America and the Oil Boom

U.S. gasoline prices are rising sharply. The current average price of gasoline across the country is about $3.90 per gallon. That’s considerably cheaper than in Japan, but it poses a huge problem for a country in which many people cannot get to the supermarket without a car.

When the price of crude oil soared to a staggering $145 a barrel in 2008, gas cost about $4.10 a gallon. Gas prices are approaching that level once again. President Barack Obama is rattled, knowing that his chances for re-election will be jeopardized if these high prices continue.

The opposition Republican Party has begun a slanderous attack campaign. They say that Obama is an environmentalist, and so he is intentionally raising gas prices in order to force people to use natural energy sources.

However, that is not the case. Obama doesn’t even say the “e” in “environment.” He has been handing out drilling permits left and right for any place that might have oil, whether on land or in the ocean floor, pollution concerns be damned.

For instance, major shale oil development has begun in the Bakken formation in North Dakota. Oil can now be recovered from the Bakken’s hard shale by a new method called hydraulic fracturing. Bakken appears set to become a game-changing major oil field, second only to the Alaskan oil fields.

After drilling all over the country, American oil production volume had been on a downward curve since its peak in 1970 (9.6 million barrels per day), but the number has increased sharply in recent years. Production fell to a low of 4.9 million barrels per day in 1985, but is currently at a pace of 5.7 million barrels. Some bullish projections say that the figure could reach 10 million barrels per day, which would put the U.S. in contention with Saudi Arabia and Russia to be the world’s top oil producer.

How does that strike people? In the Jan. 26 issue of the science journal Nature, University of Oxford Professor David King and University of Washington Professor James Murray stated that “we are running out of oil that can be produced easily and cheaply.” If that is the case, then shale oil is nothing but a pipe dream.

Current worldwide oil field production continues to decrease at a rate of 4 percent to 7 percent annually. Production from unconventional petroleum deposits, such as shale oil and tar sands, is only a drop in the bucket. Previously, oil production volume has expanded as oil prices have increased. However, prices have risen by 15 percent annually since 2005, with no attendant increase in production.

Professors King and Murray concluded that global oil production hit a ceiling in 2005; in other words, we have reached peak oil. As the professors say, the “supply of cheap oil has plateaued.”

That may put a damper on the upturn in the global economy, but we need to heed this warning. As has been said before, of the 11 recessions in postwar America, as many as 10 have been preceded by rises in oil prices. If that is true, then the ultimate result of the current rising oil prices is all too clear. We must be on higher alert.