Against this background, it seems far more likely that such speculation as there is has been stabilising, rather than destabilising: in other words, it is moving prices in the right direction, in order to reduce demand.
Will the high prices succeed in doing this? Certainly. Demand has to match supply for a simple reason: we cannot burn oil that does not exist.
The price spikes of the 1970s were followed by big absolute falls in demand and output. This was partly because of the recessions and partly because of rising efficiency. Both forces should work again this time, but to a much smaller extent. The slowdown in the US economy is indeed likely to be significant. Slowdowns will also occur in western Europe and Japan and even in the emerging world. But the latter will still grow rapidly. Overall, the world economy – and so world oil demand – is likely to continue to grow reasonably briskly. Similarly, the improved efficiency of use of petroleum, as people switch to more efficient vehicles, notably in North America (where the room for doing so is so large), will be offset by the rising tide of demand for motorised transport in the world’s fast-growing emerging countries.
On balance, it is quite unlikely that aggregate demand for oil will collapse, as it did after the two previous price spikes, just as it is unlikely that massive net new oil supplies will come on stream in the near future. This does not mean that prices will remain as high as they are today for the indefinite future: such stability is improbable. But it means we should expect a sustained period of relatively high prices even if “peak oil” theorists are proved wrong. If proved right, this would be true in spades.
In the long run, the best estimate of the price elasticity of demand for auto fuel seems to be minus 0.7. That is, a 10 percent rise in prices will reduce gas consumption by 7 percent. Of this, 4 points come from shifting to cars with better mileage, 3 points from driving less.
Of course, you go into an energy crisis with the auto fleet you have, not the auto fleet you want. So right there is a reason for a much lower short-run demand response. Plus, a good part of the reduction in miles driven involves long-term choices too — where you choose to live and/or work, how you arrange your life. So the short-run elasticity of demand is fairly small.
Given time, however, higher prices could lead to a repeat of the 70s-80s experience, when the US auto fleet became a lot more fuel efficient.
Burt Flickinger, a longtime retail consultant, said the last time he saw such significant changes in consumer buying patterns was the late 1970s, when runaway inflation prompted Americans to “switch from red meat to pork to poultry to pasta — then to peanut butter and jelly.”
Despite all the oil industry's talk about "safe drilling" with environmental safeguards (less than credible at a time when, at corporate behest, a primitively pro-business administration is dismantling many decades' worth of hard-won protections), mining fossil fuels from a fragile, treeless plain will permanently deface, contaminate, and gut it, while accomplishing almost nothing to offset the so-called oil crisis.
Even if Congress should succeed today in bestowing the refuge on the corporations, the first leases could not be issued before 2008, after seismic exploration, test wells, permits, and the truncated Environmental Impact Statement (EIS) required for the lease sale are completed. Next would come seven more years of construction of hundreds of miles of roads and pipelines and hundreds of acres of infrastructure, from flow stations to cesspools—all this to be done during eight or nine dark months of ice and blizzard, followed by a brief summer season when roads and installations sink and shift in the endless swamps of water-logged tundra.
Not before 2015 could the oil extracted from the Wildlife Refuge affect energy supplies, and even then it would represent an inconsequential fraction of our gluttonous US consumption. (A Department of Energy report of September 2005 predicted that ANWR oil production, peaking in 2025, would slash the gas price at the pump by no more than one penny per gallon.) As most of our legislators know well, to flog this questionable source as a solution to our wasteful habits is not only dishonest but a long-term disservice to the nation. ...
Ted Stevens, the Republican senator from Alaska who with Murkowski has battled for decades to allow drilling in the 1002, still dismisses the Wildlife Refuge as "a wasteland." But unfortunately for his argument, his Republican colleague Lincoln Chafee of Rhode Island has traveled there and seen it for himself.
"I will have to say, Senator Stevens," Chafee protested a few years ago during a debate, "[that] I have been to forty-nine of the fifty states [and] this is the most beautiful place I have ever been."
Of course, we could all go nuclear, too.
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