Published May 30, 2012
By Philippe Crowe
The Fuel Freedom Foundation ( FFF) says that a new warning from the International Monetary Fund underscores the urgency of opening markets to competition from alternative fuels such as natural gas, ethanol, methanol and electricity.
The IMF Working Paper, titled “The Future of Oil: Geology versus Technology,” predicts that oil prices could permanently double in the next decade.
“The IMF report warns that a doubling in oil prices will send the global economy into ‘uncharted territory,’ which would spell disaster,” said Joseph A. Cannon, president of the Fuel Freedom Foundation. “Fortunately, disaster can be averted if we open our markets to competition from cheaper, cleaner, American-made alternative fuels to gasoline. This is the only way to bring down oil prices significantly and structurally, and ensure future economic growth.”
The paper combines two opposing positions in the debate to arrive at a more accurate model for predicting oil prices. On the one hand, the “peak oil” argument holds that the consumption of finite resources will push prices ever higher. On the other, the technological argument says that higher prices will spur new methods for extracting oil, as well as substitutions for petroleum products. These advances, in turn, will lead to greater output and eventually lower prices.
The authors—who emphasized that their findings do not necessarily reflect IMF policy—found the peak oil argument too pessimistic. However, they concluded that geological constraints on production, plus “demand shocks” such as rapid growth in China and India, best explain the trend in oil prices. At the same time, the researchers found limits to the impact of technological advances in the long run. The result is a near doubling in oil prices, and a “pain barrier” beyond which there is lasting damage to economic growth.
The Fuel Freedom Foundation declares itself a nonpartisan, nonprofit organization and is based in Irvine, Calif. The FFF is dedicated to breaking the U.S. economy’s oil addiction by removing barriers to competition to promote the development of cheaper, cleaner, American-made fuels. “Fuel freedom” is said to mean that gasoline, diesel, methanol, natural gas, ethanol and electricity compete on equal footing both at the dealership and at the pump. Achieving fuel freedom, says the FFF organization, will lower fuel prices, create jobs, spur economic growth, reduce pollution, and improve national and global security.