Book Review

THE END OF OIL
On The Edge of a Perilous New World
by Joseph Dancy
LSGI Advisors, Inc.
June 2, 2004

The End of Oil
by Paul Roberts
400 pages, Houghton Mifflin Co; (May 15, 2004)
List: $26.00; $17.58 at Amazon.com

World economic activity grew at an anemic rate for centuries until the industrial revolution discovered a new fuel – coal. While coal had numerous advantages over the use of wood, it was the discovery of crude oil that drove economies forward and became the ultimate geopolitical commodity during the last century according to Paul Roberts in his new book “The End of Oil.”

As crude oil powered the growth of the world’s economy it is worth remembering how dominant the United States was in this transition. The first oil well was drilled in Pennsylvania to a depth of 60 feet in 1859, but adequate supplies for industry and for use in the internal combustion engine were not assured until the Spindletop field was discovered in Texas shortly after 1900.

  More Oil Discovered Than Consumed

Production in the U.S. continued to expand each year, and from 1860 to 1961 more oil was discovered  each year than was consumed. But since 1995 the world has used 24 billion barrels of oil a year according to Roberts, and is only discovering 9.6 billion barrels. So industry is finding only 40% of the crude oil reserves it needs to keep supplies from shrinking.

As recently as 1960 one in three barrels in the world was pumped from the United States, while the U.S. also consumed around one-third the energy produced in the world at that time. Production of crude oil peaked in the U.S. in the early 1970s.

Since the world economy is so dependant on this fuel – and demand in the United States for oil continues to grow while domestic production continues to decline – Roberts notes that it is important to analyze alternative sources of power available that can be used to fuel future economic growth.

Sea Change in Crude Oil Markets

Roberts does a good job reviewing the options to oil in the world economy. He concludes that alternative fuels all have drawbacks what will be difficult to overcome. Coal is by nature dirty to burn, fuel cells need further development, natural gas can be a solution but must be liquefied to transport, all in an environment where demand for energy continues to increase in the industrialized nations as well as in many emerging economies in Asia.

“The global oil business is in the midest of a sea change,” Roberts claims, “after twenty years of overabundant capacity and relatively low prices, the market is moving inexorably into an era of ever-tighter supply and significantly higher prices-risky business for an economy meant to run on cheap oil. How high prices go is an open question . . . .”

“Energy security, always a critical mission for any nation, will steadily acquire greater urgency and priority. As it does, international tensions and the risk of conflict will rise, and these growing threats will make it increasingly difficult for governments to focus on longer-term challenges” such as alternative fuels or conservation.

Roberts concludes that many argue a true change in the global energy system is virtually impossible, except in response to a serious energy shock.

Energy Sector

Roberts does an excellent job analyzing the issues in the energy sector and the geopolitical impact of recent trends. We are not as optimistic as he is with regard to the potential of natural gas to meet future energy demands, but for the most part agree with his analysis. A good read for the serious investor.

© 2004 Joseph Dancy
Bio & Archive

 Web Note:   Also hear Jim Puplava's interview with the author, Paul Roberts.

Contact Information
Joseph Dancy, Adjunct Professor
Oil & Gas Law, SMU School of Law
Advisor, LSGI Market Letter
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