It is a truism that future prices of energy for transportation will be determined
by the forces of supply and demand. For transport fuels, these forces have
entered a crucial phase that is likely to persist for several decades. Oil
production from conventional resources outside of the OPEC countries will
peak within a few years. Unconventional fossil resources that can be
exploited at current prices, resources whose early development is already well
underway, pose an even greater threat to the global climate. To bring these
resources to the market at a rate to match the growth in demand for mobility
fuels in the developed and developing economies will require massive, risky
investments. Serious risks are posed by the environmental acceptability of
these fuels and also by the fact that a sudden downturn in world oil prices
would turn them into stranded assets.
It is also a truism that no one can accurately predict the price of oil. Today, oil
costs $70 per barrel. Ten years ago, it cost less than $20 per barrel. Twenty
seven years ago oil prices peaked at $90 per barrel. Thirty-seven
years ago oil cost only $10 per barrel and its price had been relatively stable
for almost fifty years. Those who carefully craft future oil price scenarios know
that they are not predicting but rather attempting to define alternative paths of
central tendency. Even the best official oil price projections look nothing like
the past thirty-five years of history. It is important to understand
why this is so. Since 1972, world oil prices have been strongly and
unpredictably influenced by the actions of the OPEC cartel. It is very likely
that they will be for the next thirty years, as well.
