Oil is about politics and geology just as much as economics, says Ruth Brandon

Where has been a lot of talk recently about the "spike" in oil prices. Spike is, of course, a reassuring word: it implies that there's a downward slope on the other side. Just the other day, editorial writers and business-page commentators were reassuring us that oil at $75 a barrel was "unsustainable", and that prices would fall as supply and demand even out. But opinion is moving towards the Goldman Sachs 2005 forecast of a "super-spike", in which prices could go as high as $105.

At present, we are told, demand is increasing while supply is insufficient as a result of oil companies' under-investment during the 1990s, when oil prices were low. But now (says the Guardian's business correspondent), "the majors are looking for oil (and finding some) like never before". And Goldman Sachs predicts that by 2010, the price will be back to $45 a barrel.

So that's all right, then.

This is the economists' view. However, this is not just, or even primarily, an economic problem. It is about geology and physics. And the geology and physics are not reassuring. It's all very well talking about increasing production, but in order to produce something, it must first be there.

In 1956, the geophysicist M King Hubbert predicted that American crude-oil production in the 48 states would rise for 13 more years, then peak in 1969, give or take a year. He was ridiculed. But in 1972, on cue, US oil production began to fall. Hubbert had been proved right.

Hubbert's forecast was based not on psi but on mathematics. In the mid-1930s, he realised that in any large region, unrestrained extraction of a finite resource rises along a bell-shaped curve that peaks when about half of the resource is gone. Production lags behind discovery by about 40 years, the length of time it takes to bring a new oilfield into full production; the US oil-discovery curve peaked in the early 1930s. Hence Dr Hubbert's forecast.

Discoveries are still being made. But they are not the size they once were. In the words of the oil-industry veteran Colin Campbell, "We now find one barrel for every four we consume."

The sums are simple. If you transpose the discovery graph forward 40 years (allowing for a small lag during the 1970s, when the oil price suddenly tripled and demand fell off), you arrive at just about where we are now.

In other words, what Hubbert called "the big rollover" is upon us: the moment when oil production actually begins to decrease. And given that this coincides with the great Asian takeoff in demand, it is hard to see why we should expect the oil price to come down, however fervently we might wish that it would.

Of course, the kind of oil that gushes out of wells is not the only sort. There are other oil deposits in shales and tar sands. Until now, these have been too expensive to be worth exploiting, but as the price of oil rises, so they will come into play.

However, they can never replace liquid oil as an abundant source of cheap energy, because the physics is against it. Comparatively little energy is needed to extract and refine liquid oil: in energy terms, it's almost pure profit. But enormous amounts of energy are required to extract oil from shales and sands. The question must always be - are we putting in more energy than we are getting out? But the answer is often by no means clear.

All this information is both starkly simple and widely available. Its implications are as unmissable as they are unpalatable. Why, then, do those who ought to know - many of whom almost certainly do know - persist in pretending that everything will turn out all right in the end? Part of the answer is probably that they are in denial - the implications, given the way our lives work, are simply unthinkable. And part of it may be to do with self-interest - there can be no doubt that huge fortunes are being made by betting on future oil price rises.

However, the real problem seems to be the short-term nature of politics. The really big changes - the new infrastructures, the huge necessary investments in alternatives and in conservation, and the introduction of transparency into oil companies' records, so that we know where we stand and can begin to forward plan - all take time. And the worst will not happen until the people in power are dead.

Until those that are in power are prepared to admit the dire reality of the global oil situation, all that we can expect is yet more complacent editorialising and speculating about oil price spikes and market solutions.

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