Friday, December 19, 2008

The latest cheap oil era may be fleeting

Gas was $1.67 per gallon at my favorite station down the road. Crude oil has plummeted from its Summer high of about $145 per barrel (pb) to less than $40 pb. Yippee! Let's get the Hummers down off the blocks and hit the road! The era of cheap oil is back! (Writer's disclaimer: the last few statements are facetious. I drive a hybrid.)

Hold your horses. The New York Times reported on December 16 that the sudden drop in oil prices, the yo-yo effect that experts call "volatility," has abruptly put the kibosh on many oil production projects throughout the world. From off the coast of Africa to the Dakota's countryside, an oil boom that had commenced apace last Summer is grinding to a halt.

The result is likely to be a tight oil supply, once again, that will inevitably increase oil and gas prices precipitously. Ironically, some of the sting has been taken out of alternative energy projects, even though new energy sources to replace oil will be critical, now that the oil price has dropped again.

The International Energy Agency, in a study of hundreds of the world's largest and oldest oil fields, has also raised peak-oil alarm bells in its World Energy Report about the long-term prospects for oil supplies.

"Even if oil demand was to remain flat to 2030, 45 mb/d of gross capacity – roughly four times the current capacity of Saudi Arabia – would need to be built by 2030 just to offset the effect of oil-field decline," the above link quotes IEA Executive Director Nubuo Tanaka.

Four new Saudi Arabia's, in other words, would have to be found simply to compensate for the on-going decline of the world's largest fields. Wow.

The latest drop in gas prices appears to be a tantalizing mirage, or relief, for drivers, but not much more meaningful than that. Therefore, we have to keep our eye on the ball: plug-in hybrids, electrified transportation, and finding ways to conserve oil use.

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