$100/Barrel....Definitely In Your Future

Why $89 Oil Will Soon Be Cheap
“ . . . we’re running out of time. I’m firmly of the belief that within a year or two Peak Oil will replace Global Warming as the issue we’re talking about . . .” –Matt Simmons, former energy advisor to George W. Bush, interviewed on Bloomberg TV

Yesterday evening your editor was interviewed on Bloomberg TV Asia. If you didn’t catch the interview, you can do so here: http://www.bloomberg.com/apps/news?pid=newsarchive&sid=a_u4gnbSKeSY
It’s a garden-variety interview . . . and I give the same peak oil sermon I’ve been preaching for years.
But this interview is a little different for the simple reason that Asia seems to take the issue of Peak Oil seriously.
Here in the States, if you say you believe in Peak Oil theory, you’re immediately castigated as a nut.
But as the price of oil moves ever-closer to $100 a barrel, more and more naysayers are being converted.
Asia already gets it. So does Russia. So does Matt Simmons. And trust me on this--so does the White House. They might not admit to it--but they understand the crisis we’re in.
In fact, last year, the White House sent a delegation from the US Dept. of Energy to Houston to meet with officials from Canada’s Natural Resources administration.
The purpose of the meeting was to “persuade” the Canadians to increase their oil sands production by 400% “within a short period of time.” And the Americans were even suggested that Canada should, ahem, bypass environmental regulations to get the oil pumping.
Sound desperate? Hell yeah it does. And for good reason.
Time is running out, folks.
You see, in December 2005, the Oil Age came to a quiet end. On that day, the world consumed its one-trillionth barrel of oil. In the blink of an eye, half of the world’s known oil reserves were gone.
With roughly a trillion barrels remaining, and considering the fact we’re consuming 86 million barrels every single day, the world has only about 30–40 years’ worth of oil left at present rates of consumption.
But as we shall see in the coming weeks and months, the reality of declining oil production will have much more immediate effects. Shortages and persistently higher prices are the first indicators, which are already here.
Higher prices will undoubtedly lead to reduced demand through “demand destruction,” and the oil that remains will last a little longer.
But it appears certain that within the next decade, and possibly within the next three years, we will be forced to start living with progressively less oil each year, every year, for the next century . . . with profound effects on the economy and just about everything in life as we know it.
This is the most serious challenge the world has ever faced.
From our current vantage point, in the optimistic first years of a new century, most people believe that cheap and abundant oil and natural gas will continue to provide us with low gasoline and grid electricity prices for at least several decades more, just as they have in the past.
This is especially true for the pundits and analysts who regularly appear on television to talk about how improved technology will continue to lower energy costs and bring as much energy to market as we demand.
But, according to Matthew Simmons, the top oil investment banker in the world and an energy advisor to President Bush, the idea that cheap oil would “last forever” is a 21st century myth: “The religion was faith-based, not fact-based! It was an illusion!”
At the first ASPO conference in 2005, Simmons observed that the peak oil problem had started to look like a “theological debate,” and quoted Dr. Herman Franssen, saying ‘“It is time to leave ‘I believe’ inside a church.”’
Here are the facts:
• The largest oil reservoirs are mature, and their production is falling.
• Approximately three quarters of the world’s current oil production is from fields that are two or three decades old which are past the peak and beginning their decline.
• Much of the remaining quarter comes from fields that are 10–15 years old. New fields are diminishing in number and size every year, and this trend has held for over a decade.
• And enhanced drilling technology, rather than making ever-greater amounts of oil available, has had the perverse effect of simply allowing us to deplete the existing oil basins more quickly. Instead of creating future supplies of cheaper energy, they have caused us to sell the past supply of those high quality, nonrenewable resources as quickly and as cheaply as possible . . . leaving little for the future, and that at a much higher price.
To put oil depletion in context, consider these facts:
• For every calorie of food that we consume in the U.S., ten calories of fossil fuel input were needed in the form of fertilizers (made from natural gas), pesticides and herbicides (made from oil), fuel to run the machines that plant, tend, harvest, transport, and process the goods, and fuel to deliver them to your grocery store and keep them cold there. And that doesn’t even count the energy needed to transport you to the store, and you and your groceries back home, nor the energy used to cook the meal.
The massive inputs of fossil fuels into food production are what has permitted the world population to increase from around 1.5 billion people at the turn of the 20th century to its current level of around 6.7 billion people.
In a very straightforward way, food is oil and gas. According to noted peak oil author Richard Heinberg, food travels an average of 1,300 miles from the farm to the plate in North America, leading critics such as James Howard Kunstler to decry the “3000 mile Caesar Salad” that travels from California’s breadbasket, the San Joaquin Valley, to his table in Scranton, PA.
But peak oil challenges more than our ability to feed ourselves.
The security costs alone of having the U.S. military protect the oil supplies of the Persian Gulf costs around $44 billion per year.
In fact, an in-depth analysis of the true total economic cost of the nation’s growing dependence on imported oil is estimated at $825.1 billion--almost twice the President’s $419.3 billion defense budget request. And much of that goes into the pockets of people who hate us.
Our dependence on oil--of which nearly two-thirds is imported--is a constant drain on the national treasure, not to mention the blood of our soldiers.
We need oil for nearly everything we do, and our entire infrastructure is built on the assumption that there will always be more when we want it, with very little storage or slack along the way.
We have a serious challenge ahead of us.
Don’t panic . . . but profit