The perils of cheap oil

…On Sunday, “60 Minutes’” Steve Kroft asked President-elect Barack Obama if the astonishing drop in gas and oil prices made dealing with energy issues “less important.” Obama responded forcefully: “It makes it more important.” He observed that there is a cycle of “shock and trance” in American attitudes toward energy. When gas prices go up, there’s a “flurry” of activity, but when they go back down, well, never mind.

That’s exactly what I want to hear from my president, because the truth is that the current low gas and oil prices are engendering a false sense of security. We are being set up for an even more painful energy crisis in the very near future.



Support for this thesis comes from the recently released World Energy Outlook from the International Energy Agency. The rate of production decline in existing fields is accelerating, to the point “that by 2030 the world needs to find and produce 45 million [new] barrels of oil a day.”

You don’t have to be a believer in peak oil to recognize that developing that much new production will be a huge and expensive task. But at the moment, investment in new oil production capacity is getting hammered by the double whammy of low oil prices (which makes existing facilities offshore and in, for example, the Alberta oil sands, uneconomic) and the unforgiving credit environment, which is making it very hard to get the financing necessary to undertake new projects.

Salon