As the relative price of gasoline drops, people are not motivated to buy small, fuel efficient cars.
All the top executives in the auto industry tell me that oil supplies will only get tighter this decade. They predict that fuel prices will do nothing but go up. And they say customers will be clamoring for small, fuel-efficient cars. Or electric ones. But what if it turns out they're wrong?

After all, over the last century the price of a gallon of gasoline in the United States, on an inflation-adjusted basis, has always come down. Always. Data from the Energy Information Administration shows that since 1919 the price of gasoline has spiked during war time or global turmoil, but it has always come down after that. This is a key reason why Corporate Average Fuel Economy regulations have not worked. As the relative price of gasoline drops over time, people are not motivated to buy small, fuel efficient cars.

A decade ago, the Peak Oil theory attracted a lot of adherents. It postulated that global oil production would peak in 2006, and that the following shortage would send oil prices skyrocketing. Sure enough, in 2008 a barrel of oil shot to $150. It looked like the Peak Oil theory was coming true. But less than 12 months later it dropped to under $40 a barrel. And though the price is now closer to $100 you don't hear as much talk about Peak Oil anymore. Here's why.

John McElroyJohn McElroy is host of the TV program "Autoline Detroit" and daily web video "Autoline Daily". Every week he brings his unique insights as a Detroit insider to Autoblog readers.

Just a few years ago, Brazil discovered massive reserves of oil off its coast, reserves that match or beat Saudi Arabia's. Brazil will start tapping those reserves before this decade is out. In Iraq, the infrastructure is being put in place to increase oil production to six or seven times greater than it is today. Right now, Iraq is producing 2.5 million barrels a day. By 2020, it could be close to 15 million. In the United States, the U.S. Geological Survey says there are at least 18 billion barrels of untapped oil, others say it could be much greater than that.

But most importantly, a new drilling technique called hydraulic fracturing is turning out to be a game-changer. It's opening up vast shale deposits throughout the country. Texas wildcatters figured out a way to pump water mixed with sand at high pressures into a well, fracturing the shale and releasing natural gas. The sand keeps the cracks open, preventing the shale from collapsing and sealing itself. As a result of this process, in just the last two years, the United States added 100 years of natural gas use and the price has plummeted nearly in half from its peak in 2008.

While much has been written about the natural gas bonanza, there hasn't been much coverage of using hydraulic fracturing to extract oil. The U.S. Department of Energy now predicts that oil production in the United States will go up this year for the first time in 40 years. Before the decade is out, the DOE forecasts that oil production in the United States will increase by two million barrels a day.

Hydraulic fracturing, or fracking as it's also called, is controversial. Some environmentalists claim it will destroy water tables across the country. There's even a documentary making the rounds called Gasland that is rallying opponents to the cause. Of course, Gasland approaches this issue with all the impartiality and evenhandedness of pseudo-documentaries like Roger and Me and Who Killed The Electric Car? But they didn't stand up to the test of time either, did they?

If it turns out there's plenty of oil to go around, we're going to use it.
There are legitimate concerns over fracking, because, for some odd reason, it's completely unregulated. Some unscrupulous frackers are injecting diesel fuel and chemicals into their wells, not just water and sand. Some of them are not properly treating their waste water, and others are duping investors with exaggerated production numbers. But the solution is simple: regulate them! That's exactly what states like New York are doing. Up until this month, fracking was illegal in New York. Now, within guidelines, it's legal.

Besides, the EPA is all over this issue. It's investigated all kinds of complaints about fracking, and tellingly, it has not shut down a single fracking site. Not one. A more complete report will come out next year.

So far, fracking has pretty much only been used in the United States. Undoubtedly it will soon spread to the rest of the world. That means before this decade is out, we are going to see vast increases in the amount of oil and natural gas available, and this will have enormous implications for automakers and governments.

Despite CO2 concerns and the big push for electric cars, my bet is that, if it turns out there's plenty of oil to go around, we're going to use it.

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      • 3 Years Ago
      I appreciate the effort you went into posing this hypothetical. To me it raises the most obvious question, SHOULD we use oil regardless of it's abundance? I think that reframing the question in this way will lead to a healthy discusion about the subject of oil and its merits as a power source. What are its effects sociologically, environmentally and economically? Who gains most from its use? What are the viable alternatives and their pros and cons? Thanks
        • 3 Years Ago
        Wow... try to obtain consensus on that. We will be in warp drive to some far off planet before that happens.
      • 3 Years Ago
      I can not ever recall a more bald-faced propaganda piece gracing the pages of Autoblog. Were you paid handsomely for running this are are you dupes?
      • 3 Years Ago
      I do understand that the obvious concern with oil is the internal combustion engine but I personally think we have a much much bigger problem if oil runs dry. Plastics. Polymers are made from oil. Imagine a world without rubber (elastomer) or plastic (polymers). You don't have cars, gaskets for pipes, electronics, food containers, and the list goes on forever. Basically what I am trying to say is stop worrying about our presious cars. We have bigger issues than our damn cars.
      Polly Prissy Pants
      • 3 Years Ago
      Who really gives a crap whether there's plenty of oil or not? The issue is the horrific trade imbalance and the trillions of dollars we're sending to people who simply use that money to try to kill us and oppress other humans. And that doesn't even include the massive military spending associated with fighting wars to make a lot of that oil available. Money we honestly don't have btw. To many, buying a hybrid is their contribution to a national security, economic and human rights issue, not something done to save the environment and save a couple bucks at the pump. While I agree that as long as there's cheap oil people will use it, at the same time unless we start magically getting all of our oil from the US of A then carelessly wasting oil will continue to damage our county and support oppressive governments around the world.
      • 3 Years Ago
      Your argument for why peak oil isn't being discussed indicates you don't have a grasp on the very social nature of economics. Speculation, caused in large part by actors in the peak of the recession panicking as investments tanked drove the prices to stratospheric highs, not a rational response to hard scientific data. US and EU demand for oil is actually down, even though the price of a barrel is still less than it was in 2008. People are rethinking choices, markets are trying to anticipate these choices, and producers are trying to zero in on a better production amount. Increases like those you have mentioned are only one part of the puzzle behind oil prices. Ultimately though, none of them portend some magical discovery of double the oil capacity that the planet has shown thus far. You don't hear about peak oil because there's no current technology extant that can produce concrete data showing remaining oil reserves. If your gas gauge is broken, you don't floor it just because you think there might be a gas station ahead.
      • 3 Years Ago
      You seem to be ignoring the rate at which India and China are producing, purchasing and increasingly putting cars on the road. The US is currently the largest consumer of oil... and our population is ECLIPSED by just one of those two nations ALONE. Now, imagine: the car culture is quickly wrapping its way around the globe. How long until the billions in currently rural Africa are all running down to their Buick dealerships? Pulling black, tarry goop out of the ground and burning it into smoke is something we should probably stop doing anyway. Electric cars are not the holy grail, but they're a much better answer. Electricity is Electricity, how its generated can be adjusted for maximum efficiency, and I believe that our entire power grid will eventually be solar. As it is, 1000 cars with 16 gallon fuel tanks burn 16,000 gallons of oil to go 400,000 total miles or so. Those same 1,000 cars probably use a lot less equivalent coal or natural gas at the power plant to charge an equivalent number of miles worth of electricity, and it only keeps getting better. "But what about the batteries?" you might say... well, it is environmentally harmful to mine the precious metals batteries need to work. But that's changing. Imagine how fast it would change if we poured real money into that research, instead of spending billions to figure out how to dig up dead plant and animal soup to turn into smoke that we then blow into the sky.
      • 3 Years Ago
      It's not a question of quantity of oil, it's the easy of extraction. Canada has LOTS of oil, but it's requires a lot of work (expensive) to get out of the ground. The US has lost of fossil fuels, but it requires new technology ($$), new pipelines ($$$) to get it from ANWR, and extraction methods that have costly ($$$) negative side effects (watch Gas Land trailer). There is enough fossil fuel for years to come, but it WON'T EVER BE CHEAP again.
        emperor koku
        • 3 Years Ago
        And don't forget the EROEI. If I'm burning a barrel of oil to get one out of the ground and refined, it's no longer a workable system.
      • 3 Years Ago
      "A decade ago, the Peak Oil theory attracted a lot of adherents. It postulated that global oil production would peak in 2006, and that the following shortage would send oil prices skyrocketing. Sure enough, in 2008 a barrel of oil shot to $150. It looked like the Peak Oil theory was coming true. But less than 12 months later it dropped to under $40 a barrel. And though the price is now closer to $100 you don't hear as much talk about Peak Oil anymore." My understanding of Peak Oil is that it has to do with the production rate of one or more oil fields. It is not related to the price of a barrel of oil.
      • 3 Years Ago
      Even the most diehard "peak oil" prophets will tell you they really mean "peak of oil that is easily obtained" when pressed on the issue. With new technologies that may not be the case much longer. but offshore drilling will always fall under the "not easy" category. I'm glad that the obituary for the internal combustion engine is premature...but having said that, I still hope that we continue on the alternative energy path no matter how much oil is really left, or how cheaply it can be obtained. Choice is good, EV or fuel cell car for weekly commuting, old muscle or European sports car for the weekend. :)
      • 3 Years Ago
      Question is: Do the world's known oil reserves lag, meet, or exceed the continuous increase in oil demand? Have a hard time believing that supply is never going to be a problem. I think it already is.
      Kickingitwiththe Tha
      • 3 Years Ago
      There's going to be a time when humans must find a more viable solution to renewable resources other than fossil fuels. So the Earth may have reserves of oil, minerals, fresh water, materials, natural gas, etc this still doesn't dismiss the fact that one day it will run out. We are so dependent on our resources that we literally take it for granted. I love automobiles just as much as the next guy and I'd hate for gasoline to just disappear but at the same time there still needs to be other options/solutions. So yeah I'll admit it I'd get a hybrid/green machine if it meant that it was a boring appliance that got me from point A-B I'm all for it. Save the gas for our garage queens/weekend track machines...
      • 3 Years Ago
      I've been waiting for someone to write an intelligent counter-argument to peak oil, so thank you for writing about this subject without dumming it down with political BS. But you're saying that Brazil found a bunch more oil than expected, and Iraq plans to increase production- both which may be true (im not saying it is- I don't know), but with regards to peak oil and global demand, the amount of production you are talking about is miniscule. Further, while natural gas production is clearly ramping up, it is not clear how well we can adapt our infrastructure to use it. All in all, I think this is a very interesting and important topic that needs to be talked about, and I like how your piece doesn't suggest "THIS IS HOW IT IS", but rather asks us just to think about it. Well done.
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