"It's time", the guru said, "to talk of many things. Of oil reserves, and SUVs and why we can't grow wings."

--Apologies to Lewis Carroll

First, the Bottom Line: It is very doubtful that world oil production can increase much beyond present values. Yet oil demand continues to grow. Unless something changes, soon there will be a crash.

The facts.

• There was only so much oil in the earth to begin with. Although experts differ as to the details, new oil is either not being generated underground or, if it is, the rate of generation is far slower than the rate at which we are extracting it.
• We have already pumped about half of the global supply of oil out of the ground. Here, too, experts differ as to the details but the consensus is that we are now, in 2005, at about or past the halfway point in oil extraction, give or take a year or two. Worse, we have pumped most of the "easy oil". In the future we must rely on smaller pools of oil in places that are more difficult to reach (such as deep in an ocean), or where the quality of the oil is lower, or it requires more expensive technology to extract, or the extraction process creates significant environmental damage, or all of the above. As an example, an article in the Financial Times (16 March 2005) quotes PFC Energy as reporting: "With increasingly depleted reserve bases, non-OPEC declines are only expected to gather steam in the years to come." And output from some OPEC countries is already declining. For more details on the status and issues of peak oil visit The Oil Drum.
• Oil is used primarily for transportation. Although there are other uses for oil, such as electrical power, petrochemicals and plastics, transportation systems and vehicles account for roughly 75% of US consumption. Half of transportation oil consumption is for light vehicles--automobiles--and, lately, gas guzzling SUVs and light trucks. Urban automobile transportation accounts for more than one-third of all transportation energy use in the US. Half of that, in the US, is for commuting to and from work.
• Transportation demand is relatively inelastic. We learned in the oil crisis in the early 1970s that US automobile owners' demand for fuel is relatively price-insensitive. Since, they think, they need their vehicles to get to work, they are willing (if grudgingly) to accept price rises. At some point it is possible that oil prices will produce significant resistance but that point has not yet been reached. More important, vehicle owners do react strongly to scarcity of fuel. Price is one thing but waiting in line for hours to partially fill one's tank is entirely another, as was demonstrated in the US in the 1970s and in Iraq today.
• Transportation demand is increasing. Automobile use is increasing everywhere population grows, particularly in the developing world. Although the West is still the primary oil consumer, with the US well in the lead, China's demand has grown to the point where it is actively seeking to capture the output of Asian and other producers. At the moment, almost all the oil producing countries are producing at full capacity in order to satisfy current demand. Unless the laws of economics are somehow abolished the inevitable outcome of this situation is an increase in prices, oil shortages, or both, not to mention political repercussions. At some point, regardless of price issues, demand will exceed supply, as shown here just for developed world demand. Note that the projected crash is shortly after 2015.
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  Please also note that the graph above does not include consumption from countries such as China and India. China is already the world's second largest consumer of petroleum and the annual growth in its demand currently exceeds 12%. This could move the demand-supply collision point to less than a decade away. With what economic, political, and/or military repercussions?
• Alternatives do exist, sort of. Under the business-as-usual category there are alternative modes of travel (mass transit, car and van pools); more fuel-efficient vehicles (such as the Toyota Prius); and alternative fuels (ethanol, methanol) or energy carriers (hydrogen or batteries). All of these, in principle, can let us carry on pretty much as before in our transport behavior. The problem is that some of these alternatives have been tried and found wanting--acceptance of mass transit and vehicle pooling hasn't changed much over the past few decades in spite of large promotional efforts--or are just in the early development stages.
  The only option that will produce significant changes in transportation patterns and energy use is modification of behavior. One of the chief characteristics of teleworking is that it does effectively reduce the use of transportation. Telecommuters, for the most part, don't use their vehicles on the days they are telecommuting. Business travel is being replaced by email, IMing, computer-, audio-, and video-teleconferencing. All these alternatives use far less energy than the transportation modes they replace.

What next?

Although telework has enjoyed considerable success over the past three decades, the time has come to get serious about its future. It may soon no longer be a case of tweaking business performance or personal work-life accommodation but of survival in a world-as-we-would-like-to-know-it. After 9/11 we have received an increasing number of queries about telework as a disaster recovery option. Now it's time to think about disasters other than those created by terrorists or upheavals in the Earth's crust.

In its 1 April 2005 lead story the Financial Times posted the following list of recommendations from the International Energy Agency:

ENERGY SAVING RECOMMENDATIONS

Now the evidence is mounting that a global clash for oil resources might occur as China and India become more agressive--and Iran becomes more truculent toward the West. The best way to weather a crisis is to be prepared for it well in advance. For more on a similar potential crisis situation consider the bird flu problem.

Jack Nilles