With oil prices at levels rivaling those during the crises of the 1970s, virtually everyone is clamouring for predictions about medium and long-term prices. Those concerned about climate change are also very actively wondering what effect higher hydrocarbon prices will have.
In order to know what the future of oil looks like, answers are required to a number of questions:
- How will the supply of oil change during the decades ahead? How many new reserves will be found, where, and with what price of extraction? How much can Saudi Arabia and Russia expand production? When will their output peak?
- How will the demand for oil change? How much and how quickly will high prices depress demand in developed states? What about fast growing developing states like India and China?
- At what rate, and what cost, will oil alternatives emerge. Will anyone work out how to produce cellulosic ethanol? Will the development of oil sands and/or oil shale continue apace?
- What geopolitical consequences will prices have? If prices are very high, will that prove destabilizing within or between states?
- Will the emerging alternatives to oil be carbon intensive (oil sands, corn ethanol) or relatively green (cellulosic ethanol, biomass to liquids)?
Of course, nobody knows the answer to any of this with certainty. There are ideological optimists who assert that humanity will respond to incentives, innovate, and prosper. There are those who allege that oil production is bound to crash, and that civilization as we know it is likely to crash as well.
Mindful of the dangers of prediction, I will hold off on expressing an opinion of my own right now. The magnitude of the questions is far too great to permit solution by one limited mind. What contemplating the variables does allow is an appreciation for the vastness and importance of the issue. Virtually any combination of answers to the questions above will bring new complications to world history.