If we want to maintain our current standard of living, we can't do it without abundant energy. The source doesn't make any difference because the end result is to generate power for our economy.
In today's energy market. fossil fuel-produced energy is joined by other sources such as solar, wind, geothermal, hydroelectric, and water.
Fossil fuels--oil, gas, coal, and lignite--are finite, while other sources which produce renewable energy are infinite. That means fossil fuels, which produce around 85 percent of our current energy, deplete every time a barrel of oil is used, while renewable sources never diminish in supply. There is only so much oil and gas, and one day it will become so scarce that it will be too expensive to use as a fuel to produce energy.
Now let's see how that scenario is playing out in today's worldwide market for energy. Before the pandemic rolled back the worldwide demand for oil, the market used 90 million bbls of oil per day to meet energy demands; the price was around $70 per barrel.
When the pandemic hit, the demand dropped and the price plummeted to minus $34 per barrel. In theory, you would have had to pay someone $34 per barrel to take your oil. Historically, the oil market goes from boom to bust, and that caused a bust.
The result: Around 300 oil and gas companies went bankrupt, several hundred thousand oil and gas workers were laid off, hundreds of drilling rigs were stacked, and gasoline prices dropped to under $2 a gallon. Now, since the pandemic is receding and the oil surplus is gone, gasoline is moving toward $3.
When the demand for oil dropped, most oil and gas exploration companies drastically cut back drilling for new oil and gas. That means a lot of new oil and gas won't be on the market over the next two years. New oil is critical to keep the market in balance and prevent the price of oil from going through the roof. The oil price is the only item that makes the cost of gasoline go up or down.
Pair that with a pent-up desire by virtually everyone to get back to normal after the pandemic is over--not only back to normal, but well above average activities for a couple of years. That will drive up the demand for oil and gas to pre-pandemic levels and beyond for at least a year or so.
Can oil producers quickly go back to 90 million bbls a day, then ratchet up to 100 million or higher? That's not just turning a valve. The loss of a full year of drilling, while existing old wells deplete and produce less, means a tightening global oil market.
A few years ago, a Saudi oil minister said $100 per bbl was a fair price, and I think the Saudis are going to shoot for that figure. That's why I believe that within two years after the pandemic is over oil will be over $100 a barrel, and that equals $5-per-gallon gasoline.
It is simply supply and demand. Booms and busts have been a characteristic of the industry since its inception. Last year in west Texas I saw a bumper sticker that said, "Lord, just give me one more boom, and I promise not to p* it off."
I know you're thinking: What about renewable energy? It's cleaner and inexhaustible, and should be highly desirable. It is. However, the problem is more than simply gearing up to harvest those energy sources. Based on several surveys I have seen, we are deriving around 15 percent to 20 percent of worldwide energy from renewables, and that is projected to reach somewhere between 30 percent and 45 percent in 20 years.
These estimates vary on how fast we adopt renewables. China is still building coal-fired plants to generate electricity, and building infrastructure to produce electricity from renewable sources is expensive and time-consuming.
There are other significant parts of the energy equation, and global warming is certainly in the picture. Fossil fuels contribute a high amount of atmospheric pollution and are one of if not the major contributor to global warming. As a concerted effort to reduce global warming becomes more active, the fuel used by combustion engines will decrease as the demand for electric vehicles increases.
However, the infrastructure to handle increasing demand for electric vehicles is huge and will take years to become commonplace. During that time, worldwide demand for energy will continue to accelerate. Consider the developing world, then look at the per-capita energy use by citizens of those countries, and it is easy to see that China, India, and much of Africa and South America will use more and more energy as they copy our lifestyle.
The answers to all the energy equations are complicated, but here are several conclusions: Sometime in the next five years you will pay more than $5/gallon for gasoline. In the next 10 years you will probably own an electric vehicle. In the next 15 years the use of coal to generate electricity in Arkansas will cease, and worldwide oil and gas use will peak in 20 years. Then the steady decline in oil and gas use will accelerate, as it is replaced by renewable energy sources.
If we want our children and grandchildren to have a high quality of life and this planet to be an inviting place to live, we should respond by reducing our energy use. The next couple of decades are critical in spurring the use of renewable energy and to solve global warming. It's not giving up using energy; it is to slow down the massive wasting of energy.
We must recycle, conserve, and use renewable energy sources. It's that simple.
Email Richard Mason at email@example.com.