations. More importantly, both candidates genuinely seem concerned about America’s “addiction” to oil, unlike many of their Republican counterparts.
Patrick Molnar is a business junior and a liberal columnist for the Mustang Daily.