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Energy Showdown
By James Bickford, California
Driving to work past the elementary school I saw a pig-tailed six-year old with lunch box in hand having her picture taken by her mom. It was the first day of school and for many children across the United States like her it was the most expensive commute to the first day of classes ever.
The future for this little girl looks pretty costly unless things change dramatically. While she and her classmates devote the next year to Dr. Seuss, handwriting, and basic math, they will soon need to become well versed in what it will take to revolutionize energy technology if economic and environmental hardships are to be averted during their expected lifetime of around 80 years.
"The issue is not how much oil we have left, but supply demand reconciliation." -James Bickford
The good news is that energy, especially oil, is once again on the public's mind. An issue that had been relatively dormant since the early 1980's when OPEC embargoed oil shipments to the U.S. causing long lines of cars idling at gas stations, today, many people are again beginning to ask questions about steps that need to be taken to solve a looming energy crisis.
An energy crisis is nothing new to Princeton Professor Emeritus John Blackburn. An economist at Duke University, Blackburn has been analyzing the energy economic picture since the 1970's.
"[Price increases] are a matter of oil demand out-running what is available from the operating oil fields of the world," he said. "It's just economics 101-demand and supply."
Although many people today want to blame the problems on oil speculators and profiteers in big oil, Blackburn has a different opinion. The problem, he contends is much more fundamental. We are beginning the slow process of running out of economically recoverable oil.
But there are differing opinions on exactly how much oil is left in the world. "There are so-called ‘proved reserves figures,' that are given at around 1100 billion barrels plus or minus depending upon whose figures you quote," Blackburn said. "I think that is overstated probably about 300 billion barrels with respect to Gulf oil producers - Saudi Arabia, Kuwait, Iran."
Blackburn argues that proved reserves jumped dramatically without cause in these countries in the 1980's and as such he believes that proved reserves probably has more to do with the allocation of OPEC quotas than actual oil discoveries.
The Energy Information Agency's web site - a group that reports energy statistics as a service provided by the U.S. Department of Energy - indicates that in 2006, 85 million barrels of oil were consumed per day in the entire world. With the industrialization of India and China this number is accelerating.
Even if we are to assume that oil consumption does not change and that there are 1100 billion barrels of proven reserves, then at 85 million barrels per day, or 31 billion barrels a year, the world is probably looking at having oil for just the next 35 years. If Dr. Blackburn is correct and the total world oil reserves are actually 800 billion barrels, then oil will run out after approximately 26 years. This data should be enough to scare anyone.
Our problem, however, is not 26 years from now, it is today. The issue is not how much oil we have left, but supply demand reconciliation. At 85 million barrels a day we are close to maxing out our ability to pump oil out of the ground, which will create shortages. In a free market system, without price controls, there is only one solution to reduce demand and that is to increase pricing.
"I expect [world oil price] to fluctuate pretty wildly but around a rising trend, because I don't see a lot of additional supply coming forward certainly any time soon," Blackburn said. "As long as world demand keeps increasing then the long run price trend is just up."
For those watching their budgets, it is probably safe to say it is time to start tightening your belts as well. An increase in the cost of oil will be felt not only in transportation but also in a rise in the price of allThe era of cheap oil is over - and a new era of wildly fluctuating and increasing prices is upon us. Certainly we will see periods of stability and relative normality, but even the most recent oil "collapse" is well above the price it was this time last year.
What lessons can we learn from basic economics? Certainly the first tenant should be to reduce world-wide demand. The second is getting political leaders to develop a coherent energy policy, heeding the warning of scientists.
"My own preference is to reduce petroleum use as rapidly as possible," Blackburn said. "This is not just an economic issue it's a national security issue-and certainly an energy supply issue. [We need to move] as rapidly as possible toward all renewable - not only electricity but sources for liquid fuel for transportation and industrially-that is we need to get off fossil fuels altogether as rapidly as possible."
For those kindergarteners learning about shapes and phonics - life is going to be a very different place when you graduate. It can be safely assumed that the world will run on something other than oil in your lifetime and we need decisive and resolute leadership right now or we will be headed towards national insecurity, world-wide economic woe, and a reversal of human progress. I just hope that the girl with her pig tails is able to smile the same way in 20 years at her college graduation.
