From the recent Washington Post article, “This Time, It’s Different” :
…a decade ago…conditions looked radically different. Regular unleaded gas was less than a dollar a gallon. Oil was little more than $10 a barrel. And the Economist magazine, predicting prices could soon be half that, ran a cover story with the headline: “Drowning in Oil.”
I can’t believe the Economist actually printed an article called “Drowning in Oil“! Plus, they stated that:
The world is awash with the stuff, and it is likely to remain so.
To their credit, they questioned whether this “is good news, is it not?” observing that “cheap oil could cause instability as well as poverty.” They also suggested that: “It would be progress, too, to get away from the notion that oil is scarce—an assumption that led to two decades of energy-policy mistakes, such as subsidising coal and nuclear power.” Of course, hindsight is always 20-20, but how was it not apparent that oil would become scarce? Afterall, they cite official sources such as the Energy Information Administration’s “Weekly Petroleum Reports.” Did the EIA not have good forecasting techniques then? Or were their data not suggestive of a looming shortfall?
The old Economist article is short and worth reading if only to see the way we talked about oil back in 1999. Thankfully, the conclude with caution (“it is unwise to assume that [oil abundance] will endure for ever”); still, the final paragraphs are worth reprinting here if only to see the sort of language they used. This was only 10 years ago—you can’t help but wonder what language we will use to talk about oil 10 years from now. Or were reporters swayed then (as now) by people’s general sentiment?
Of course, any such shock would be different today. Economies depend less on oil than they did. The development of markets to trade oil and oil futures means that price signals are relayed faster and more efficiently. Oil-producing capacity outside OPEC could be brought back on stream should oil prices ever blip up again. Yet any interruption to oil supplies would be hugely damaging to the world economy. That is why, even as prices fall, governments of consuming countries should be guarding against the dangers of oil dependence.
One way of doing this is to keep researching into alternatives to the petrol-powered internal combustion engine, such as fuel-cell systems, which can derive hydrogen from natural gas. Another is to curb consumption through higher petrol taxes. The country best able to make a difference is America, which consumes a quarter of the world’s oil, almost all of it for transport. American petrol taxes are so low that they do not even take account of environmental costs such as pollution. There is no better time to perform the politically awkward feat of raising taxes than when oil prices are low and the money can be quickly handed back in lower taxes elsewhere.
Yet even this would serve only to mitigate the future risks. By all means, welcome the return of normality to oil markets and the end of OPEC’s power. But just as oil’s scarcity seemed a fact of life in the 1970s, its abundant flow might be too easily taken for granted today. Normality could last a while; but it is unwise to assume that it will endure for ever.
-from the Economist, Drowning in oil; March 4, 1999
