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spikegifted - Random thoughts


What will happen when the world runs out of oil?

March 28, 2003

That is entirely dependent on how much people are prepared to pay for their gas. Like all things in life, it's all down to supply and demand and price elasticity. As the costs of oil extraction increase, there will be one point where the cost of getting the oil out to the consumer is beyond the price they want to pay.

Let's take oil prices of the past 30 years into consideration. There were two oil shocks in the 1970's and subsequently in the 1990-91. Of course, there were hikes at various points along the line, but those were the major ones. Why were there hikes? Hikes only existed if the producers knew the consumers are depended on the product and they simply can't live without it - which means they can charge whatever price they want there'll be buyers. (That's one of the reasons why natural gas and petroleum production in the North Sea first being considered as 'economical') Of course, sudden and prolonged hikes will translate to recessions and lower consumption, which is not that great for the producers either...

However, people learn from their mistakes. One of the biggest 'benefit' of the oil shocks in the 1970's was fuel efficiency. Cars of the 1950s and 1960s were simply inefficient. Period. Cars of the 1980s were improving in their efficiency and now most cars on the road have superior fuel efficiency compared with every generation before. Why? It's not necessarily because we're eco-consciencious! No. It's because car companies wants to stay in business longer and hence make whatever limited petroleum is available last longer. They 'educate' us, the consumers, that efficiency is good. However there're those of us who prefer thirsty V12s sitting under the hoods.

Now, that's a very neat assumption in that there will be oil hikes in the future. However, do you realize that oil companies don't actually like to be called 'oil companies' these days. They're slowly educating us, the consumers, that they're in fact 'energy providers'. Yes, oil companies are actually planning for the day that human societies will not depend on petroleum products to survive. Every year, billions of dollars, euros, pounds, rubles or whatever currencies, are spent on R&D to figure out the 'next big thing' in energy terms. That's right, they're all trying to 'put themselves out of business', in a non-traditional sense. They're trying very hard to move the current market base from petroleum to other forms of energy consumption. Ok, it is way too early to talk of the world running out of gas, but one day, it will come. And when that day comes when we, the consumers, don't want to pay for the huge extraction cost of petroleum products, the 'energy companies' will be ready.

In short, I think we will run those holes in the ground dry eventually, but there're people around the world working very hard to look for alternatives. There will be a day when petroleum-based products will be too expensive to buy, but there will be alternatives. Whether we like the alternatives or not is another matter altogether, but alternatives there will be. Of course, there will be some of us who prefer to run gas instead of whatever else is popular, but we like it that way.

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