By M.S. Shah Jahan
Crude oil has reigned supreme for most of the last century but the grim reality is that peak oil is already here. The term “peak oil” doesn’t mean that there isn’t any more oil in the world.
It simply means that we have reached the point at which global oil production tops out and then starts to decline. Thus, the basic law of supply and demand virtually guarantees that oil prices will continue to climb higher and higher.
This is happening just as billions of people are adopting modern lifestyles that demand even more energy which oil alone simply cannot meet. Not for the long haul, anyway.
Worldwide oil demand is up nearly 15% since 2002. When we break that down, it amounts to 60,000 barrels every minute or more than 1,000 barrels every single second. Most of this new demand is coming from countries like China, India and other emerging markets in Asia, South America and Africa.
And amazingly, this rising demand just keeps accelerating. Sheer population growth is partly to blame: In fact, world population is expected to hit 9 billion people by 2040. But what’s even more important is the fact that all these new people are living lives that are far more energy intensive.
They are heating more of their homes, driving greater numbers of cars, traveling farther and more frequently. The end result is a sort of compounding effect that requires ever-greater amounts of oil.
Countries outside the Organisation for Economic Cooperation and Development (OECD), basically non-Western countries have seen an explosive oil demand doubled since the 1990s. Even now, major emerging markets such as China, India and even Saudi Arabia have reached the important GDP per capita range where oil demand historically blasts off.
The rate of global oil production is already peaking as new deposits become harder and harder to come by and more difficult and expensive to extract. Over $100 a barrel, (now touching $120) crude oil is pretty expensive especially with the global economy still reeling from the events of the last few years. And yet, odds are that crude oil is only going to get much more expensive from here on.
The higher prices climb, less viable crude oil becomes, and the tenser the world gets. While energy prices are bad enough at the household level and an obvious burden for people all over the world, they could have disastrous consequences at the national level when the price goes up further.
Dramatic events took place last Wednesday when oil prices reached nearly $120 as Iran’s Press TV reported Iran had banned exports to six EU countries. In acts of mutual provocation, the nuclear-powered USS Abraham Lincoln sailed within sniffing distance of Iran, going through the Straits of Hormuz, that is only 21 nautical miles wide at its narrowest point.
Iran also responded by upping the nuclear ante, defiantly showcasing advances in nuclear technology in the face of US-Israel led sanctions. It is to be noted here that Iran’s Oil Minister Rostam Ghasemi warned earlier that world oil prices could soar to $200 a barrel.
The trouble isn’t just limited to Iran either. Recently, a 4,000-barrel-per-day oil pipeline owned by Italian oil giant Eni S.p.A ruptured and caught fire in Nigeria. Militants claimed responsibility and rebel supporters danced while flames clawed at the sky behind them.
Oil’s political power has always been obvious. But now, in the age of peak oil, that power is quickly becoming absolute. Number of countries including Mexico, Norway and Saudi Arabia, the world’s largest oil producer, are already reducing their exports. That’s right! Even Saudi Arabia’s oil exports are falling fast.
It is said that the costs of finding oil have tripled since 2001. Finding new sources of oil is getting harder and harder. Much of the world’s supplies reside in politically unstable places. And yet the world’s thirst for oil remains practically unquenchable.
According to the World Energy Outlook, we will need 47 million barrels a day in the next 20 years just to compensate for the wells that are drying up. Plus, we’ll need another 13 million barrels to cover the new demand. Add it up, and that’s 60 million barrels a day – the equivalent of discovering six new Saudi Arabia just to keep our oil habit going. An impossible situation it is!
Crude oil has served us well for over a century. But now, all that is changing fast. We have an explosion in energy demand from emerging markets. We have major supply constraints, challenges and threats, some of which could explode to the surface in a matter of months or even weeks.
We have every reason to believe that crude oil simply cannot continue to be the primary fuel source of energy in this century. And even if the economics were not so bad, strategically, we know that relying so heavily on a single fuel source produced mostly in volatile regions of the world is a mistake of monumental dimensions.
A new civil war is emerging in Iraq – a country in turmoil that still controls some of the world’s largest petroleum reserves. The Arab Spring has turned into an Arab winter, threatening Egypt, Libya, Syria and their neighbours.
Iran, the world’s 4th largest producer, could soon be at war with Israel. Even Russia, the world’s 2nd largest producer, is beginning to fear similar social unrest domestically.
So clearly the world is addicted to energy itself and needs new energy solutions fast. For the last hundred years, oil has simply been the most convenient source of energy. Now, the world wants a new solution, one that can carry us to the next 50 or 100 years (or even longer). We urgently need cheaper, cleaner, more-plentiful sources of energy to solve the world’s growing needs and problems faced by both developed and developing countries.
Should not the world find new source of energy?