January 2002

Getting Over Oil

Years of cheap oil have slowed energy innovation to a crawl. A new Middle East crisis could change that.

By Charles C. Mann

When President George W. Bush announced last May that "we're running out of energy in America," students of history could have been forgiven for thinking ruefully of George Otis Smith. Once a formidable figure in Washington, DC, Smith led the U.S. Geological Survey from 1907 to 1930. Just after the First World War, Survey geologists assessed the state of the world's petroleum reserves-and concluded that they would be totally exhausted before 1940. Alarmed by the prospect of what he called a "gas famine," Smith charged that the position of the United States "can best be characterized as precarious."

To stave off an energy crisis, Western nations tried to secure access to the world's remaining oil, especially the then unexploited deposits in what are now Iran and Iraq. A frantic round of imperialistic dickering ensued, with the United States and France convinced that the British were stabbing them in the back. Disputes over oil spread "a film of mistrust," historian Herbert Feis lamented, over both the establishment of the League of Nations and the Allied powers' attempt to bring the fledgling Soviet Union "back into the circle of friendly nations." Only in the late 1920s did the United States, France, Britain and the Netherlands settle the issue-as far as they were concerned, anyway-by slicing up parts of the Middle East into national oil concessions, thus ensuring their supply of petroleum.

Almost immediately, the whole contretemps was shown to be pointless. Technological advances had changed the oil industry. Using devices for detecting slight variations in gravitational attraction developed by Hungarian physicist Roland, Baron von Etvs, petroleum prospectors looked for the changes in density associated with oil fields-and discovered huge new deposits in Oklahoma and Texas. Texas crude oil was offered for as much as $1.85 a barrel in 1926; by 1931, some desperate producers were unloading it for two cents a barrel. The United States, barely able to handle its own glutted supply, did not actually import Middle Eastern crude for decades. Nonetheless, its willingness to meddle in the affairs of oil-producing Middle East nations helped to sully relations in that part of the world for the next 70 years.

History's mode of instruction is oracular, rarely providing simple, straightforward messages. Still, certain lessons from the "oil crisis" of the 1920s apply today. One is that even the most authoritative-seeming predictions about energy have a way of missing the mark. "I can't tell you how many people throughout history have said that in 20 years we'll have an energy catastrophe," says David Victor, director of the Program on Energy and Sustainable Development at Stanford University's Center for Environmental Science and Policy. "And they've always been wrong-always."

The "crisis" also illustrates how the technology and economics of the energy industry are inextricably bound. Baron von Etvs developed his new gravitational techniques at the turn of the century, but oil-company geologists did not try them until fears of a shortage drove up prices. When the baron's methods were employed, they were so successful that the predicted energy famine became an energy flood.

Today, new energy technologies face similar obstacles. In the midst of President Bush's claims that the nation is facing a crisis of supply, environmentalists are predicting another kind of energy crisis: global warming. But except for electricity prices in parts of the U.S. West, energy prices have recently been low in historic terms. In consequence, most nations-and most energy companies-have few financial incentives to pursue new technologies, even if they would produce more abundant or cleaner energy. "We're living in a super price-sensitive and competitive market," Victor says. "Companies are totally preoccupied with short-term survival. With that kind of mentality, you shouldn't be surprised that energy research budgets have been on the skids for years." Indeed, some economists suggest that the best hopes of alternative-energy proponents may come from an unexpected, even abhorrent quarter-that the global tumult created by the terrorist attacks that began last September will in one way or another create uncertainty about energy supplies, perhaps opening up opportunities for new technologies.