The Future of Cheap Oil

When it comes to talking about the world’s shrinking oil supply, Robert Kaufmann, a College of Arts and Sciences professor of geography and environment, isn’t exactly a doomsayer. We won’t wake up one day to find that the world has simply run out of oil, he says, but the planet will run out of inexpensive oil within our lifetime — an event geologists and economists call Peak Oil.

And when that reality hits, we probably won’t be ready, a situation that could trigger a world recession, says Kaufmann, who is also the director of BU’s Center for Energy and Environmental Studies (CEES). Peak Oil is the inevitable time when total demand for petroleum exceeds the world’s capacity to supply it, according to Kaufmann and fellow energy experts who planned the 2006 World Oil Conference. Speakers at the conference, which began on Wednesday, October 25, and runs through Friday, October 27, at the George Sherman Union’s Metcalf Hall, will discuss the impacts of — and responses to — the coming peak and decline in world oil production.

“My analyses indicate that the peak years will be sometime between 2015 and 2035,” says Kaufmann, who creates models of world oil production and markets for the United Nations.

After production peaks, it’s going to be much more expensive to extract oil from the ground and the ocean floor, according to Steve Andrews, a cofounder of the Association for the Study of Peak Oil and Gas–USA (ASPO-USA), which is cosponsoring the conference with CEES. “We’ll simply produce less oil each year after the peak,” he says, “while demand continues to increase.”
 
When prices spike in the not-too-distant future, some experts say, oil may cost $100 to $150 a barrel — compared to about $60 now. It’s a frightening prospect for a world reliant on the fuel, and Kaufmann has argued in the past for a large consumer oil tax to encourage development of a wide range of renewable energy, including wind, nuclear power, and biofuels.

“Due to the uncertainty about when the peak will happen, there’s an inherent bias of the private sector not to generate significant investments in alternative energy sources in time to avoid economic problems associated with a shortfall, and that’s a big problem,” says Cutler Cleveland, a fellow CAS professor of geography and environment. “I don’t think there’s necessarily going to be an economic collapse during Peak Oil, but there could be a slowdown of economic growth, which could have some detrimental macroeconomic impacts.”

While Peak Oil probably won’t cause the political chaos and the fuel riots portrayed in last year’s movie The Oil Storm, it will be the catalyst for the biggest social and political challenges of this century, Kaufmann says.

Both professors point out that overall economic health is directly tied to energy. “Eight of the nine post–World War II recessions were preceded by some kind of upward oil price movement,” notes Kaufmann. Predicting the date of Peak Oil is difficult to gauge since it’s hard to estimate how much oil the Organization of the Petroleum Exporting Companies (OPEC) has in its reserves — its projections should always be taken with a grain of salt, he says, because of politics. There are two other big “ifs,” according to Kaufmann: how quickly oil demand will grow in developing countries such as China and India, “and the question of OPEC nations’ willingness to increase production to facilitate those demands.”

OPEC hasn’t expanded its production capacity in more than three decades, partly because the “oil shocks” of 1973 and 1979 — energy crises fueled by the Yom Kippur War and the Iranian Revolution — led to an increase in non-OPEC oil production.

In the meantime, the United States should invest in other energy sources, says Cleveland, such as wind power. “The cost of producing wind has declined dramatically in the last couple of decades due to technological improvements,” he says.

At the conference, Kaufmann will discuss Economics and Energy with William Clark, author of Petrodollar Warfare, and Roger Bezdek, president of Management Information Services, Inc., and coauthor of the U.S. Department of Energy’s “Hirsch Report,” on Friday, October 27, from 8 to 9:35 a.m. Cleveland will discuss Net Energy, Energy Accounting, and World Energy Modeling with Dick Lawrence, cofounder of ASPO-USA, and Charlie Hall, a systems ecologist at the State University of New York’s College of Environmental Science and Forestry, from 2:15 to 3:15 p.m.