Peak Oil = No More Easy Barrels

Many people have a misconception behind the basic premise of peak oil — they think it postulates that the world is running out of oil. Of course, the peak oil theory does not postulate that the world will soon have no oil. The world will always have oil.

Peak oil relates specifically to our ability to produce oil and the evidence grows clearer by the day that the low-hanging fruit — the gushing giant fields –are increasingly becoming a thing of the past.

Bloomberg published an article detailing the plight of major oil companies like ExxonMobil as they struggle with this new reality, coupled with the unwelcoming attitude of many relatively oil-rich countries.

Despite a worldwide recession and low utilization rates across the economy, gas prices here in California tread near $3/gallon, levels which would have spurred nightly news features bemoaning the profits of the oil companies only a few years ago. But we humans are nothing if not remarkably adaptive and do not seem to object to this “new normal” as it were, despite massive unemployment and stagnant real wages.

At some point, energy constraints will reassert themselves into the headlines. In what form or circumstance, we can not know but energy is the fundamental building block of modern society. Some might say tech but until we can transform hard goods into bytes, don’t believe it. While today may not be the most opportune moment, investors should look to build into energy positions when the time is right.

2 Responses to “Peak Oil = No More Easy Barrels”

  1. The Enlightened American » Oil Majors Scraping For Barrels At the Bottom of The Ocean Says:

    [...] Peak Oil = No More Easy Barrels [...]

  2. posconvex Says:

    Any discussion about oil prices over the next decade must include an attempt to quantify emerging economy demand as an important driver at the margin. Here is a simple thought experiment using Chinese demand to give some idea of the magnitude of the supply issues we face:
    - China moves from 3 bbls/person/year to the South Korean per capita consumption level of 17 bbls/person/year
    - Transition takes 30 years
    - No peak in global production

    In next 10 years we must find 44 million BOPD. If you superimpose peak production on top of this demand profile using the following parameters oil prices would increase approximately 250% in real terms over next 10 years:
    - Oil demand elasticity of -0.3
    - Current production 84 million BOPD, current price US$ 80
    - Peak production 100 million BOPD
    - Post peak decline rate of 3-4%

    If you want to try the model for yourself using your own assumptions it can be found at: http://www.petrocapita.com/index.php?option=com_content&view=article&id=128&Itemid=86

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