By Institute for Energy Research ——Bio and Archives--January 25, 2011
Global Warming-Energy-Environment | CFP Comments | Reader Friendly | Subscribe | Email Us
Five years ago, Matthew R. Simmons and I bet $5,000. It was a wager about the future of energy supplies -- a Malthusian pessimist versus a Cornucopian optimist -- and now the day of reckoning is nigh: Jan. 1, 2011. The bet was occasioned by a cover article in August 2005 in The New York Times Magazine titled "The Breaking Point." It featured predictions of soaring oil prices from Mr. Simmons, who was...the author of "Twilight in the Desert: The Coming Saudi Oil Shock and the World Economy." I called Mr. Simmons to discuss a bet. To his credit...he was eager to back his predictions with cash. He expected the price of oil, then about $65 a barrel, to more than triple in the next five years, even after adjusting for inflation. He offered to bet $5,000 that the average price of oil over the course of 2010 would be at least $200 a barrel in 2005 dollars. I took him up on it, not because I knew much about Saudi oil production or the other "peak oil" arguments that global production was headed downward. I was just following a rule learned from a mentor and a friend, the economist Julian L. Simon.For those unfamiliar with the famous wager between free-market economist Julian Simon, and Population Bomb doomsayer Paul Ehrlich, Tierney's account is important reading. (John Holdren, President Obama's current science advisor, was also on the losing Malthusian side of the bet.) After recounting the famous Simon-Ehrlich wager, Tierney goes on to discuss the case for continued optimism about global energy supplies:
It's true that the real price of oil is slightly higher now than it was in 2005, and it's always possible that oil prices will spike again in the future. But the overall energy situation today looks a lot like a Cornucopian feast, as my colleagues Matt Wald and Cliff Krauss have recently reported. Giant new oil fields have been discovered off the coasts of Africa and Brazil. The new oil sands projects in Canada now supply more oil to the United States than Saudi Arabia does. Oil production in the United States increased last year, and the Department of Energy projects further increases over the next two decades. The really good news is the discovery of vast quantities of natural gas. It's now selling for less than half of what it was five years ago. There's so much available that the Energy Department is predicting low prices for gas and electricity for the next quarter-century. Lobbyists for wind farms, once again, have been telling Washington that the "sustainable energy" industry can't sustain itself without further subsidies.
The professionals, of course, do not think that the overall energy situation looks like a "cornucopian feast." If they did, then they would be selling their oil in the ground right now at an "energy cornucopia" price. What [would] an "energy cornucopia" price be? Well we had an energy cornucopia in the first post-World War II generation--and, adjusted for inflation, the price then corresponds right now to a price of $20/barrel. If the professionals saw an energy cornucopia coming, they would be pumping more oil out of the ground right now and selling it for a lot less than $80/barrel in order to make money before the price of oil falls to its cornucopia price. Instead, the professionals think that keeping oil in the ground rather than selling it at $80/barrel is a reasonable bet.
View Comments
The Institute for Energy Research (IER) is a not-for-profit organization that conducts intensive research and analysis on the functions, operations, and government regulation of global energy markets. IER maintains that freely-functioning energy markets provide the most efficient and effective solutions to today’s global energy and environmental challenges and, as such, are critical to the well-being of individuals and society.