An oil scare story from the past ...

“It is the Summer [two years from now]. Violent uprisings have shaken Saudi Arabia, and the House of Saud has fallen. For months, the nation has been kept in turmoil by dissidents with strong religious and anti-Western feelings: ultraconservative Muslims of the Wahhabi sect, angered by corruption among some of the ruling princes and embittered by the erosion of family and tribal values; and disaffected foreign workers, many of them Palestinians, stirred up by radical forces in other lands.

Oil no longer flows from rich Saudi fields. Critical elements of the oil distribution system, systematically wrecked, lie in ruins. The giant terminal at Ras Tanura, which once sent half a dozen tankers a day down the Persian Gulf and out to the global oil routes, rusts silently under a scorching sun.

The free world has lost a fifth of its oil supply – some ten million barrels a day.

For a brief time, the United States seemed not to feel the loss; its daily share from Saudi Arabia was less than a million and a half barrels, and there were stockpiles and a small strategic reserve to draw on.”

Does this projection sound believable? It did in 1981, because that is when it was written in National Geographic magazine along with comments about projections that oil could be at $80 per barrel in 1985. It turned out that the cost of a barrel of oil in 1985 was about $27, and only $14 in 1986 (which is roughly $52 and $27 in early 2007 dollars). How wrong was that oil price projection?

See http://www.wtrg.com/prices.htm and http://www.inflationdata.com/inflation/Inflation_Rate/Historical_Oil_Prices_Chart.asp for discussion and charts of oil prices.

What this look into the recent past indicates, is that projecting energy prices and uses into the future is pretty much as good as looking into a crystal ball. The reason that oil prices dropped is due to efficiency improvements and adjustments in the world economy that reduced demand. These adjustments were caused by people, just as the price increase and embargo was also caused by people.

And a large part of the reason it has taken approximately 25 years for us to have the same conversation again about the future of oil supplies and Wahabbi sects in the Middle East, is because people had the ability to act and change the future. Thus, in the 1970s and 1980s, people were the major influence in energy consumption and energy prices. Today, people are still the major influence as we still have room to become more energy efficient to choose the goal for oil consumption for the next few decades.

The question is: how long can people’s choices and adjustments remain the most influential factor in energy consumption and prices? Because, if people are not the most influential factor, then that means nature’s limitations in resources is the most influential factor. At no point yet in history has per capita energy consumption declined. Human choices can possible maintain high standards of living even if and when energy per capita begins to decline, sometime in the future. Our goal should be to maintain the world and society such that humans always have the most control over energy consumption, because otherwise, it means, by definition, we are not in control.