The Future Of Cheap Oil
Oil produced the modern world — its ways of work, warfare and recreation — and soon, we are told, the end of cheap oil will produce abrupt, wrenching changes in the way we live. Changes, certainly, but not convulsions, because the modern world responds to price signals.
That is why U.S. energy efficiency — energy consumed to produce a dollar of GDP — has roughly doubled since the oil shocks of the 1970s. America’s less than 5 percent of the world population consumes more than 20 percent of all oil. Surging demand by India and especially China will cause prices to rise. And terrorists, or chaos in Venezuela — America’s fourth-largest supplier, behind Canada, Saudi Arabia and Mexico — or Nigeria, the fifth-largest, could cause prices to soar.
However, in 1920 the inflation-adjusted price of gasoline was twice today’s. To match 1981 prices, a gallon of gasoline today would have to be $3.50. Inexpensive gasoline is one reason why since 1988 the average gas mileage of U.S. passenger vehicles has declined, and why in the 2003 model year, for the first time since the mid-1970s, the average weight of a new car or light truck was more than two tons (4,021 pounds).
In 1977 President Carter said we “could use up all the proven reserves of oil in the entire world by the end of the next decade.” But today known reserves are larger than ever. Reserves and production outside the Middle East are larger than they were 31 years ago, when a State Department report was titled “The Oil Crisis: This Time the Wolf is Here.”
In 1971, a year before Texas output passed its peak, U.S. production was more than two-thirds of the nation’s needs. Today the nation imports 54 percent of the oil it uses. M.A. Adelman of MIT notes that in 1971 non-OPEC countries had about 200 billion barrels of proven reserves. In the next 33 years they produced 460 billion “and now have 209 billion ‘remaining.’” Note Adelman’s quotation marks. To predict actual reserves would require predicting future exploration and development technologies.
However, the rate of discovery has been declining for several decades. Of course, oil supplies are, as some people say with a sense of profound discovery, “finite.”