rise. For an answer, they should look no further than economics, geology,
and politics.
As everyone is aware by now, there has been a tremendous increase in
oil demand—and ultimately fuel consumption—since 2003, primarily
from China and India, but also from the United States. Oil demand is
tied to economic growth, which has been going from strength to
strength in the years since the September 11 terrorist attacks on the
United States. The explosive economic growth in China has proved
more of a shock to the oil markets because as late as the early 1990s
China was self-sufficient in oil. But its gross domestic product (GDP)
rate took a flight by the end of that decade and doubled to about 9 percent
by 2005—the fastest of any country. China’s economic boom is still
on track and it has to import more oil to support that rate of growth,
with construction projects—hotels, bridges, and apartment buildings—
going up every day ahead of the 2008 Olympic Games in Beijing. China’s
demand for oil products is only going to increase as its large population
gets more motorized. Ditto India, Asia’s other economic powerhouse.
And while all that oil demand is rising, supply is struggling to keep
pace. The availability of cheaply exploited oil has been reduced. Of
course, there are still a lot of oil reserves in some parts of the world, like
in the deep waters off West Africa, in arctic Russia, and in the Middle
East, but there are problems as well: The cost of drilling in unreachable
areas like the offshore Black Sea, the Gulf of Guinea, and the Gulf of
Mexico is sometimes prohibitive and superior technology is required; security
is tenuous at best in places like Iran, Iraq, and Saudi Arabia; and
most of the readily available oil is of the low-quality heavy, sour type,
which is expensive to process into gasoline and other products. Highquality
light, sweet oil, which yields more gasoline, is in short supply, and
most of the old refineries we have around the world have not been fitted
with coking units that can process heavy, sour crude.
Moreover, since the early 1990s, oil companies have not invested
enough in expanding their infrastructural capacity, both in oil production
and in refining. Oil executives say they couldn’t invest because they had
no money, as oil prices were low until the shock demand of 2004 boosted
prices. They say the high oil prices have, in fact, given them a shot in the
arm, and a number of projects are in the pipeline. Most of these projects
started in early 2006 in the United States, in Asia, and in the Middle
East. Saudi Arabia, for example, plans to invest $50 billion in various
18 THE END OF OIL