Energy: An Overview

World energy pundits have long proclaimed that the fossil fuels in the Earth’s crust are limited and will be exhausted some day. This argument is similar to the accepted pronouncements of cosmologists that “the entropy of the Universe is increasing towards a maximum” or that “the sun will one day burn itself out.” The world energy crisis of 1973 was precipitated when OPEC curtailed oil production and fixed their own price for oil for the first time, and within a year, the price of oil went from $2/bbl in early 1973 to more than $11/bbl by the spring 1974. This was aggravated by the increase in oil imports to the USA, which ceased to be self-sufficient in oil in the late 1960s. By 1990, the USA imported 47% of its crude oil, compared to 73% in 1973. In 2008, the USA bought 65% of its crude oil abroad, and the cost of imported oil and refined oil products was the single largest contributor—48%—to the country’s more than $700 billion trade deficit. By 1998, the average price of crude oil had fallen to less than $12/bbl (a mere $16/bbl in 2008 dollars), and the oil industry’s stocks were one of the worst performing investments of the 1990s. Not until the early years of the new millennium, when oil prices began to rise again, did attention return to energy supply. During the latter half of 2003, the price of crude oil reached $25/bbl–$30/bbl, and during 2004, it came close to, and briefly even rose above, $40/bbl. The upward trend continued in 2005 and for the first 8 months of 2006, and the media came to comment routinely on record high prices. According to Dr. Vaclav Smil’s study of myths and realities of energy supply, no records were broken once two key price corrections—adjusting for the intervening inflation and taking into account lower oil intensity of Western economies—were made. Until the early summer 2008, these doubly adjusted oil prices remained well below the records set during the early 1980s.