Oil prices may spiral even higher

Warning! In spite of the jump in the price of gas and heating oil over the past few years, prices may go much higher. Demand is increasing, while new supplies are limited and becoming more expensive to produce. After the energy crisis of the ’70s, new oil supplies were developed and we enjoyed 30 years of low-cost energy. This is not likely to happen again, and it is very possible that prices will increase, perhaps even sharply, rather than decrease.

World demand for energy is increasing as China and India rapidly industrialize, with an especially dramatic increase in automobile production. Automobile production in China is now at 8 million per year. With an increase of 20 percent or more per year, China will soon produce more cars than the 11 million produced each year in the U.S. The combined population of India and China (2.4 billion) is eight times the population of the U.S. (0.3 billion). Thus there is the potential for an enormous increase in world energy demand as industrialization continues in India and China and other developing countries.

With regard to limitations of supply, new production of oil in Alaska and the North Sea were major factors in resolving the energy crisis of the ’70s. However, production of oil in Alaska has now declined by 75 percent from its peak level, while North Sea oil production has declined by 30 percent. Many other oil fields in the world are also in declining production, and this oil needs to be replaced just to meet current world oil use. With the rapid increase in oil use by countries such as China and India, new oil supplies need to be developed both to meet the increase in demand and to replace the decreasing production by existing oil fields. Where are these new oil supplies going to come from?

Although there is disagreement as to whether oil production can be increased over the next 5 to 25 years to meet the growing demand, most experts agree that new oil will be increasingly expensive to produce. Much of the new oil will be coming from deep offshore wells and from unconventional sources such as the oil sands of Canada. Oil will not be sold from such sources unless the current price of oil is maintained or increases.

But even expensive oil sources may not be sufficient to meet the increasing demand. Some experts are concerned that these new sources cannot be developed rapidly enough to satisfy world oil demand, in view of the rates of decline in production by existing oil fields.

Another concern is that much of the world’s oil comes from the politically unstable regions of the world, most notably the Middle East. Disruption of oil exports from any of the major oil exporting nations could cause a large spike in oil prices, because of the limited amount of oil in storage and the limited ability to increase oil production from existing oil fields.

So far, the increases in the price of gasoline and heating oil have not caused much reduction in use in the U.S. This is evidently because the cost of oil and gas is still a moderate fraction of total family budgets and also because in the short run it is difficult for many of us to use less gas and oil: people need to drive to work and don’t want to live in cold houses. However if demand exceeds supply, some of us will be forced to use less via further increases in prices.

But will a further large increase in gas and oil prices actually occur? Perhaps the demand for gas and oil will stabilize or even decrease. There are other energy sources, but these appear to be either expensive, in limited supply, or may take a long time produce in the quantities needed to replace oil. Another possibility is increasing energy efficiency, but this will take substantial time. Yet another possibility is that high prices will cause us to reduce the miles that we drive, live in smaller houses, and buy food and merchandise produced closer to home. Hopefully this latter possibility will not come about due to a major recession or even something like the depression of the 1930s, but there are many postings on the Internet from people who have this concern.

What should we do as individuals? Anyone buying a new car or home should be cautious! Could you afford $10-per-gallon gas for your new car? Could you afford to heat your new home with $10-per-gallon oil, or correspondingly expensive natural gas or propane? How long will your commute be? We should all start thinking about how we can reduce our personal dependence on gas, oil, and other fossil fuels. In the coming years, very high gas and oil prices may not give us any other choice.

John Tjepkema is a professor of plant physiology in the Department of Biological Sciences at the University of Maine.