Oil will run out 100 years before new fuels developed: study

Karin Zeitvogel Yahoo News 15 Nov 10;

WASHINGTON (AFP) – The world will run out of oil around 100 years before replacement energy sources are available, if oil use and development of new fuels continue at the current pace, a US study warns.

Researchers at the University of California, Davis (UC-Davis) used the current share prices of oil companies and alternative energy companies to predict when replacement fuels will be ready to fill the gap left when oil runs dry.

And the study's findings weren't very good for the oil-hungry world.

If the world's oil reserves were the 1.332 trillion barrels estimated in 2008 and oil consumption stood at 85.22 million barrels a day and growing yearly at 1.3 percent, oil would be depleted by 2041, says the study published online last week by Environmental Science and Technology.

But by plugging current stock market prices into a complex equation, UC-Davis engineering professor Debbie Niemeier and postdoctoral researcher Nataliya Malyshkina calculated that a viable alternative fuel to oil will not be available before the middle of next century.

The researchers analyzed the share prices of 25 oil companies quoted on US, European and Australian stock exchanges, and of 44 alternative energy companies that produce fuels such as ethanol or bio-diesel, or are developing fuel cells, batteries and propulsion systems aimed at replacing gasoline and diesel in vehicles of the future.

What they found is that the market capitalization, or total value of all stock shares, of traditional oil companies far outstripped that of the alternative energy companies.

That indicated to them that investors believe oil is going to do well in the near future and occupy a larger share of the energy market than alternative energy, said Malyshkina.

"To assess the time until a considerable fraction of oil is likely to be replaced by alternatives, we used advanced pricing equations to make sense of the large discrepancy between the market capitalization of traditional oil companies and the market capitalization of alternative-energy companies," she told AFP.

Their calculations show that there would not be a widely available replacement for oil-based fuels before 2140, which, even if the more optimistic date of 2054 for oil depletion is retained, would mean there could be a gap of around 90 years when it might be difficult to run a motor vehicle.

Nearly two-thirds of crude oil is used to produce gasoline and diesel to run vehicles, said Malyshkina.

The researchers' calculations were based on the theory that long-term investors are good predictors of when new technologies will become commonplace.

"Sophisticated investors tend to put considerable effort into collecting, processing and understanding information relevant to the future cash flows paid by securities," said Malyshkina.

"As a result, market forecasts of future events, representing consensus predictions of a large number of investors, tend to be relatively accurate."

Similar calculations have been used to accurately predict the outcome of elections and the results of sports events, Malyshkina said.

But all is not doom and gloom, says the study.

On the oil supply side, consumption could well decrease in future as more energy-saving measures are introduced and used by consumers, and new oil reserves could become available as extraction techniques improve.

On the alternative fuel side of the equation, the study did not look at nonprofits, government agencies and universities which are developing new fuels, because they are not quoted on the stock market.

And if governments announced new policy initiatives to promote alternative fuel development, share prices of alternative energy companies would rise, and the gap between the end of oil and the kick-in of alternative fuels would shrink.