Enjoy the last of the good stuff

4/11/2006

The next time someone asks you why gasoline is so expensive, tell them the answer is simple.

Gas prices are on the rise, because we are running out of oil. Well, fellow guzzlers, not exactly.

There is plenty of oil left in the ground to last us decades, and longer. Billions upon billions of barrels of black gold lay buried under sand and stone, with even the best oil wells pulling only about half of the available oil out of every decent deposit.

We are, however, running out of the cheap oil known as “light sweet crude” that is easily extracted, refined and transported through pipelines. Our thirst for the good stuff is insatiable, roughly 1,000 barrels a second on the world scale—but gushers are simply not turning up very often anymore.

The oil that is left is getting difficult to find and harder to refine. It’s kind of like going to a dance where, after you’ve had a good long spin, you look around and all the pretty girls are gone. You can keep on dancing, but it’s going to take some work.

Given the difficulties and risks involved in extracting lesser-grade oil from remote and hostile environments, the price will remain high to make it all worth it. There are few places left on the planet where the incentives to drill justify the effort.

Picture an Olympic swimming pool full of oil, and then draining it every 15 seconds, for close to 5,500 pools every day. With over one billion new consumers in China awakening with their own powerful thirst, the world is going to need every extra barrel of oil it can find—and the prices will rise.

The logic is grim. Higher oil prices are required to provide incentive for exploration, leaving our right to abundant, reliable and affordable energy in the tank. Because supply is getting tight at a time when global demand is accelerating, changes loom on the horizon that threaten to tear the very fabric of the comfortable lifestyles, and world, we know.

If you want gas in the future, and I suspect most of us will, we had better get used to paying for it.

Oil at $20 a barrel is history, and prices are almost surely going to become increasingly volatile over the next few years. Seasonal spikes of $100 per barrel, or more, will become the new reality.

Even with a surge in electric cars, solar power, and trans-Atlantic hot air balloon flights, our oil problems are not going to go away for a decade or more. North America’s addiction to cheap energy is too strong, and the technology of the last century too deeply entrenched, for any new approach to be quickly, easily, or painlessly, adopted.

Gas prices are going up because we are unable to live without it. Oil is increasingly harder to find and more expensive to produce—and the few lucky ones who have a bit of the good stuff left now have us, if you’ll pardon the pun, right over a barrel.