Cassandra, daughter of the king of Troy, had it rough. She could see the future, but Apollo, whom she offended, decreed that no one would believe her prophecies. And what good is it to predict the future if all the people you try and help simply ignore you? You have to watch impotently as they march determinedly to their own destruction.
Today, however, we find ourselves in a rather different circumstance, at least with respect to energy, and particularly oil. Our world is full of Cassandras, brimming with righteous fury that through our petroleum gluttony we are rushing headlong into a perfectly foreseeable energy crash. But, alas, this time the credulous believe these Cassandras’ every word, whereas they are almost certainly talking arrant nonsense.
Think back to the 1970s and the many predictions that world oil production would soon peak and then decline precipitously, plunging us into shortages of supply and skyrocketing prices. Moreover, we were soon to be hostages to the Organization of Petroleum Exporting Counties (OPEC), who would increasingly control our dwindling oil reserves.
Thirty years later, what do we find? Since 1972 we have consumed over 30 years worth of oil. And yet world oil reserves stand more than 500 billion barrels higher than they were in 1972. And OPEC now normally accounts for only forty percent of world production, down from sixty percent in the early 1970s.
Where the Cassandras consistently go wrong is in imagining that the real constraint on us is the quantity of oil in the earth’s crust. This is not what really matters, however. What really matters is the intelligence we put into extracting energy from the natural environment.
Think about coal. In the 19th century people were racked with anxiety about coal just as we are about oil. Coal fuelled the 19th century – it powered trains, ships and factories and heated homes and businesses. There was much learned discussion about exactly when the world’s natural reserves of coal would be exhausted.
In fact, however, new fuels and other technological innovations emerged that displaced coal, and its value declined for many years. Far from running out, we lost interest in coal for many years because we developed superior substitutes that were cheaper, cleaner, easier to transport, had higher energy content or other advantages.
Similar forces are at work with respect to petroleum. Ironically, coal is one. We are learning to burn coal cleanly, or to turn it economically into either a gas or a liquid fuel. The Chinese, for instance, are using South African technology to build plants to produce millions of tonnes annually of gasoline and diesel fuel from coal. Coal gasification is making a comeback as natural gas prices rise. And the world is most definitely not short of coal.
Nor is it short of oil. For instance, when oil prices were low, Alberta’s oil sands were not an energy storehouse but a geological oddity of no practical significance. Rising prices made it worth while to develop the technologies to release the oil trapped in the sands, and that, in turn, made Alberta home to recoverable oil reserves perhaps as large as Saudi Arabia’s. Similarly, remote, deep or offshore locations that were inaccessible have been brought on stream. Someday we’ll be extracting oil from the oil shale in New Brunswick, Nova Scotia and other places. High oil prices today are not caused by shortages of reserves in the ground. We have a flow problem — we’re having difficulty getting the reserves to market and refinery capacity is tight.
As for natural gas, it used to be impossible to transport it in any quantity, so it could only be used near the gas deposits themselves. Then pipelines created continental markets for gas, but huge gas deposits in places like Siberia or Indonesia or North Africa were useless. The economics of pipelines didn’t work for such locations or the physical barriers were insurmountable. Now we are building a liquefied natural gas industry that connects producers and consumers world-wide.
And let’s not forget one of the most powerful forces of all: prices. High oil and natural gas prices rein in consumption, as people read the signals that they must get more value out of every bit of gas and oil. Human behaviour is self-adjusting in the face of such incentives. Hybrid technologies and China’s immense manufacturing capacity will soon drive down the cost of cars while driving up the fuel efficiency; it will be ever easier to maintain our standard of living while using less energy.
The point of higher prices isn’t to make people pay more for energy, but to get them to use less of it and to give companies incentives to find more. That’s why $35 a barrel oil is much more likely than $100 a barrel once you filter out short term jolts caused by war, terrorism and politics. Sorry, Cassandra.
Brian Lee Crowley is president of the Atlantic Institute for Market Studies (www.aims.ca), a public policy think tank in Halifax. E-mail: [email protected] .