When crude oil prices pushed Tuesday past the psychological $50-per-barrel mark, analysts grew tense. Only three weeks ago prices were dropping after hitting 14-year highs. Now the feeling is that there’s no way but up – and ouch. Oil strategist Ng Weng Hoong of Energyasia.com in Singapore summed up the fear: “When they cracked $50, now there is a trigger for $60. It broke the barrier, it’s going to reach the next target.”
$60-per-barrel oil is still affordable by western standards, but surely debilitating for growing economies. More so for the Philippines which imports all its oil. Adjusting for inflation, $60 would still be three-fourths of the peak in 1980, when the oil crunch thrust the world into recession.
But what if it hits $80 again, or even $100 by estimates of pessimists? The shock would lead to mass layoffs. Companies would shut down. Lights will go out. The elderly would die of cold up north and heat in the equator. To be hit worst are the poor, for food prices would fly with inflation.
That scenario has long been mulled in at least three books on a phenomenon called “peak oil.” Simply put, peak oil is the stage when world oil production hits its peak while demand continues to surge. At that point, pump prices would soar sky-high.
The authors believe peak oil is inevitable. Oil is a finite commodity. It will surely run out, sooner or later. Truth is, the discovery of oil already peaked in the ’60s. The new finds in Russia were at first billed to be almost as vast as Saudi Arabia’s, the world’s largest reserve. But now analysts are doubtful. The tar belt in Venezuela’s eastern and central grasslands, once tapped, is expected to yield 2.5 million barrels a day of super-heavy crude. But that’s a drop in the bucket of present world demand of 82 million bpd. With exploration already having reached its peak, the next to peak will be production. Peak oil theorists say that the production curve will take the shape of a bell, with stocks declining after oil producers have mined half of their reserves.
It’s hard to determine if the world indeed has reached that halfway mark. OPEC, in contrast to transparent America, has always been secretive about its production capacity and real output. Its members even cheat each other on quotas.
Still, the signs are there. Indonesia’s oil chief Purnomo Yusgiantoro, the OPEC president, said only a week ago they would again hike output like they did in June. His Saudi counterpart Ali Naimi, whose word is often taken as gospel truth, predicted prices to drop to “normal”, that is, in the mid-$30s per barrel. Instead of calming, the market shook, and oil hit $50. For, the truth is that OPEC’s spare capacity is a mere 1.2 million bpd, not enough to sate gas-guzzling America or China’s demand growth rate of nine percent a year.
Analysts directly attribute this week’s price spike to Nigeria’s civil war and the shutdown of US offshore wells from Hurricane Ivan. The Niger delta yields 2.3 million bpd; the US Gulf wells, roughly 550,000 bpd. Together, they are still relatively low compared to demand. But with OPEC spare capacity even lower, there’s little industry room for mistake, so to speak. And that tight fix spurs more believers in peak oil.
Peak oil doesn’t mean the end of the world – at least not that fast. Optimists believe the way out is in alternative fuels like natural gas, which can be compressed to run cars, factories and power plants. Then again, natural gas, like oil, can also run out. Others point to renewable energy: biodiesel from coconut, soy and vegetable oil; alcogas from sugarcane and corn ethanol; and of course the sun, whose heat also causes such potential sources as wind and waves. But peak oil forecasters lament that economies are too slow to adopt such energy alternatives.
