Five years ago, the idea that oil production would soon peak world-wide and then go into decline was limited to the margins–a web page here and there and a few old oil goeologists who had retired and didn’t have to worry about what their employers thought.
A year or so ago, the idea started to make it into mainstream periodicals–but in a watered down form–something that might happen in 20 or 30 years.
Now the darker version is starting to show up in financial news sites. A recent piece on “Financial Sense Online” puts the situation in stark terms;
The oil crisis has arrived in the United States. This summer’s storm season exposed the Achilles heel of the U.S. economy: OIL. We have reached what system analysts refer to as ”a single point of failure.” It is the one item that if it breaks down, it brings the entire system down with it. Like it or not the U.S. economy runs on oil—cheap oil—and we are running out of it. Oil powers our economy in manufacturing, transportation, and agriculture. Without it, our economy would cease to function. There is no other commodity other than water that can have such an effect on how and what we do. Oil is the lifeblood of our economy.
For three decades the energy infrastructure in the U.S. has been neglected and allowed to decay. Now those chickens are coming home to roost. Politicians can bluster and pontificate all they want, but this will not solve the predicament that we now find ourselves in. The plain fact is we are running out of oil and natural gas. Oil production in the U.S. peaked in 1970. Since then, the United States has not been able to supply its own oil needs. As a result of this failure, it lost control in its ability to influence the world price of oil. This has led to a loss of control over an important part of its economic destiny.
The worldwide picture is equally stark.
Oil discoveries peaked in the 1960s and most of the oil we consume today comes from giant Middle Eastern oil fields that were discovered and put into production over 40 years ago. Most of the world’s key oil producers have already experienced peak oil. According to Richard Duncan, director of the Institute on Energy & Man, 25 out of the top 45 oil producers are past their peak. These 45 producers account for 98.7% of the world’s oil production. Another study done by Washington energy consultants, PFC Energy, found that 33 out of the 48 major oil-producing countries have either peaked or plateaued. Moreover many of today’s large oil producers such as Russia and Mexico have failed to replace their production over the last decade. Mexico’s oil production is expected to peak this year with the peaking of its largest oil field, Cantarell. Even worse, we find Saudi Arabia may also be close to peaking as Matt Simmons posits in his book “Twilight in the Desert.”
As this graph shows, non OPEC oil production has already peaked:
OPEC is producing very close to full capacity and has only limited ability to grow. Indonesia became a net oil importer last year and may drop out of OPEC altogether. Iraq’s major fields may have been damaged by poor policies under Sadam and by constant sabotage since. In Russia, recent rapid growth came to a screaching halt when the government decided to take back the oil fields and throw a few oil tycoons in jail.
Now a million barrels a day of production from the Gulf has gone offline and is not coming back very quickly.
And the natural gas situation is even worse.
Oh, and a major rail line that transports coal from Wyoming washed out this summer causing some power plants to switch to natural gas due to a coal shortage.
But that was before Katrina and Rita…..
Hope it doesn’t get too cold this winter.