End of the Oil Age

“The Stone Age did not end for lack of stone, and the Oil Age will end long before the world runs out of oil.” This intriguing prediction is often heard in energy circles these days. If greens were the only people to be expressing such thoughts, the notion might be dismissed as utopian. However, the quotation is from Sheikh Zaki Yamani, a Saudi Arabian who served as his country’s oil minister three decades ago. His words are rich in irony. Sheikh Yamani first came to the world’s attention during the Arab oil embargo of the United States, which began three decades ago this week and whose effects altered the course of modern economic and political history. Coming from such a source, the prediction, one assumes, can hardly be a case of wishful thinking.

Yet a generation after the embargo began, the facts seem plain: the world remains addicted to Middle Eastern oil. So why is Sheikh Yamani predicting the end of the Oil  Age? Because he believes that something fundamental has shifted since that first oil shock — and, sadly for countries like Saudi Arabia, he is quite right. Finally, advances in technology are beginning to offer a way for economies, especially those of the developed world, to diversify their supplies of energy and reduce their demand for petroleum, thus loosening the grip of oil and the countries that produce it. Hydrogen fuel cells and other ways of storing and distributing energy are no longer a distant dream but a foreseeable reality. Switching to these new methods will not be easy, or all that cheap, especially in transport, but with the right policies it can be made both possible and economically advantageous. Unfortunately,  many of the rich world’s governments — and above all the government of America, the world’s biggest oil consumer — are reluctant to adopt the measures that would speed the day when the Saudis’ worst fears come true.

If treating the West’s addiction to oil will be costly, is it really worth doing? To be sure. Petro-addiction imposes mighty costs of its own. First, there is the political risk of relying on the Organisation of Petroleum Exporting Countries (OPEC). Oil still has a near-monopoly hold on transport. If the supply is cut off even for a few days, modern economies come to a halt, as Britain discovered when tax protestors blockaded some domestic oil depots two years ago. And despite what sound like large investments in new oil fields in Russia and elsewhere, Saudi Arabia’s share of the world oil market will actually grow over the next two decades simply because it has such huge reserves of cheap oil. Geology has granted two-thirds of the world’s proven oil reserves to Saudi Arabia and four of its neighbours. Because of this continuing concentration of supply, the risk of a disruption to oil flows will continue to be a threat, and may even rise. That points to a second sort of cost. According to one American government estimate, OPEC has managed to transfer a staggering $7 trillion in wealth from American consumers to producers over the past three decades by keeping the oil price above its true market-clearing level. That estimate does not include all manner of subsidies doled out to the fossil-fuel industry, ranging from cheap access to oil on government land to the ongoing American military presence in the Middle East.

The final disguised cost of oil is the damage it does to the environment and human health. Unlike power plants, which are few in number and so easier to regulate, cars are ubiquitous and much more difficult to control. The transport sector is a principal source of global emissions of greenhouse gases. The only long-term solution to this connected set of problems is to reduce the world’s reliance on oil. Achieving this  once seemed pie-in-the sky. No longer. Hydrogen fuel cells are at last becoming a viable alternative. These are big batteries that run cleanly for as long as hydrogen is supplied, and which might power anything in or around your home — notably, your car. Hydrogen is a fuel that, like electricity, can be made from a variety of sources: fossil fuels such as coal and natural gas, renewables, even nuclear power. Every big car maker now has a fuel-cell programme and every big oil firm is busy investigating how best to feed these new cars their hydrogen. Another alternative likely to become available in a few years is “bioethanol.” Many cars (quite a few of them in America) already run on a mixture of petrol and ethanol. Such changes will not occur overnight. It will take a decade or two before either fuel cells or bioethanol make a significant dent in the oil economy. Still, they represent the first serious challenges to petrol in a century.