It’s hard to imagine a political debate over the need for food or water. Not about how or from where either is obtained, but about the human need for them. We don’t need to say “Plant, Baby, Plant!” to remind us that agriculture is a critical industry, or “Pump, Baby, Pump!” to highlight the importance of maintaining the water supply. But when it comes to oil, the politically motivated mantra, “Drill, Baby, Drill!” invokes controversy.
The controversy comes from the idea that petroleum is a discretionary product—something that we can simply “transition” away from. Yet petroleum is as essential to the health and survival of modern society as are food and water.
To use the economists’ term, oil’s “utility” is demonstrated by the inexorable rise in global petroleum consumption across the last century, interrupted only briefly by deep recessions. Even if we consider Europe alone, which has seen more than two decades of spending, mandates, and policies directed at transitioning away from oil, the data show that the region’s petroleum use has remained largely stable. (For similar reasons, so has its wheat consumption.) And those data leave uncounted much of Europe’s oil use that is “exported,” i.e., hidden upstream in supply chains to obtain, produce, and transport goods to that continent, a feature of oil use akin to the foreign grain used for imported meat.
Consider one little-noted fact. Beginning soon after the twentieth century’s second Great Oil Price Shock and marked from the dawn of the modern computer era with the 1984 launch of the Apple Mac computer, global use of oil per capita has remained largely unchanged over those past four decades.
There’s a reason for that. Virtually every product or service uses petroleum somewhere in its supply chain. Today, petroleum fuels 96 percent of all vehicles, which transfer goods and people. No part of modern society—from mines and farms to factories and grocery stores and e-commerce—can function without transportation.
Even as potential petroleum alternatives emerge, oil consumption keeps going up, particularly in areas with rising incomes. This is true despite all the government spending and rhetoric aimed at changing that fact. It’s no exaggeration to say that if oil were unavailable, everything would grind to a halt.
Few activities better capture oil’s key role in the modern economy than global tourism, a nearly $1.5 trillion industry. The confluence of low-cost air travel and rising incomes has enabled a 700 percent rise in “international tourist arrivals” over the past half-century. Not everyone is happy about this petroleum-driven rise in tourism, however. Environmentalists lament the rise of so-called “mass tourism” and the supposed harms of democratized travel.
The affordability of travel and modern tourism emerges from the economics of jet-fuel-burning aircraft. Over that half-century, engineers have vastly improved fuel efficiencies at the same time that oil prices have, on average, remained within a fairly narrow range (dramatic, episodic gyrations aside). As for the future, more efficiency gains will inevitably come and far more aircraft will be in the skies. Over the next two decades, industry forecasts see a demand for at least another 20,000 commercial aircraft, roughly doubling the global fleet. Those new airplanes will consume, roughly, an additional 50 billion barrels of oil over the two decades of typical operational lifespan.
There is no technical prospect for significant replacement of petroleum with either biofuels (food), hydrogen (the chimerical “green fuel” de jour), or batteries. Devoting millions of additional acres of farmland to produce fuel, rather than food, would be environmentally destructive, expensive, and arguably immoral. As for hydrogen, even if aspirations for radical advances in chemistry are realized, the resulting fuel would be several-fold more expensive than hydrocarbons. And all the clickbait about electric aircraft? Even the most ardent technorati understand the limits of physics. As a feature article in Wired recently declaimed, “No, You Can’t Have a Solar-Powered Passenger Plane.”
Meantime, the electric-vehicle industry is deep into a season of discontent, as EVs’ engineering and performance shortfalls continue to manifest themselves. Consumers keep buying vehicles with internal-combustion engines, and it seems likely that bans on the sale of conventional cars will backfire politically. Moreover, even if enthusiasts’ aspirations were realized and EVs’ share of all global vehicles went from 2 percent to fully half, that would only cut global oil consumption by some 10 percent.
Such realities answer the question that a recent New York Times headline posed: “Why Is the Oil Industry Booming?” The Times is really asking why, given all the mandates and subsidies, the world isn’t transitioning away from oil. They would never ask that question with respect to food or water, of course, or any of the other foundational and often irreplaceable inputs to civilization including myriad metals and minerals from copper to aluminum, and even many ancient and still widely used materials such as glass, wood, and stone. But petroleum remains, by a huge margin, the largest global commodity market. The Times and other transitionists, however, like to imagine that oil use is somehow discretionary.
The question the Grey Lady should have asked is not if the world will continue to need oil, but who will produce it, and at what price? Russia, Saudi Arabia, Iran, and the rest of OPEC, and increasingly China, all have vigorous expansion plans to—you’ll excuse the phrase—“Drill, baby, drill!” for both oil and its hydrocarbon cousin, natural gas. The geopolitical implications are obvious.
In the meantime, other nations that are already oil superpowers, or nascent ones, are reaping the rewards. Norway, with its offshore oil and gas industry, enjoys one of the highest per capita GDPs in the Western world—far higher than that of the rest of Europe and even higher than that of the U.S. Norway’s government has recently called for industry to “ramp up” drilling offshore and in the Arctic. The people of Guyana are on track to join those in Norway and Qatar near the top of the world’s per capita GDP rankings because of the remarkable volume and velocity of their own new offshore oil production. Similarly, the citizens of Namibia are celebrating the results of recent exploratory drilling and pointing to a similar economic boom on their horizon.
The United States, notwithstanding all the recent media, regulatory, and political hostility targeting its domestic hydrocarbon industries, is still the world’s biggest producer of petroleum, thanks to the shale revolution. There are no geophysical or technical reasons that constrain yet further expansion of domestic production to meet global needs. But the extent and velocity of any increases will depend mainly on two variables: prevailing prices, and whether policies seek to constrain or facilitate production.
To paraphrase a now popularly reused aphorism of Benjamin Franklin: America, you have hydrocarbon dominance, if you can keep it.
Photo: mysticenergy / E+ via Getty Images