Pardon my broken-record routine, but once again we are forced to confront the challenge of adapting Virginia’s economy to a petroleum-constrained world. Says the Wall Street Journal in a front-page story today: “A growing number of oil-industry chieftains are endorsing an idea long deemed fringe: The world is approaching a practical limt to the number of barrels of crude oil that can be pumped every day.”
Current global oil production runs about 85 million barrels daily. Industry experts are now pegging the upper limit of oil production around 100 million per day. That still allows some slack for growth in global demand — but hardly enough to accommodate China, India and other Third World economies as they reach a level of prosperity where masses of people can afford to buy automobiles.
Says the Journal:
The emergence of a production ceiling would make a monumental shift in the energy world. Oil production has averaged a 2.3% annual growth rate since 1965. … This expanding pool of oil, most of it priced cheaply by today’s standards, fueled the post-World War II global economic expansion.
The problems: the aging “giant” fields are playing out. New “giants” are increasingly difficult to find. And when they are, they’re located in increasingly challenging conditions, typically off-shore. Meanwhile, because of low-moderate oil prices in the 1980s and 1990s, the oil industry didn’t develop enough geologists and other skilled workers to meet today’s needs. The industry is increasingly constrained by manpower shortages and steep prices for drilling rigs and other equipment. Combine those economic factors with political decisions in many oil-rich countries to under-invest in their production infrastructure, and there is little hope that global supply can continue accommodating the growth in demand without steep increases in price.
In a few years, we’ll be looking back on $90-per-barrel petroleum and $3-per-gallon gasoline as the good old days.
I am optimistic that the U.S. economy can adapt. We’ll buy cars that get better gas mileage, or don’t use gas at all. People will find ways to drive less. But the “driving less” part of the equation is heavily dependent upon the shape of our human settlement patterns and the design of our transportation infrastructure. Infrastucture and buildings, which are slowly depreciating assets, are much slower to adapt — all the more so when the special interests who profited from the cheap energy era still dominate the political process and continue to push development into the outer edges of our New Urban Regions as if nothing had changed.
Sooner or later, we Virginians will have no choice but to change. The only question is how ugly things get — how much we will have compromised our living standards in a vain effort to put off the final reckoning — before we do.
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