ASU expert: World’s main energy source likely to change

"We won’t ever run out of oil, just like we never ran out of whales.”

That’s the main message from an expert who has studied change in the world’s primary energy source over time. He understands why gas and oil prices are sky high and explains it’s all just part of the historic cycle needed for a major energy shift.

Gerry Keim, associate dean of the W. P. Carey School of Business MBA Program at Arizona State University, did extensive research on one important change in this vein – when people switched from using whale oil to petroleum as a fuel for artificial light, before we had readily available electricity. Parallels to the current energy situation are very clear.

“When we had to move away from whale oil in the mid-1800s, we had no idea what a substitute would be,” says Keim, “but as demand and tight supply drove prices up, people became more enterprising and found alternatives, and obviously, we never ran out of whales.”

Keim explains there’s a cycle with the primary energy source at any time. For example, in the 1800s, people in the Boston area simply watched from shore to spot whales in the ocean. Then, they would boat out to the right spot and hunt the whales. However, as demand for whale oil grew, the United States saw a huge increase from about 200 whaling ships in the 1840s to about 600 ships in the 1860s. The number of whales close to shore declined, and the price of whale oil more than tripled over those 20 years.

This price hike caused consumers to start cutting back on their whale oil use, and it caused people to start investing in finding alternative energy sources. Rewards were offered in newspapers for anyone who could come up with a way to make lamps that could burn surface petroleum oil. By 1889, people had created lamps that burn petroleum and found a way to drill underground for oil. The number of whaling ships dropped to just 70, and the price of whale oil dramatically fell from $2.55 per gallon down to 75 cents per gallon.

Keim says this is the way things will work now, as we try to find a new primary energy source, as long as prices are allowed to fluctuate. He says, “I’m very confident we’ll develop substitutes for oil and gas on the supply side, and demand will significantly fall, but the government has to resist calls for price ceilings for this to work.”

Keim says, during the oil crisis in the 1970s, people waited in long lines at gas stations because the Nixon Administration used price controls to limit the price of gas. That conflicted with the natural cycle that happens when you have energy shortages and changes.

“If we all paid the real price of using oil, then the transition to other energy sources would happen ever faster,” says Keim. “That means market prices should reflect all costs and benefits of using fossil fuel, including the environmental costs, and some could make a case that there are national security costs as well. If oil prices reflected some of these costs, then some alternative energy sources would be able to compete with petroleum today.”

Keim says in the meantime, we will never run out of oil, as long as it is a privately owned resource. That’s because the owners want to continue profiting. For example, Keim points out that you don’t see any shortage of chickens, which are privately owned, but you do see a shortage of certain types of fish and seafood due to the overfishing in international, public waters. You also never see people letting livestock overgraze their own private land, but it happens on public land.

Keim adds that people will also keep reducing the demand for oil because of the high prices. He says we’ve already seen the number of hybrid cars soar, and Americans used 4 percent fewer gallons of gas in the past six months while we’ve seen sky-high prices. People are using public transportation more often, and they’re better organizing their drives to make the fewest possible stops. These cutbacks in demand are part of the reason that prices have recently fallen.

As for a replacement primary energy source, Keim is betting on solar power, wind power and electricity. Solar and wind power are readily available in some parts of the country, and a grid system can be created to maximize their use in other areas. Electricity already has an existing infrastructure for delivery, so there would be no need to build a network of fueling stations. Domestic supplies of natural gas can also play a big role over the next decade or so.

“I’m confident we’ll have real alternatives in 10 to 15 years,” Keim says. “Smart people and lots of money will be invested as oil prices stay high and we need substitutes. We’ll start using the existing alternatives more efficiently, and we’ll discover new technologies no one’s even dreamed up yet.”