The oil fueled party may soon be over
High oil prices may be a permanent condition from here out; a fact that, as I previously mentioned, will come at a much higher cost than what most of us can imagine.
However, even with the current price of $120 dollars for a barrel of oil, we simply cannot get enough and, instead, continue marching straight towards the precipice that’s at the end of our “Long Emergency.”
As the NY Times reports, given oil prices, one would expect increased supply or diminished demand to bring things into balance, however:
[A]s prices flirt with $120 a barrel, many energy specialists are becoming worried that neither seems to be happening. Higher prices have done little to attract new production or to suppress global demand, and the resulting mismatch has sent oil prices spiraling upward.
“According to normal economic theory, and the history of oil, rising prices have two major effects,” said Fatih Birol, the chief economist at the International Energy Agency, which advises industrialized countries. “They reduce demand and they induce oil supplies. Not this time.”
A key reason that supply is not rising to meet demand is that producers outside of the OPEC cartel — countries like Russia, Mexico and Norway — have been showing troubling signs of sluggishness.
That’s right, the key phrase that one needs to pay close attention to comes at the end: swing oil producers cannot meet demand, due to troubling signs of sluggishness.
The article continues:
At the same time, oil consumption keeps expanding at a faster clip than production. Demand is forecast to increase this year by 1.2 million barrels a day, to 87.2 million barrels a day. In the United States, the world’s most oil-thirsty nation, consumption has actually fallen a bit because of the economic slowdown.
But that drop is being offset by growth in other countries. World consumption is projected to rise 35 percent, to around 115 million barrels a day, in the next two decades. Most of the growth will come from China, India and oil-producing countries in the Middle East, where retail fuel prices are subsidized, encouraging wasteful consumption.
That’s right, at present, it looks like we’re headed towards cliff: “sluggish” oil production and increased global demand. Remember, we’re talking about the world’s most precious commodity, which makes this a situation ripe for conflicts, er, wars on a global scale.
Peak oil?
Some regions are simply running out of reserves. Norway’s production has slumped by 25 percent since its peak in 2001. In Britain, oil production has plummeted 43 percent in eight years. The North Sea is now considered a dying oil basin. Alaska’s giant field at Prudhoe Bay has declined 65 percent since its peak 20 years ago.
[…]
[T]he case that has attracted the most attention is Mexico, the second-biggest exporter to the United States, which seems increasingly helpless to stem the collapse of its largest oil field, Cantarell. Last week, the country’s state-owned oil company, Pemex, said that production had fallen 300,000 barrels a day so far this year to 2.9 million barrels a day, a stunning drop from its peak production of 3.4 million in 2004.
[…]
Further clouding the picture, Saudi Arabia, the world’s top oil exporter, signaled last week that it might have trouble increasing its production.
As one would expect to read in such an objective and balanced article, solutions that are just over the horizon receive their proper due. The over the horizon solutions usually involve throwing more dollars at tech innovations, so that we can drill for more oil. However, as the article concludes, throwing more dollars at this may not be enough:
The International Energy Agency estimates that current investments will be insufficient to replace declining oil production, let alone increase overall output. The energy agency said it would take $5.4 trillion by 2030 to increase global output, a level of investment that is unlikely to be met. It said a crisis “involving an abrupt run-up in prices” could not be ruled out before 2015.
There you go, kiddies. A preview of upcoming events in The Long Emergency.
