WORLD NEWS TOMORROW – WASHINGTON — For President Barack Obama and Republican rival Mitt Romney, the race for the White House seems indisputably centered around one issue: Who can do more to bolster the sputtering U.S. economy.
But to some experts, spikes in oil prices over the last several years have signaled an ominous turn that could make it nigh on impossible for any president to expand the economy as it has in the past.
Unlike previous oil price jumps stemming from turmoil affecting Middle East oil producers, prices surged over the last eight years because tightening supplies couldn’t keep pace with Third World demand, researchers have concluded.
“The question is how much can we keep growing without a growing supply of energy?” said James Hamilton, a University of California-San Diego economics professor who has been on the leading edge of research into the impact of high energy costs.
“We’ve had temporary experiments with (oil supply) disruptions in the Middle East,” he said in an interview. “We don’t really have experience, if worldwide, we produce less oil year after year and have to deal with that on a longer-term basis. Certainly, the transition to dealing with that could be very disruptive.”Many experts now believe that, absent the discoveries of numerous new giant oilfields or breakthroughs in development of alternative fuels, oil demand will persistently push global prices to unaffordable levels, shackling economic growth indefinitely.
Even if discoveries somehow keep pace with demand, extracting oil from increasingly harsh conditions, such as beneath the Arctic Ocean or other deep ocean waters, will put upward pressure on prices.Despite the potentially huge economic consequences, no full-scale, multinational energy conservation effort has been launched to buy time for development of alternatives, such as electric cars, that would ease pressure on oil supplies and prices.
When oil prices eclipsed $100 a barrel in 2011 and early this year, they were edging toward the “breaking point” – the threshold where economies can no longer expand, said Charles Hall, a professor in the School of Environmental Sciences and Forestry of the State University of New York. Hall, a co-author of the book “Energy and the Wealth of Nations: Understanding the Biophysical Economy,” said that the economy has stalled in the past when U.S. energy costs have approached 13 percent of the gross domestic product.
Annual global expenditures on raw energy have climbed to an estimated $8 trillion to $9 trillion, exceeding 10 percent of the $70 trillion world gross domestic product. Those figures, however, omit the succession of price up-charges along the manufacturing, marketing and delivery chain for energy-related components of goods and services.
“I don’t think the economy is ever going to grow again . . . not on a sustained basis,” Hall said in an interview.Since last spring, oil prices have retreated below $100 a barrel, and global supplies are flush, even despite trade sanctions that have curbed petroleum exports from Iran, the world’s second largest producer.But Christine LaGarde, chief of the International Monetary Fund, said recently that high oil prices remain “a major threat” that could tip the global economy into recession, especially if Iran triggers a “price shock” by retaliating with further export cuts. Researchers at her agency have predicted that oil prices will permanently double to about $200 a barrel over the next decade.
The soaring prices, up from less than $24 a barrel a decade ago, are expected to cost European nations $500 billion this year, nearly triple the average they paid for imported oil from 2000 to 2010, partly because of the sunken value of the euro, Maria Van der Hoeven, executive director of the Paris-based International Energy Agency, said recently.
Energy costs also can share blame for crimping American workers’ standard of living. Adjusted for inflation, median weekly earnings over the last quarter-century rose less than $10, while crude oil prices nearly tripled and net U.S. gasoline prices doubled.
In a paper published in 2009, Hamilton reported that the price of crude oil has jumped sharply in advance of 10 of the 11 U.S. recessions since World War II.
His bigger discovery was that the sharp rise in prices before the economic collapse of 2008 didn’t stem from an Arab oil embargo, military conflict or other Middle East supply disruption, as occurred before five other major economic downturns. Instead, it was largely “booming demand and stagnant production” that briefly sent the price to a record $145 a barrel in July 2008, probably accelerating the crisis that sank the world economy, he found.
Sure enough, after oil prices pulled back in 2009 and 2010, consumption shot up by more than 5 percent last year, and prices spurted above $100 a barrel again. The world economy soon slumped into its current doldrums.
Now scientists and economists are fretting about the implications if oil becomes so unaffordable that it leads to a chain-reaction surge in the costs of other fuels.
What if oil prices get so high that it’s economically attractive to convert natural gas and coal supplies to liquid fuels? Will prices for those resources rocket into the stratosphere, too? Is there no way out of energy’s grip?
The kinds of tradeoffs that lie ahead might be exemplified by the sudden North American natural gas rush, which has led to a supply glut and plummeting gas prices. The bargain prices sparked a burst of interest in converting cars and trucks to cheaper, cleaner-burning natural gas.
But only 130,000 natural gas-powered vehicles are on U.S. roads, and replacing a sizable share of the nation’s 250 million vehicle fleet with specially built natural gas-powered models would take decades and require installation of thousands of refueling stations.
Further, Sadad Al Husseini, a former top officer of the Saudi Arabian national oil company Aramco, told McClatchy that an intensive conversion to natural gas would make “a global (natural) gas crunch almost inevitable in the next decade.”
While there are vast deposits of natural gas in the United States and worldwide, “inexpensive gas reserves are finite,” he said. “The more oil is displaced by gas on a crash basis, the faster the low-cost reserves are depleted.”
Leading advocates of a theory that global oil production will soon peak and begin a potentially economically disastrous decline are standing firm, although they’ve had to push back their doomsday dates several years.
“The first half of the age of oil saw this rampant expansion of industry, transportation, trade, agriculture,” said Colin Campbell, an 81-year-old retired Irish petroleum geologist who founded the peak oil movement. “The population went up six times in parallel over 100 to 150 years . . . triggered by the cheap, easy energy that made everything possible.
“Now we face the second half, which is about to dawn, which just undermines this whole world system under which we’re now living,” he said. “Naturally, no one wants to admit that.”
The global economy is “premised on expansion, where what we face is contraction,” Campbell said.