Hitting the peak

Here’s the central problem with peak oil:

  • World oil production will hit its peak around 2011 unless some totally unanticipated discoveries occur between now and then. So far, none of the discoveries recently announced in the press have been unanticipated. Furthermore, new discoveries tend to be in hard-to-reach places, simply because all the easy-to-reach spots have been exploited long ago. Tertiary exploitation of these resources has begun and will eke out more oil, but at a rising cost of recovery.
  • World demand for oil is growing, particularly in Asia. China and India are both aggressively pursuing oil resources worldwide. [Note: the graph below does not include the China-India-Brazil contribution to demand.] Hence, all other things being equal, world oil demand will exceed supply at about, you guessed it, 2011.

Peak oil dilemma
Of course, all other things won’t be equal. For starters, as you surely have already noticed, oil prices will rise. Now oil prices are ordinarily influenced by political considerations possibly more than demand but when we enter an area of demand inelasticity (that is, “prices be damned, I want the stuff!”) prices surely will continue their rise, politics or not.

So we will soon be faced with a growing dilemma that, in no uncertain terms, could serve to alter the way we live. Although you may not, I remember the energy crisis in the mid-1970s when OPEC decided to curtail oil production in order to jack up prices. At first there was a lot of grumbling about the higher prices but little other reaction. But when gas began to become unavailable, when people had to wait in line to fill up their tanks, then the pain began to sink in. This was when telecommuting was in its infancy.

Well, OPEC relented, having demonstrated its power, as well as having grown nervous about the spurt in energy conservation efforts in the US and Europe, and the oil began to flow again. Life was beautiful. But this next time when the oil supply fails to keep up with demand it won’t resume after some strength-showing demonstration. The rationing will be permanent and progressive.

Also note that, according to the 6 April 2006 Financial Times, the International Monetary Fund is expected next week to announce that high energy prices are “exacerbating” global economic imbalances, increasing the risks of a crisis. Who will be hit the hardest? Those whose energy costs constitute the largest component of their expenditures.

Keep this in mind as we examine alternatives in further blogs.

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