A few years ago I posted some comments on the global oil situation. The gist of the comments was: We are at or past the peak of global oil production; therefore we need to reduce our need for oil somehow. Otherwise the market will reduce demand for us by pricing oil out of reach of many/most of us. That was in  the mid-2000s. There’s a similar set of comments I made in the mid-1990s.

Now there’s a new review of the situation titled: Oil’s tipping point has passed. Authors James Murray and David King, in the 26 January 2012 edition of Nature [481, 433–435],  maintain that: “the economic pain of a flattening supply [of oil] will trump the environment as a reason to curb the use of fossil fuels”. Their argument goes along the line of the Hubbert peak oil theory that the major oil companies have been trying to downplay for the past several years. As you’ll remember, the Hubbert theory basically says that oil originally existed underground in huge but finite amounts, of varying ease of access. We naturally first pumped out the easy oil, peaking our extraction rate around 2005,  and are now finding the remaining crude increasingly hard to extract, witness the BP Gulf of Mexico disaster. The clue to this is in the data, according to Murray and King:

From 2005 onwards, conventional crude-oil production has not risen to match increasing demand.

There’s the other half of the equation: demand. As the world becomes more developed so, too, does the demand for energy to maintain both the state of development and the growing population, particularly in China and India. But now that production seems to be essentially fixed and demand is rising Economics 101 comes into play: the price of oil rises—and will continue to rise until it reaches the point where no one can afford it. Here’s the production part of the situation:

The black curve shows our prior version of the Hubbert curve. I’ve added the 2011 estimate for production by the US Energy Information Administration (EIA) in green. That estimate expects  production to level out at about 27.4 billion barrels of oil annually into the foreseeable future. As a gauge to what that means for the increasing world population I’ve also included curves for the barrels of annual production per capita.

The problem with the EIA estimate is that a diminishing number of experts seem to believe in it. Somewhere between the EIA segment and the Hubbert curve lies future reality. My guess is that the Hubbert curve will win. But, either way, future production of oil will be constant at best and more likely diminishing. Here’s the problem: while known reserves of oil are being exploited—and are diminishing—new reserves are not being found fast enough to make up for the depletion losses. Furthermore, the new reserves tend to be in locations that are hard, or dangerous, or both, to access. Thereby driving up the costs. In fact, spot prices per barrel of crude have mare than quadrupled in the past five years. Read the Murray and King article for details.

The conclusion? Your personal supply of oil will continue to diminish and its price will continue to increase, on average. The changes may be steep.

Have you sold your SUV yet?