The Power of Petroleum

Some have claimed that the world is running out of oil for geological reasons. It is more accurate to say that, given existing technology and political structures, it is in danger of running short of oil production capacity. Because many national oil companies are not investing to offset natural production declines, demand could outstrip supply. Without major energy-conservation efforts (not least in the United States), the impact will be enormous, with sharp price increases leading to a major economic contraction and dislocation. Governments would maneuver to secure scarce oil supplies, with potentially devastating geopolitical results.

Some environmental advocates might argue that such a crunch would finally create the political will needed to address the problem of global climate change. It seems more likely that it would divert politicians from long-term environmental concerns to the immediate energy crisis.

There is no question that the world has entered a less stable era. New actors, flush with money and ambition, are playing bigger if not always better roles. Energy security—defined as reliable supplies at reasonable cost obtained in an environmentally sustainable manner—is no longer assured. The old powers, notably the United States, must approach this new world with increased investment in alternative technologies, more creative partnerships with producing nations, heightened diplomatic skills and major efforts toward energy efficiency. If not, our security, energy and otherwise, will almost certainly be threatened.

J. Robinson West is chairman of PFC Energy, which provides strategic advice to energy companies, governments, and other clients worldwide.

© 2007