Deathwatch for Cheap Oil

NY Times
Oct. 18, 2006

By PAUL B. BROWN

THOSE falling prices at the gasoline pump may only be temporary. Indeed, they could signal the start of an era in which, forecasters say, “the death of cheap, abundant crude might unleash war and plunge the world into a second Great Depression.”

“Peak oil is a reality,” says Willem Kadijk, a hedge fund adviser quoted by Bloomberg Markets magazine. He is just one of many who believe that global oil production is now at or near its peak, and the only place to go is down.

“Once the flow crests and starts to decline, and some geologists say it already has, oil will no longer be able to slake the world’s growing thirst for energy,” Deepak Gopinath writes in summarizing the argument. “The result will be the oil shock to end all oil shocks.”

The price of a barrel of crude oil, which closed yesterday at $58.68, “will spiral to $200 — and keep rising,” he writes.

Representative Roscoe G. Bartlett, a Maryland Republican, has formed the Congressional Peak Oil Caucus to draw attention to the issue. “The world has never faced a problem like this,” he told the magazine.

The nation’s oil companies dispute the assertions. An Exxon Mobil spokesman says the company’s geologists expect global oil production to keep rising for at least the next two decades.

ON SECOND THOUGHT If you think ethanol is a simple answer to solving our gasoline needs, think again, argues Consumer Reports in this month’s cover article, “The Ethanol Myth.”

“Despite the avid support of the Bush administration and major American car companies,” E85 — a commonly used blend of 85 percent ethanol and 15 percent gasoline — “is unlikely to fill more than a small percentage of U.S. energy needs,” the magazine says.

Reasons for the pessimism are that ethanol costs more, is hard to find outside the Midwest — only about 800 gas stations out of 176,000 nationwide sell E85 — and provides fewer miles to the gallon. The magazine tested ethanol on a Chevrolet Tahoe and found that the fuel economy dropped “27 percent when running on E85 compared with gasoline, from an already low 14 m.p.g.”

At the time of the test, the average retail price of E85 was $2.91 a gallon, which meant the 27 percent fuel-economy penalty would have caused drivers to pay “$3.99 for the energy equivalent of a gallon of gasoline.”