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06/24/2010

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Matt

Very interesting. A question: does the postponement take into account any decreases in oil exploration/recovery/refining that may result from continued global economic instability?

kolchack

I mostly agree with theis essay with two big caveats. 1). That deepwater drilling is not sharply curtailed by the BP disaster, and 2). That the supergiant Gahwar oil field in Saudi Arabia does not suddenly go into a Cantarell (Mexico)-like catastrophic decline. Either or both of those events occurring will greatly speed up the effects of Peak Oil.

The Prophet Nabob

It's very disappointing to hear you repeatedly thumping the "end-is-near," "apocalyptic" straw man.

No one said the world was going to end. The world will not end. There will be no "apocalypse."

In fact, every time you issue a new oracle--"Thus I tentatively conclude that "peak oil" is a crisis postponed. Actually, I am fairly confident about this prediction"--YOU'RE the one being "apocalyptic."

"Apocalypsis" is the belief that certain people are vouchsafed visions of god's future plans for mankind. The word actually has nothing to do with "the end of the world."

The reason for the current recession is that oil supply peaked in the 2004-2009 time period. That's not a prediction, or an apocalypsis. It's an established fact.

You're right about one thing--oil will never reach 90 million barrels per day.

Greg Pinelli

First a correction..on my post the other day I meant to say the Fed will not inflate..it's out of their hands now....That really leads into what Dave has written today..He's precisely correct..the whole GDP growth hype and idea it will push oil use back up to and eventually past 2007 levels is absurd.

The world's economies are holding (and will hold) oil in a box with zero upside price escape. IF Treasuries or Reserve Banks attempt to inflate, interest rates will respond immediately and economies will contract faster than you can say "bond vigilantes." Oil will go thru some very severe price moves up and then plunges...but use will, at the end of the day, go nowhere.

If they don't inflate, the largest economy in the world (the US) will be preoccupied for a generation in deleveraging debt and keeping their heads barely at the water line. Oil will steadily decrease in price in this scenario. Peak oil serves as the floor underneath any dramatic and sustainable price drops...below a certain price (my guess, around $25 US)..the stuff may flow, but nothing..as in ZERO..new comes on line.

Once in a lifetime the realities of the past catch up to the fantasies of the future and a real ass kicking reckoning occurs...March 2009 was simply the set up.

awb

There are a few other issues which the author does not address. One is some discussion of the Export Land Model, wherein oil producing countries support local prices, their economy grows as well as their use of oil, and there is less oil to export. This can accelerate. Also the OECD nations are on depletion curves that will most likely steepen in the next few years. Thirdly, as mentioned above, there is far less exploration and development going on now due to the price collapse of 2008-2009, and the effect of this will start to be felt acutely in the next year or two.

posconvex

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: www.petrocapita.com/index.php?option=com_content&view=article&id=128&Itemid=86

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