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Before the oil runs out: How will this era end?

The world is swimming in crude, but it's getting costlier to extract, and demand is rising fast. Is it the end of the line for cheap oil? An overview. Part 1 of three

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While the nations with the largest reserves, mostly in the Middle East, have periodically offered to increase production, there is also concern that they've showed few signs of boosting their overall capacity to pump oil.

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Still, the long-term outlook is murky. Even industry leaders don't always see eye to eye.

There's no impending worldwide supply crisis, according to Rex Tillerson, president of ExxonMobil, the world's largest petroleum company. Oil and natural gas "are likely to remain the primary energy source through the middle of the century," he said in a speech this year.

A recent ExxonMobil study of world energy resources supports that view. It found that oil should remain plentiful and affordable at least through 2030, which was the time limit of the report. Rising worldwide demand will be met primarily by increased production in the Middle East, the study concludes.

We already face "a new energy equation," counters David O'Reilly, chairman and CEO of ChevronTexaco. Three factors are squeezing oil supplies - globalization, economic growth, and falling oil output in several nations, including the US.

"Oil is no longer in plentiful supply," Mr. O'Reilly said in a speech this year. "The time when we could count on cheap oil and even cheaper natural gas is clearly ending."

A crimp in US lifestyles?

When it finally comes, the end of cheap petroleum would be felt nowhere more keenly than in America, a nation built on low-cost, plentiful energy, and cheap oil in particular. Long, leisurely Sunday drives and Saturday night cruising down Main Street in hot rods with 25-cent-a-gallon gasoline were traditions fused into the American psyche in the era after World War II. Today's suburban American lifestyle - built around long commutes to work and large, energy-hungry houses - assumes that low-cost fuel will be available indefinitely.

For years, American prosperity was fueled with oil because the country had so much of it. The country mostly produced as much as it used, but when more was needed, plenty of imports were available from Venezuela, Canada, and other friendly nations.

Today, the US position is more precarious. US output of crude oil and natural-gas liquids (like propane) hit a peak in 1970 of 11.3 million barrels per day. Then the slide began. By 2004, US production had slumped to just 7.2 million b.p.d., even though US consumption had climbed to more than 20 million b.p.d.

Nor is domestic production likely to spike upward because of some new find, analysts say. By one estimate, some 80 percent of all the wells ever drilled in the world have been drilled in the US.

Because of all this, the US is now highly - perhaps even dangerously - dependent on other nations for its transportation fuels, particularly Canada and Mexico, but also Saudi Arabia, Venezuela, Nigeria, and Iraq.

One immediate problem for the US is that its leaders in Washington too often see the oil supply situation "largely as a political problem," argues Mr. Roberts, author of "The End of Oil" in 2004. Too many of them insist that if only the US government would allow oil drilling in the Arctic National Wildlife Refuge, or if only US companies were allowed back into the rich Saudi oil fields, the problem would be solved, he adds.

Yet rising prices for gasoline and crude oil already demonstrate something else - that worldwide demand is gaining on, and could soon overtake, supply, Roberts says. If demand keeps rising, he adds, "I don't think anyone in the West knows" whether oil exporters, particularly in the volatile Middle East, can - or will - meet that demand.

First of three articles. Wednesday: Why gasoline prices are high.

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