Facing the Oil Problem

A call for an energy policy that would spark outside-the-box basic research, end dependence on foreign oil, and reduce death and destruction on the nation’s highways.

When the price of oil plummets to $50 a barrel as it did last November, it is hard to imagine it soaring to $250. But within five years, as the world resumes dynamic growth after the present recession, the United States very likely will face $250 oil. Economists argue over whether, or to what degree, the abrupt 2007-2008 increase in oil prices precipitated the subsequent recession (as did the 1973-1980 price hike) or at least worsened its effects. But there is no doubt that the equally abrupt and continuing decline in oil prices from nearly $150 a barrel in July 2008 to less than $50 a barrel four months later resulted in large part from a sudden drop in demand because of the worldwide recession on the heels of the summer/fall 2008 financial crisis.


In most advanced industrial countries, including the United States, consumption of energy relative to GDP has declined so that the relative importance of energy to the overall economy is less significant than it was a couple of decades ago. But relatively less economic significance does not mean less absolute demand for energy. On the contrary, the absolute level of energy consumption in these countries has continued to rise, though at a slower rate than their economies as a whole. Absolute declines in energy consumption are for the most part still in the future.

U.S. government agencies have recently come around to the view that conventional oil supplies are likely to peak worldwide sooner rather than later. Although U.S. supplies peaked as far back as 1970, the government has long denied concern about the availability of oil to fuel future world growth. But Hard Truths, a 2007 report issued by the U.S. National Petroleum Council, an advisory group to the Department of Energy, included assessments from both the U.S. Government Accounting Office and the U.S. National Energy Technology Laboratory regarding the likelihood that world oil is peaking. Both Hard Truths and the 2008 International Energy Agency study World Energy Outlook include data and graphical evidence of the global peaking of conventional oil, especially in non-OPEC areas. Outside OPEC, oil fields everywhere are in decline. Even the huge Ghawar field in Saudi Arabia may have reached its peak rate of output of easy oil. Meanwhile, pushed by high economic growth rates in China, India, Brazil, and elsewhere in the Third World, demand continues to rise.

Johns Hopkins Magazine