by Richard Heinberg

[This article originally appeared in The Ecologist, September 2008.]

Ask the major oil companies why oil prices are beyond ludicrous and they’ll tell you there’s plenty of oil out there, there’s just a lack of investment in exploration and production.

Funny, the level of investment in the global oil industry hasn’t dropped off a cliff lately. Yet oil prices have shot up like asparagus in April. What’s going on here?

What the experts are really saying is that a higher level of investment is needed now than previously to yield the same increment of new oil.

Hmmm. Let’s drill deeper, metaphorically speaking.

In fact there’s still oil being produced today that could profitably be sold for $30 a barrel. But—crucially—there’s not nearly enough to meet the demand that would exist if all oil were selling at that price. That $30 oil comes from super-giant oilfields discovered back in the 1950s, ’60s, and ’70s. The industry doesn’t find oilfields like that anymore, and the old ones are seeing declining rates of production. Now what’s available for prospecting are plays in ultra-deep water, where it costs a half million dollars a day to rent a drilling rig. We’re talking NASA moon-shot level of technology here. That’s not $30 oil; it’s $75, $100, or $150 oil. No one would be interested in it, except for the fact that $30 oil is getting so scarce.

Meanwhile, high oil prices are already killing the airline industry, the automobile industry, the trucking industry, the fishing industry, and tourism. In effect, the world is teetering on the brink of a Greater Depression because cheap oil is a fading memory. So here’s the solution: We could reduce the price of oil just by reducing demand. If the world could be satisfied with the amount of oil that can be produced cheaply, then the price would fall. But we’d have to keep reducing demand to maintain that price since the cheaper oil continues to deplete.

There is only one orderly way to achieve this, and that is through a global agreement to ration oil consumption by quota, so as to reduce demand artificially. Just reducing demand in one country won’t help much, because some other country will quickly take up the slack. No, we all go on a diet together.

Everyone would kick and scream—but no louder than they’re currently doing. Of course it would be a tough bargain. The alternative is even tougher, though.

Without such a Protocol, continually soaring prices will be a given. Nations will be tempted to secure essential fuel by military action or covert subterfuge. Just how well this is likely to work we may judge by events in Iraq over the past few years. How badly do we want cheaper oil? Badly enough to cooperate internationally? Badly enough to lower our consumption? As soon as we want it that badly, we’ll have it. Until then, welcome aboard the oil-price escalator.