The Hard Realities of the Need for More Oil

Why are oil prices going to stay high — and climb higher?

March 30, 2011

Why are oil prices going to stay high — and climb higher?

First, the good news: The world isn’t running out of oil per se, although a lot of countries, most of all the United States, are going to be forced to radically restructure broad sectors of their domestic economies.

The real issue isn’t lack of supplies of oil — it is the vast increase in global demand ultimately posed by the energy, food, medical and chemical requirements of seven billion people in the world, a figure 3.5 times higher than the two billion figure of 80 years ago.

Saudi Arabia’s oil wells are certainly not running dry. It is one of the few major oil producing nations in the world (Kazakhstan is another) with the potential to greatly expand its production if it had to.

Michael Lynch, former director of Asian Energy and Security at the Center for International Studies of the Massachusetts Institute of Technology, has documented that Saudi Arabia has at least 70 major oil fields that it has never accessed because the Saudis don’t want to collapse global oil prices.

For that matter, U.S. domestic oil production, despite President Obama’s ban on offshore drilling and refusal to allow drilling in national parks, was higher in 2010 than in any year since 2003. Last year, the United States produced more oil than Saudi Arabia. It is regularly among the three largest oil producers in the world. And last year, 11,000 new wells were drilled in the United States (including Alaska).

The real problem for the United States is not lack of production. Rather, it is America’s prodigious appetite for oil. The United States, despite its own enormous production, every year imports twice as much oil as it produces. It imports vastly more oil than any other major industrialized nation.

Yet the United States has many realistic and major options to dramatically reduce its need for oil to fuel its endless fleets of automobiles and trucks and its array of power stations. For example, the new mining technology of hydraulic fracking has made the methane gas locked in colossal clay shale geological formations across the United States cost effective to extract for the first time ever.

In 2010, the United States surpassed Russia in the production of natural gas for industrial use — a development inconceivable only five years ago. The Marcellus Shale formation up the Appalachian mountain chain alone has enough extractible natural gas to meet all the baseline generating needs of the entire East Coast for the next 50 years.

Does that mean that oil prices are likely to fall dramatically any time soon from their current level of well over $100 per barrel? Not a bit. Get ready for $4 per gallon gasoline, and maybe $5 per gallon or even higher sometime soon.

The reasons for this are very simple: Global oil reserves are still ample, and more are being discovered all the time. But China and India alone have nearly 2.6 billion people between them, and both countries are industrializing and expanding their appetites for oil at breakneck speed.

But don’t expect oil prices to fall in the near future — or to fall at all in the medium term. They might, but only if the global and U.S. economies both spiral back into crisis, and no sane person wants that.

Just remember this: In November, the International Energy Agency in Paris flatly warned that within a few years, $100 per barrel oil is going to be the baseline norm, not the exceptional spike, in energy prices.

Expensive oil doesn’t mean the end of the world. And it doesn’t mean that the world is running out of oil either.

But the United States has still failed to come up with any kind of realistic energy strategy to deal with the unavoidable reality of rising basic oil prices for generations to come. Republican conservatives remain in willfully ignorant denial about this reality. Liberal Democrats continue to dream that wind, solar, fusion, biomass and many other proven fiascos will somehow come to our rescue.

There are two things both sides in the repetitious American debate on energy have in common: They remain blissfully ignorant of any awkward facts that contradict their dearly held blind prejudices — and they refuse to grow up. The time for a broad, adult public dialogue on energy is long overdue.

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Takeaways

In 2010, the United States surpassed Russia in the production of natural gas for industrial use — a development inconceivable only five years ago.

Last year, the United States produced more oil than Saudi Arabia.

The time for a broad, adult public dialogue on energy is long overdue.