Last week the price of crude oil broke new records, running about $110 a barrel. That's well above the previous record (in inflation-adjusted dollars) reached in 1980 after the revolution in Iran resulted in the nationalization of its oil.
Since tanks of crude are full to brimming, many traders in oil markets suspect that $110 could be the top price for now. But a growing number of oil-market analysts reckon the supply of oil to the world economy has reached a peak or is about to. The discoveries of new oil are now exceeded by the output of old oil. At some point, global oil output will start to decline, as happened in the United States in 1971.
If that is the case, before long $100-a-barrel oil will be regarded as "the good old days," says Robert Hirsch, a senior energy analyst at Management Information Services, Inc., a Washington, D.C., research and consulting firm.
The price of oil in the New York futures market, a financial market that promises the delivery of oil in the future, has already climbed more than $20 in the past two months.
Global oil production has been on a plateau at around 85 million barrels per day (b.p.d.) for about 3-1/2 years. It is widely debated whether that output level could be pushed much higher to reach demand in the future, which, according to the International Energy Agency (IEA) in Paris, could reach 98.5 million b.p.d. in 2015 and 116.3 million b.p.d. in 2030.
What greatly concerns Mr. Hirsch is that the US and most of the world has not prepared seriously for a "peak" in world oil output.
"If we wait until the problem hits us, we are in for very serious economic problems worldwide for at least 20 years," he says. "There is no good news. Nobody is really doing anything."
That same time span holds for nonconventional oil sources, such as the Canadian oil sands or the Venezuelan oil tars, he maintains.
A few years back, Hirsch and two other experts wrote a report for Science Applications International Corporation on the impact of the peak. It concluded that the price volatility of oil will increase dramatically and, "without timely mitigation, the economic, social, and political costs will be unprecedented … extremely damaging."
The biggest problem for the US is the supply of liquid fuel. Its more than 210 million automobiles and light trucks run on mostly gasoline.
The average age of the cars is nine years. So replacement of only half the automobile fleet will require 10 to 15 years.
The light truck fleet, a little younger on average, will require nine to 14 years to replace half the stock.
Already, higher gasoline prices have prompted some Americans to reduce their mileage and give more attention to cars that use less fuel.
More attention is being given to hybrid cars and, increasingly, all-electric cars. Even Exxon Mobil Corp., the world's biggest oil company, is working on hybrid battery technology.
The US Congress has moved to force auto companies to improve the gas mileage of their cars. And it is encouraging the output of biofuels from corn or other vegetation.
To Hirsch, however, the latter move is "a stupid thing to do."
That's because it trades food for fuel, and more food is needed for a growing world population.
"People didn't think it through," he says. Moreover, the production of corn requires a great deal of oil used as fertilizer as well as fuel for tractors and other transport needs. So the net energy gain is small and one result has been higher food prices.
Though no "crash" program to tackle the problems arising from peak oil is visible, Messrs. Bentley and Hirsch see growing recognition of oil output reaching a peak – even among major oil companies.
"More and more people are talking about it and warning about it," says Hirsch.
The IEA notes that its 26 member countries have stockpiled enough oil to cover 122 days of net imports and that these stores are growing. But this is for emergencies: that is, disruptions in oil supplies due to political problems or other difficulties. It doesn't deal with a long-term decline in total oil output and the rising demand for oil in such emerging markets as China and India.
The apparent recession in the US will likely trim demand for energy, including oil, for as long as the slump lasts.
But at some point demand will again grow. When that occurs, as the Hirsch study notes, the challenge of oil production peaking will deserve "immediate, serious attention, if risks are to be fully understood and mitigation begun on a timely basis."
And this mitigation will require "a minimum of a decade of intense, expensive effort," including government intervention.