The Young Turks

I am not ready to call a complete peak yet, I think the world may very well see 90 million barrels a day (up from current 86 mbpd) or even a little more.  However, what does seem more clear is that supply growth may never again be able to keep up with demand growth.  If this is true, then we are likely to see continued high double digit percentage growth rates in the price of oil.  The only way I see this reversing is if high oil prices induce a major global recession/depression that is accompanied by significant demand destruction (if demand growth is negative then my first premise may be wrong). 

Lets face it, oil is currently dirt cheap at only around 12c a cup.  Many european countries have maintained reasonably strong economies with gas prices in the $6-$9 range after taxes.  As much as Americans bitch about $3+ a gallon gas, it will take much higher prices to get many of them to change their guzzling habits (ken you still driving that hummer?).  Because of this, large price increases are necessary to induce even slight decreases in demand to bring supply back into balance (This is the real reason oil is $100/barrel!).  & nbsp;

This is the point where optimists will point out that the reason supply is not growing is that there has been 20 years of underinvestment in oil infrastructure...you are correct...here's a cookie.  Unfortunatly this only means that current infrastructure is old and rusting and much of the expertise required to ramp up production and exploration is lacking.  Not a good situation if you've got a tight market that needs additional supply.  Major oil companies have been failing miserable in this area as of late, even as oil prices and profits skyrocket.  Global reserve repalacement (how much oil was found vs how much was pumped) for oil majors droped from 72% in 2005 to 59% in 2006.

http://www.eia.doe.gov/emeu /perfpro/tab08.htm

It also seems that the "big five" major oil companies are in the process of liquidating their assets, spending most of their windfall profits on share buy backs and dividends rather than exploration.  This trend has lead to decreases in production rates for many of them.  At the minimum this seems to indicate that there just arn't enough large prospects avaliable to public companies worth exploiting.  This would indicate that the fate of future oil production lies in the hands of government run state oil companies (we all know how efficient governments can be). 

http://www.sciencedaily.com /releases/2007/11/071112140 720.htm

On that subject it seems that Russia, a major source of growth in oil production over the past decade may bereaching peak/plateau production this year

http://www.bloomberg.com/ap ps/news?pid=20601072&si d=arXTpOY4omL4&refer=en ergy

Anyway enough with all the words...on to the pretty pictures. 

First the obligatory production vs. discovery graph



How about current oil production trends?



Total liquids (includes unconventional oil, biofuels, natural gas liquids) doesn't look much better, although there does seem to be slight growth.  Only time will tell if the recent increase will become a trend or an outlier.




But the saudi's will save us won't they?  Wait, why would a country with supposedly 2+ mbpd of spare capacity need so many rigs in their country?


China Shmina!



I could go on but I think you get the picture.  It seems the stage is set for tight oil markets for years to come.  If you drive an SUV it may be time to trade it in.  If you need one for some reason, consider a hybrid.  If you plan to move in the next year, try to move closer to work if possible.  If you hate the idea of $4 a gallon gas this summer, just wait for 2-3 years down the road, you may beg for $4 a gallon.  If you want to recover some of the excess cost you might want to invest in USO or some of the mid-teir oil exploration/production companies like Devon or Apache

I currently only see one remaining possibility for extending growth in production and ironically it has become more acessible due to global warming.  There seems to be a {black} gold rush going on in the arctic as the melting ice caps are opening up the arctic to oil and gas exploration

http://www.guardian.co.uk/s cience/2006/apr/18/environm ent.oilandpetrol

If significant reserves our found and can be brought to market reasonably soon (not an easy task), then we might be able to stave off peak production for maybe a decade or so. 

The other option is displacement by alternative fuels, but I think is still too far down the pipeline.  Corn ethanol actaully does displace oil (about its only benifit) and may actually help releave peak oil a bit, but it is simply an elaborate scheme for converting coal/natural gas to liquid fuels.  Other biofuels are too far down to road to help at least for another 5 to 10 years.  Over the long term electric cars and microalgae biodiesel may provide enough supply to cushion the pain as long as oil production doesn't decline too much before they become viable or adopted on a large enough scale to be relevant. 

Also, for all the environmentalist who are salavating at the idea of the end of the oil era as a fix for global warming and justice against evil SUV drivers, keep in mind that economic damage could be significant.  If peak oil sets off a major global recession/depre ssion, good luck getting any of the major world economies to reduce their "carbon footprint".  Instead they will probably push environmental damaging coal to liquids and energy and water intensive oil sands and oil shale.  You can also say goodbye to ANWAR and any other protected area that might contain a few drops of oil. 

Anyway, my rant is over...commence attempting to poke holes in my argument.