SEATTLE — The news last month that the vast Saudi oil fields are in decline is a far bigger story than most in the media, or the United States, seem to realize. We may begrudge the Saudis their 30-year stranglehold on the world economy. But even the possibility that the lords of oil have less of the stuff than advertised raises troubling questions. How long will the world's long-term oil supplies last? As important, what will the big importing nations, like the U.S., do the day world oil production hits its inevitable peak?
For more than a century, Western governments have been relentlessly upbeat about the long-term outlook for oil. Whenever pessimists claimed that supplies were running low -- as they have many times -- oil companies always seemed to discover huge new fields. It's now an article of faith among oil optimists, including those in the U.S. government, that global oil reserves won't run out for at least four decades, which seems like enough time to devise a whole suite of alternative energy technologies to smoothly and seamlessly replace oil.
But such oil optimism, always questionable, is now more suspect than ever. True, we won't "run out" of oil tomorrow, or even 10 years from now. But the long-term picture is grim. In the first place, it's not a matter of running out of oil but of hitting a production peak. Since 1900, world oil production -- that is, the number of barrels we can pump from the ground -- has risen in near-perfect step with world oil demand. Today, demand stands at about 29 billion barrels of oil a year, and so does production. By 2020, demand may well be 45 billion barrels a year, by which time, we hope, oil companies will have upped production accordingly.
At some point, however, production simply won't be able to match demand. Oil is an exhaustible resource: The more you produce, the less remains in the ground, and the harder it is to bring up that remainder. We won't be "out of oil"; a vast amount will still be flowing -- just not quickly enough to satisfy demand. And as any economist can tell you, when supply falls behind demand, bad things happen.
During the 1979 Iranian revolution, the last time oil production fell off significantly, world oil prices hit the modern equivalent of $80 a barrel. And that, keep in mind, was a temporary decline. If world oil production were to truly peak and begin a permanent decline, the effect would be staggering: Prices would not come back down. Any part of the global economy dependent on cheap energy -- which is to say, pretty much everything these days -- would be changed forever.
And that's the good news. The term "peak" tends to suggest a nice, neat curve, with production rising slowly to a halfway point, then tapering off gradually to zero -- as if, since it took a century to reach a peak, it ought to take another 100 years to reach the end. But in the real world, the landing will not be soft. As we hit the peak, soaring prices -- $70, $80, even $100 a barrel -- will encourage oil companies and oil states to scour the planet for oil. For a time, they will succeed, finding enough crude to keep production flat, thus stretching out the peak into a kind of plateau and perhaps temporarily easing fears. But in reality, this manic, post-peak production will deplete remaining reserves all the more quickly, thus ensuring that the eventual decline is far steeper and far more sudden. As one U.S. government geologist put it to me recently, "the edge of a plateau looks a lot like a cliff."
As production falls off this cliff, prices won't simply increase; they will fly. If our oil dependence hasn't lessened drastically by then, the global economy is likely to slip into a recession so severe that the Great Depression will look like a dress rehearsal. Oil will cease to be viable as a fuel -- hardly an encouraging scenario in a world where oil currently provides 40% of all energy and nearly 90% of all transportation fuel. Political reaction would be desperate. Industrial economies, hungry for energy, would begin making it from any source available -- most likely coal -- regardless of the ecological consequences. Worse, competition for remaining oil supplies would intensify, potentially leading to a new kind of political conflict: the energy war.