The Sky Is The Limit  

While the Economist is now ignoring the peak oil issue - I guess a magazine that has been dedicated to globalisation for over a century may find the idea that "free" trade (and its associated cheap labour arbitrage) based on cheap transportation may come to an end is actually rather threatening to their world view - the Guardian has published an editorial on the subject (via Energy Bulletin). They may find the idea rather more palatable.

Not long ago, the notion of the price of crude oil hitting $60 a barrel would have caused apoplexy. But after two years of steadily rising prices, the fact that oil trading in New York came within 30 cents of touching the $60 mark, setting a new record in the process, passed with barely a murmur.

There are various contributory reasons for the sudden spurt in prices earlier this week, such as a threatened strike in Norway. But the underlying message is that higher oil prices are here to stay - and may rise to $100 a barrel, according to some forecasts. Even the normally bullish Lee Raymond, chief executive of ExxonMobil, the world's largest listed oil company, warned "it would take a few years to sort out where it'll all end". The US energy secretary also worries it will take many years for the sharp increases in demand, caused by growth in developing countries, to pass. Sadly, that is the optimistic scenario.

The pessimistic scenario is that the world is fast approaching "Hubbert's peak", the point at which the rate of global oil production begins to decline. In either case oil prices will keep rising. The biggest optimist cannot ignore the fact that the annual average increase in demand for oil was around 1m barrels per day from the 1970s - until 2004, when the average increase shot up to 2.5m barrels a day. According to the International Monetary Fund's forecasts, total global demand will rise from around 82m barrels a day now to nearly 140m a day by 2030. Barring a technological breakthrough in the combustion engine - which could still lead to additional consumption, an effect known to economists as Jevon's paradox - the increased demand will presumably be met by much higher prices and the exploitation of marginal reserves.