MEDIA CONTACT: Dr. Mike Walden, 919.515.4671 or michael_walden@ncsu.edu

YOU DECIDE:Are we running out of oil?

By Dr. Mike Walden
North Carolina Cooperative Extension Service

Gas prices are back up, just in time for the peak summer driving season.

Get used to it. Many experts say we'll never see $1 a gallon gas like we had in the 1990s. Hybrid cars are now a status symbol, and wind, solar and maybe even nuclear power are coming back in vogue.

The common thread running through these trends is the assumption that the world is running out of oil, and the end of oil may come sooner rather than later.

Oil is what energy folks call a non-renewable energy source; that is, there's only so much oil in the ground, and no more of the gooey stuff can be made. So when it's gone, it's gone! And as the world produces more people and more machines that run on oil or its derivatives, like gas, the date for the end of the oil age may be just around the corner.

There's only one big problem with this logic: No one knows exactly when the end will come because the goal posts, as well as the hash marks, keep moving. For one, the known reserves of oil change as the technology used to discover and extract oil improves. And second, oil users can alter their behavior in response to oil's increased scarcity in ways that can extend the life of oil supplies.

Let me hit each of these points in more detail.

Like most things, the machinery and knowledge used for discovering oil changes over time. In fact, it has improved dramatically in just the last decade, and the motivation for further improvement is enhanced as oil prices rise. This means oil companies are discovering new oil supplies, or are accessing previously inaccessible supplies, all the time. Some predict these efforts will increase world oil supplies by a double-digit rate within the decade.

Increased attention is also being given to extracting oil from completely different sources.

The western U.S. and Canada have vast deposits of oil sands. The means now exist, and the price of conventional oil is now high enough, to make the "squeezing" of oil from these sands profitable. This is important because the estimated supply of oil from oil sands exceeds the known oil reserves in the Middle East.

At the same time there is some hope we can add significant new oil supplies in the future.

Oil consumers will likely also do their part to extend the oil age. As oil and gas prices climb, consumers are naturally motivated to conserve. Fuel efficiency is again a priority for consumers, and manufacturers are responding by increasing their output of fuel-efficient products.

Indeed, improved energy efficiency has already occurred. In the last 30 years, the amount of energy needed to produce $1 of economic output has been cut in half.

There is, of course, another point of view about the oil outlook that is not as upbeat.

While conceding that some new oil supplies are being found, this perspective notes that none are gigantic new fields. The viewpoint also worries about the declining productivity of existing wells, higher costs of new wells and new oil sources and the tremendous rate at which oil consumption is increasing in developing countries.

So the average consumer, like you and me, really doesn't know how long oil supplies will last.

But one thing is sure: The end of oil will not occur suddenly. We won't drive to our neighborhood gas station one day and find the pumps dry. Long before then, oil and gas prices will have jumped so high that most of us will have switched to alternative fuels.

The lingering questions for today are what and when: What will the alternatives be and when will the switch occur? You decide!

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Dr. Mike Walden is a William Neal Reynolds Professor and extension
economist in the Department of Agricultural and Resource Economics of North
Carolina State University's College of Agriculture and Life Sciences. He
teaches and writes on personal finance, economic outlook and public policy.
His You Decide column is provided every two weeks by the Department of
Communication Services. Earlier You Decide columns are available on the Web
at http://www.cals.ncsu.edu/agcomm/writing/walden/decide.htm
Related audio files are at
http://www.ces.ncsu.edu/depts/agcomm/writing/walden/index.html