P oultry Perspective
BY PAUL AHO
The Future Price of Energy
The cost of energy is vitally important
to the poultry industry. Not only do
high energy prices affect operating
and transportation costs but, to make
matters worse, the price of corn is now
linked to the price of oil due to the massive use of corn to produce ethanol. As a
result, grain users like the poultry industry need to keep an eye on oil prices. It has
not been a pretty sight. In just two years,
the price of crude oil has doubled.
High oil prices have stimulated a
lot of talk about whether the earth is
running out of oil. Experts tend to be
divided into two camps. One camp says
there is plenty of oil and the recent high
prices are just a temporary spike caused
by rising demand, the falling dollar and
speculation. The other camp says the
earth is running out of easily obtainable
oil and high prices are the natural reaction
to this scarcity.
Is it possible that both sides are
correct? In the short run, prices are
bound to fall as high prices stimulate
increased production and reduce demand.
Nevertheless, in the long run, the earth
may indeed run short of this vital commodity. Most agree that at some point in
the future, the total production of oil will
peak and a long decline will begin. The
disagreement is not if, but rather when,
peak oil will arrive. Is peak oil next year
or 30 years from now?
In 2010, the world will be pumping
90 million barrels of crude oil per day.
Back in 1980, during the last oil crisis,
the world was producing 65 million
barrels per day and managed to increase
production by 25 million barrels over the
next 30 years. Can, and more importantly
should, the world increase the supply of
crude oil by 25 million barrels in the
next 30 years?
The world may well be able to produce
25 million additional barrels per day but
Crudeoil—millionsofbarrels/day
can(should)the worldproduce 2.5mbdmore?
12 0
10 0
8 0
6 0
4 0
2 0
0
1960 1970 1980 1990 2000 2010 2020 2030 2040
Increasing global supply of crude by 25 million barrels a day will require a new Saudi
Arabia every three years for 30 years. It may be possible, but is it wise?
it will be more difficult this time. At
higher production
levels, an increasing number of new
wells are needed to
replace the natural
decline in individ-
ual oil well production. As a result, an
increase in supply of 25 million barrels in
the next 30 years will require 100 million
barrels of new production compared to
only 70 million barrels of new production
needed from 1980 to 2010.
Saudi Arabia produces 10 million
barrels of oil per day. The next 25 million barrels of oil of world production
will require a new Saudi Arabia every
three years for 30 years. That accomplishment may well be possible, at a
price, but is it wise?
Leaving aside the question of global
warming, it should be evident to everyone that there is a danger in being
dependent on an exhaustible resource
at an ever-increasing rate even if it is
possible to do so temporarily. It may
be prudent to consider leaving some of
that oil in the ground and turn increasingly to renewable sources of energy.
We do not want to be like the people
on Easter Island whose civilization
crashed after the last tree on the island
was cut down.
Oil price prediction — Although
predicting the price of oil is a risky
business, the laws of supply and demand and the reality of limited oil
suggest the following scenario:
Short term/Lower prices — The oil
bears are correct.
—Continued on p. 16
