Well, what do you know?
Gas prices are back down again. The world is motoring along, some 6.6 billion of us, at about the same gasoline prices that people paid back in the mid-1980s, once today's prices have been adjusted for inflation.
But how can that be, given the prospect of a world running out of oil? How does it happen that a world whose population has gone up by nearly 2 billion people in 25 years -- a world with seemingly fewer discoveries of oil fields than in years past and production declines in many countries -- still sells gas at the pump for about the same price?
The answer is that the "prospect" mentioned above is wrong. The world is not running out of oil, at least not in any meaningful sense. There may well be a finite number of molecules of "oil" on planet Earth. But in practical terms, the supply is infinite, as is the supply of, say, gold -- production of which in 2007, by the way, was twice the level of 1975.
As the late economist Julian Simon noted, the "ultimate resource" is neither oil nor gold nor anything else. The ultimate resource is the human mind, which has solved, is solving and will continue to solve resource-supply issues through creativity and entrepreneurial drive.
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Look around. It's happening with oil again, just as it happened many times in the past.
Predictions of oil stocks running low go back to the mid-1800s. And if predictions as recently as the 1970s were accurate, either the world would have "run out of oil" years ago or prices would have risen so high that oil truly would be "black gold."
But neither of those things happened. Again, here we are in 2008, paying 1980s-era prices for gas. True, oil prices spiked in the past few years and reached historic highs. But here's the key: If "peak oil" conditions truly were at hand, then prices would have continued to rise, reaching $200, $300 or even $400 a barrel as shortages loomed and wells ran dry.
That didn't happen. Instead, what happened fell along standard economic lines: First, oil companies prospected hard for oil, thirsty for the profits from $140-a-barrel crude. New sources such as Bakken formation came on line; to reach that source, petroleum engineers put human ingenuity to work and drilled two miles down. Supply grew.
Second and at the same time, consumers responded. They felt the pinch of $4 a gallon gas, so they cut back on their driving and stopped buying gas-guzzling cars. Demand dropped.
Growing supplies plus falling demand generally equals only one thing, as students learn in Economics 101: The price drops.
Basically, the rules of supply and demand held up in 2008, just as they had in 1998, 1988, 1978 and every year before that.
Why will they stop working in 2018?
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"The world is not running out of oil anytime soon," wrote Nansen Saleri, president and CEO of Quantum Reservoir Impact in Houston and the former head of reservoir management for Saudi Aramco.
"A gradual transitioning on the global scale away from a fossil-based energy system may in fact happen during the 21st century.
"The root causes, however, will most likely have less to do with lack of supplies and far more with superior alternatives. The overused observation that 'the Stone Age did not end due to a lack of stones' may in fact find its match."
-- Tom Dennis for the Herald
