Every day, we are bombarded with screaming headlines about soaring oil prices. What we rarely hear is that the price of oil always retreats.
Data from the U.S. Energy Information Administration shows the price of a gallon of gasoline over the last 90 years, on an inflation-adjusted basis, always has declined after a spike. It may jump during war time or global turmoil, but then it drops.
Five years ago, I believed in the Peak Oil theory. It postulated that global oil production would peak in 2006, and the following shortage would send prices skyrocketing. Sure enough, in 2008 a barrel of oil shot up to $150.
But less than 12 months later, oil plummeted to less than $40 a barrel. Yes, the price now is back up to $100, but I no longer believe in Peak Oil. Here’s why:
Brazil recently discovered massive oil reserves off its coast that match or beat Saudi Arabia’s. Brazil will start tapping those reserves before this decade is out. In Iraq, infrastructure is being put in place to increase oil production six or seven times greater than today, potentially making it the largest oil producer in the world.
And in the U.S., a new drilling technique called hydraulic fracturing is the mother of all game changers. Texas wildcatters figured out a way easily extracting natural gas and oil from shale. Using high pressure water and sand, they fracture the shale, releasing trapped gas.
As a result, the U.S. has added 100 years of natural gas use (at current rates), and the price of natural gas has fallen to nearly half from its peak in 2008.
While much has been written about the natural gas bonanza, there hasn’t been much coverage of using hydraulic fracturing to extract oil.
The U.S. Department of Energy predicts U.S. oil production will rise this year for the first time in 40 years. Before the decade is out, the DOE forecasts oil production in the U.S. will increase by 2 million barrels a day.
Hydraulic fracturing, or fracking as it's also called, is controversial. Some environmentalists have seized on it as the next great danger to the planet. A documentary called “Gasland” probably will win an Academy Award for hysterically pointing out the dangers of fracking.
Of course, “Gasland” approaches its topic with the impartiality and evenhandedness of pseudo-documentaries such as “Roger and Me” and “Who Killed The Electric Car?”
There are legitimate concerns over fracking, because it’s completely unregulated. Some frackers are injecting diesel fuel and chemicals into their wells, not just water and sand. But the solution is simple: regulate it!
Despite the hysteria, the U.S. Environmental Protection Agency has not shut down one fracking site, even though it has investigated many alleged environmental abuses. A more complete report will come out next year.
So far, fracking has been done mostly in the U.S., but it soon will spread to the rest of the world. Before this decade is out, we are going to see vast increases in the amount of oil and natural gas available. And this will have enormous implications for the auto industry and policy planners.
John McElroy is editorial director of Blue Sky Productions and producer of “Autoline” for WTVS-Channel 56, Detroit, and “Autoline Daily” the online video newscast.