Larry Elliott (Guardian Utd): Black stuff has world order over a barrel

[Jack Rabbit]

From the Guardian Unlimited (UK)
Dated Monday June 27

The black stuff has world order over a barrel
Everyone knows oil will run out one day, but some industry experts predict the decline will start as soon as 2008
By Larry Elliott

Crude oil is at $60 a barrel and rising. British motorists are paying record prices on the forecourts. The £1 litre may not be that far away. Traders on commodity exchanges are warning that a cold winter in the northern hemisphere could see prices, already up 38% since the start of the year, rise a lot further.

Policymakers are clearly worried by the short-term picture. The G8 summit at Gleneagles next week will discuss the likely impact of high oil prices on the global economy and what the rich countries of the west ought to do in response. Every other surge in the price of oil in the past 30 years has been associated with a slowdown or full-scale recession in the world economy, and the fact that the increase seen since the start of 2003 has so far been shrugged off is no cause for complacency. Higher oil prices raise business costs and cut the real incomes of consumers; that means profit margins are shaved and consumer spending is blunted.

The real problem, however, concerns the longer term. There is a strong possibility that what we are facing now is not simply a temporary mismatch between demand and supply that can be sorted out by Opec pumping more oil or by exploiting marginal fields in the world's most inhospitable places. Rather, it is that we are in the early stages of an energy crisis that will fundamentally affect our lives over the next few decades. If that is so, western policymakers need to be thinking hard - and thinking hard now - about what life is going to be like when the oil and gas run out.

Everyone knows that oil will not last for ever. The world is not going to move from current levels of production to zero overnight; there will be a long process of gradual decline. Using techniques originally developed by M. King Hubbert to assess the profile of US oil production, industry experts can estimate, with a high degree of certainty, the high point of global output - or peak oil, as it is known.

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