Sunday, April 04, 2004

Imagining a $7-a-Gallon Future

Daniel Yergin of CERA expresses his opinion about the possibility of a sharp increase in gas prices.

Historically, then, dire oil predictions have been undone by two factors. One is the opening (or reopening) of territories to exploration by companies faced with a constant demand to replace declining reserves. The second is the tremendous impact of new technology. After World War I, seismic technology, used for locating enemy artillery, was adapted to oil field exploration. And in the 1990's, it became feasible to drill into deep offshore fields, which was inconceivable during those crisis years of the 1970's.

..Those who don't believe a shortage is imminent do not deny that a peak will eventually be reached. They just believe that it is much farther off into the future.

"You can certainly make a good case that sometime before the year 2050 conventional oil production will have peaked," said the head of exploration for a major oil company. He and others believe, however, that oil production will simply plateau, and then farther into the future begin to decline.

...The world will need all these sources of supply, since even with increased energy conservation, economic growth, led by China and India, could well mean that the world will use 20 percent more oil a decade hence.

Yet it looks as if supplies will meet that demand. If there is an obstacle, it won't be the predicted peak in production, at least in the next few decades. Rather, it will be the politics and policies of oil-producing countries and swings in global economic growth. And the extent of these difficulties, whatever they turn out to be, will register in the ups and downs at the gasoline pump.

Yergin is right. The question Americans should ask themselves is whether they want to be tie their economic prosperity to the unstable geopolitical situation in the middle east.


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