Carlo's Think Pieces

Reflections of a Filipino in the Netherlands

Oil to peak at $200/barrel in about 3 years

Posted by butalidnl on 9 March 2008

With crude oil fetching $106/barrel recently, the question that we often ask is: How high will the price get? Well, a simple answer to this is: about $200/barrel sometime in 2010 or 2011. The price of oil will continue to increase steadily in the next 3 years mainly as a result of the growing need for oil coupled with a limited supply. There is no immediate prospect of new oil fields that will open up in the next couple of years, or of substitute fuels that will somehow replace oil. Add to this the political instability in many of the oil producing countries, and you have a seemingly unstoppable trend for price increases.

While people in the US may think that an oil price of $200/barrel, and thus gasoline at $5/gallon or more, is unthinkable and that “everything will stop” when this happens; perhaps they should realize that in Europe, gasoline prices are now nearing $6/gallon (this is due to the high taxes on oil products). Living with such an oil price is thus possible. Of course, Americans will have to make some lifestyle adjustments to be able to cope with such prices, such as having smaller and more fuel-efficient cars, using public transportation more often, working and doing groceries nearer where they live, etc.

But there is some good news. While there is nothing that can prevent the oil price from rising to $200/barrel in 3 years, this is about as far up as it will go. At this point, even without new oil supplies entering the market, the price will be so high that 2 things will happen: first, serious energy conservation efforts will start to take effect; and second, the cost of renewable energy will then be equal or even cheaper than energy from oil.

Thus, we would be looking at a scenario in 201o or 2011 where the sales of hybrid cars will soar; and where new electrical capacity will be generated by solar or wind energy. But this cannot happen overnight, since many coal, gas, or fuel-oil electricity generating plants are still operational, and it takes time to build new solar and wind energy plants. We can expect oil prices to stay at about $160 – $180 for a few years, and then slowly decrease after that.

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