DURHAM-- The global economic crisis shows no sign of significantly abating, with extremely sluggish growth and sometimes economic contraction occurring across Europe and the US in particular.
While the problem of credit remains the main focus of economists, there is also another factor to consider that many seem to have overlooked. The world is running out of affordable oil. The International Energy Agency stated in its 2010 report that the world saw an “all-time peak” in the production of conventional crude oil in 2006. While it delivered an optimistic scenario with respect to the discovery and utilisation of unconventional oil sources, such as tar sands and deep-ocean oil, there are still some problems when it comes to the ability to supply the global economy with these sorts of fuels.
Fatih Birol, chief economist at the International Energy Agency, has stated several times that “the age of cheap oil is over.” Our global economy has depended on cheap oil in order to function well and in order for long-distance supply chains to remain viable. However, the dynamics of supply and demand could result in a situation where oil prices are highly volatile, swinging from very high prices to very cheap prices in short periods of time. Such dynamics have been described by Dr Colin J. Campbell, a retired petroleum geologist and analyst, as the “bumpy plateau.” When the physical limits of oil production have been reached, any increase in oil demand as a result of investment in economic growth causes rapid price increases until these prices start to make global trade expensive. As a result, demand for oil falls because of the inability of companies to afford energy expenses and this drives down the price -- sometimes very dramatically. Can the world survive such a volatile future?