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Authors: Ronald Bailey
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Monetary Fundâs commodity index has fallen by about 57 percent from its July 2008 peak. If the past is any guide, commodity prices could well fall to levels even lower than the price nadir of the 1990s as the expansionary phase of the current super-cycle begins to fade.
In the meantime, letâs take a look at some specific depletionist predictions.
Peak Oil
Predictions of imminent catastrophic depletion are almost as old as the oil industry. An 1855 advertisement for Kierâs Rock Oil, a patent medicine whose key ingredient was the petroleum bubbling up from salt wells near Pittsburgh, urged customers to buy soon before âthis wonderful product is depleted from Natureâs laboratory.â The ad appeared four years before Pennsylvaniaâs first oil well was drilled. In 1919, David White of the US Geological Survey (USGS) predicted that world oil production would peak in nine years. And in 1943 the Standard Oil geologist Wallace Pratt calculated that the world would ultimately produce 600 billion barrels of oil. (In fact, more than 1 trillion barrels of oil had been pumped by 2006.)
In his 1971 Sierra Club book Energy: A Crisis in Power, John Holdren declared that âit is fair to conclude that under almost any assumptions, the supplies of crude petroleum and natural gas are severely limited. The bulk of energy likely to flow from these sources may have been tapped within the lifetime of many of the present population.â This sounds very much like the later prognostications of âpeak oilâ prophets.
In 1972, The Limits to Growth estimated known global oil reserves at 455 billion barrels. The report projected that, assuming consumption remained flat, all known oil reserves would be entirely consumed in just thirty-one years. With exponential growth in consumption, it added, all the known oil reserves would be consumed in twenty years. These dour predictions seemed plausible after the Arab oil crisis of 1973 quadrupled prices from $3 to $12 per barrel (from $16 to $63 in 2014 dollars) and when the Iranian oil crisis more than doubled oil prices from $14 per barrel in 1978 to $35 per barrel by 1981 (from $74 to $185 in 2014 dollars). In July 2008, the price of oil surged to $147 per barrel ($160 in 2014 dollars).
In response, the US federal government imposed price controls on oil and gas in the 1970s and established fuel economy standards to encourage the sale of more efficient automobiles. The sense of doom did not dissolve. In 1979 Energy Secretary James Schlesinger proclaimed, âThe energy future is bleak and is likely to grow bleaker in the decade ahead.â The Global 2000 warned, âBy 2000 nearly 1,000 billion barrels of the worldâs total original petroleum resource of approximately 2,000 billion barrels will have been consumed.â The report predicted that the price of oil would rise by 50 percent, reaching $100 per barrel by 2000. In fact, by 2000, the average price of oil in real dollars had fallen by two-thirds of its price in 1980 (at its low point in 1998, the price of petroleum in real terms was under a fifth of its 1980 price).
Historically, on the basis of annual average real prices, 1980 and 1981 were the two years with the highest oil prices, at $106 and $92 per barrel (in 2014 dollars). As the next two decades saw the price of crude bumpily descend from its 1980 high, fears of imminent depletion of oil provoking a permanent economic crisis abated. That changed when the price of petroleum began its dramatic rise in the early 2000s. As a consequence, 2013 now ranks third, with a real price averaging just under $92 per barrel. Not too surprisingly, the rapid ascent in the price of oil again excited predictions of its imminent depletion and ensuing disaster.
For example, in 2006 Princeton geologist Ken Deffeyes was warning that the imminent peak of global oil production would result in âwar, famine, pestilence and death.â Deffeyes, author of
In the meantime, letâs take a look at some specific depletionist predictions.
Peak Oil
Predictions of imminent catastrophic depletion are almost as old as the oil industry. An 1855 advertisement for Kierâs Rock Oil, a patent medicine whose key ingredient was the petroleum bubbling up from salt wells near Pittsburgh, urged customers to buy soon before âthis wonderful product is depleted from Natureâs laboratory.â The ad appeared four years before Pennsylvaniaâs first oil well was drilled. In 1919, David White of the US Geological Survey (USGS) predicted that world oil production would peak in nine years. And in 1943 the Standard Oil geologist Wallace Pratt calculated that the world would ultimately produce 600 billion barrels of oil. (In fact, more than 1 trillion barrels of oil had been pumped by 2006.)
In his 1971 Sierra Club book Energy: A Crisis in Power, John Holdren declared that âit is fair to conclude that under almost any assumptions, the supplies of crude petroleum and natural gas are severely limited. The bulk of energy likely to flow from these sources may have been tapped within the lifetime of many of the present population.â This sounds very much like the later prognostications of âpeak oilâ prophets.
In 1972, The Limits to Growth estimated known global oil reserves at 455 billion barrels. The report projected that, assuming consumption remained flat, all known oil reserves would be entirely consumed in just thirty-one years. With exponential growth in consumption, it added, all the known oil reserves would be consumed in twenty years. These dour predictions seemed plausible after the Arab oil crisis of 1973 quadrupled prices from $3 to $12 per barrel (from $16 to $63 in 2014 dollars) and when the Iranian oil crisis more than doubled oil prices from $14 per barrel in 1978 to $35 per barrel by 1981 (from $74 to $185 in 2014 dollars). In July 2008, the price of oil surged to $147 per barrel ($160 in 2014 dollars).
In response, the US federal government imposed price controls on oil and gas in the 1970s and established fuel economy standards to encourage the sale of more efficient automobiles. The sense of doom did not dissolve. In 1979 Energy Secretary James Schlesinger proclaimed, âThe energy future is bleak and is likely to grow bleaker in the decade ahead.â The Global 2000 warned, âBy 2000 nearly 1,000 billion barrels of the worldâs total original petroleum resource of approximately 2,000 billion barrels will have been consumed.â The report predicted that the price of oil would rise by 50 percent, reaching $100 per barrel by 2000. In fact, by 2000, the average price of oil in real dollars had fallen by two-thirds of its price in 1980 (at its low point in 1998, the price of petroleum in real terms was under a fifth of its 1980 price).
Historically, on the basis of annual average real prices, 1980 and 1981 were the two years with the highest oil prices, at $106 and $92 per barrel (in 2014 dollars). As the next two decades saw the price of crude bumpily descend from its 1980 high, fears of imminent depletion of oil provoking a permanent economic crisis abated. That changed when the price of petroleum began its dramatic rise in the early 2000s. As a consequence, 2013 now ranks third, with a real price averaging just under $92 per barrel. Not too surprisingly, the rapid ascent in the price of oil again excited predictions of its imminent depletion and ensuing disaster.
For example, in 2006 Princeton geologist Ken Deffeyes was warning that the imminent peak of global oil production would result in âwar, famine, pestilence and death.â Deffeyes, author of
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