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Wednesday, May 25, 2005

The Globe and Mail: Welcome to the Age of Scarcity

The Globe and Mail: Welcome to the age of scarcity
For a world hooked on oil, the new supply-demand paradigm promises to be as transforming a period as the oil gushers were to the last century. Whether it happens this year, or in two decades, few would argue that depletion is a preventable event.

Price may well be the first hint of this new global energy reality.

A barrel of crude, which cost as little as $10 (U.S.) a barrel in 1998, is now worth five times that after breeching the $50 barrier earlier this year. A few analysts warn the price of crude could double again in the next couple of years. Even more optimistic forecasters agree that the days of cheap oil are likely gone forever, and that scarcity, coupled with rising demand and a falling U.S. dollar, will mean years of sustained high prices.

"After you drive a car off a cliff, it's too late to hit the brakes," he says. "In effect, we have gone over the edge of the cliff."

Two key changes have conspired to make world oil markets much more volatile. There is surging new demand for oil in fast-growing China and India, where the middle class is taking to the road in a big way. And in the Middle East, mega-producer Saudi Arabia appears to have run out of spare production to turn on and off the tap at will.

"The question is not whether there are buried hydrocarbons. It's at what price you can extract them, and does the technology advance fast enough as the horizon of fuels recede?"


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