The Daily Reckoning by Bill Bonner
On This Day - 11 May 2013
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Why We Will Never Run out of Oil A  A  A


- By Asad Dossani, Author, The Lucrative Derivative Report


Asad Dossani
Crude oil is one of the most important commodities that we use to run our economy. Without it, much economic activity would come to a standstill, and this would have dire consequences. In 1991, the Indian government's foreign currency reserves were down to 2 weeks of imports. This was a crisis at the time mainly because we imported a large amount of crude oil.

We know that crude oil is a fossil fuel and is therefore a finite resource. What happens when we run out of crude oil? Time and time again, there are dire warnings that the world will run out of crude oil. In 2008, global oil prices reached nearly $150 per barrel, due to speculation that demand from China and India was going to outpace supply, and we'd run out of oil even faster.

The simple logic for thinking we will run out of crude oil is as follows: There are a finite number of crude oil reserves in existence. Given that we extract a certain amount of oil every year, mathematically we will run out of crude oil in a certain number of years. Though compelling, this simple logic is inherently flawed.

The amount of oil we consume depends significantly on the price of crude oil. What would happen if oil supplies started to fall? The price would go up. As long as supply remains constrained, the price would keep on rising until we decide to buy less crude oil. The price would rise enough so that most of us stop buying crude oil before it ever runs out.

What would we do instead? There are other energy sources. If crude oil becomes expensive, we will switch to energy sources that are cheaper. The best example of this is natural gas. Natural gas is much cheaper than crude oil, and we are already substituting our consumption of crude oil with natural gas. An example is natural gas powered automobiles, which have exploded in popularity over the last decade.

Natural gas is not the only other source of energy. There is solar energy, wind energy, biofuels, and others. Most of these are more expensive than crude oil, so we don't make much use of them. But at some point, when crude oil becomes expensive, we will find it a lot more attractive to use alternatives.

So next time someone makes dire predictions that we are all doomed because the world will soon run out of crude oil, take heart in knowing that this is not the case. The simple laws of supply and demand will ensure that we switch to alternatives before crude oil ever runs out.

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is a financial analyst and columnist. He actively trades his own and others' funds, investing primarily in currency, commodity, and stock index derivative products. Prior to this, he worked at Deutsche Bank as an analyst in the FX derivatives team. He is a graduate of the London School of Economics. Asad is a keen observer of macroeconomic trends and their effects on global financial markets. He is deeply passionate about educating investors, and encouraging individuals to take part in and profit from financial markets. To put it colloquially, he wishes to take Wall Street products and turn them into Main Street profits!

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11 Responses to "Why We Will Never Run out of Oil"
mrunalini
May 22, 2013
This is a rubbish article carrying no responcibility.
Writer is living in some fairy land.
Like (1)
Prasanna
May 13, 2013
hi Dossani, apart from CNG, we have wind, nuclear and solar to our rescue, with thermal solar, not being exloited. It can electrify, deserts and remote places, with good tax breaks and incentives. Like (1)
Bhisham
May 12, 2013
India has a very high hydro power potential. If tapped properly it can solve all water and power problems. Bhakra dam is a shining example of this. Like (1)
Manoj K Mondal
May 12, 2013
Even natural gas reserves are not unlimited. However, I have a sense that efficiency of solar cells (panel) is likely to go up manifold and the efficiency of turbine of hydroelectric power will also go up significantly. However, such power needs to be stored in battery for use in vehicles. To avoid dependence on battery for storing electrical energy we may soon see new breed of vehicles with technology that facilitate transfer of electricity wirelessly from overhead or underground cable (remote charging of cell phone battery is already in place). Like (1)
Ramamurthi
May 12, 2013
Such a pedestrian reckoning was not expected from Mr. Dossani. It is more like an essay of a 7th grader.
Crude will last for some more centuries since the vested interests, the well owners, the converters, the dependent states and above all the speculative forward traders, will ensure it. They will push back all efforts to bring in alternate energy, where luckily the owners are not the demanding variety. The crude prices are also highly unreasonable thanks to these vested interests. What we need is a major UN funded movement towards securing energy ,while reducing dependence on the corruption ridden crude.
Like (2)
Sanjeev Kunte
May 12, 2013
Solar & wind energies are totally impractical for direct use in automobiles (at least for foreseeable future). It is said that bio-fuel is not viable as it will eventually have disastrous effects on food supply (more plantations for fuel than for food). The perfect alternative to crude oil is HYDROGEN (possibly in the form of fuel-cells). Bye-product of combustion of hydrogen is water and nothing could be cleaner than this. It's just a matter of time when technology matures to make this commercially viable. It is also believed that this technology is suppressed by the powerful oil-lobby. Hardly surprising if this is indeed the case. Like (3)
Harinathan K
May 12, 2013
Fully agree with the observation.Necessity is mother of Invention.Hence mankind will identify alternatives for survival Like (1)
Venkatesan
May 12, 2013
The author's views that there are alternative energy sources to Crude Oil is a fact well know to everyone, but not able to understand that point to justify theat Crude Oil is not a wasting source. I was expecting to read something different when started with the headline " Crude Oil will never run out" Like (1)
M P Kunju
May 12, 2013
A critical input for all right thinking citizens of the world. Like (1)
chandra
May 12, 2013
When someone says - "We will run out of oil" does not mean that there will not be a single drop that can be taken out of oil wells. He may mean what exactly Asad is saying. This world knows how to survive without oil. Like (2)
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