Oil dreams
A recent article (1) seems to restate what many people have been talking about for over a century – the world is slowly running out of oil and the prices are slowly approaching infinity, with disastrous consequences on the economy. They cite the continual decrease in production from established fields and the high cost of reaching oil in yet to be discovered areas. They note that shale gas is not a solution as such production techniques deplete the resources faster. Finally they conclude the obvious, “Historically, there has been a tight link between oil production and global economic growth – If oil production can’t grow, the implication is that the economy can’t grow either.”
These observations are fair enough. Since the authors like historical data, they may want to extend the study a little further into the past. They may want to ask how economies grew before black gold was gushing out of the wells, world over. More importantly, history may also tell them that findings similar to theirs have been around for over hundred years. Ever since the “tight link,” between economic growth and oil production was discovered, people have been worried about running out of it.
However, such analysis is not giving due credit to the spirit of innovation and the already fast developing world of alternative energy sources. Oil has always been a transitional energy source – something that gave tactical benefits in production and storage but with long term costs. Increasing cost of oil will act as a significant boost to alternatives already fast approaching parity. The two engineering challenges – production and storage of electricity from renewables – need to be solved and we are well on our way to do that. With little help from increasing oil prices, we will likely reach there faster.
Panicking is never a good answer to solving any problem – especially if you find that such panic has been present for over a century. Most generations were afraid of the “tipping point,” just like ours. Those who need something to panic about, the most obvious choice is a meteor hit that will vaporize the earth – oil and all.
(1) Commentary in Nature: Can economy bear what oil prices have in store?Published: Friday, January 27, 2012 – 14:35 in Mathematics & Economics. Source: University of Washington
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