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Thursday, 22 May 2008
The $12 Gallon
Just last night, I watched the local gas station attendant put up the latest new gas price signs, something that happens with an alarming frequency these days. 89 Octane was pegged at $4.0999. Senior Energy Advisor for Management Information Services, Robert Hirsch, says that these will soon be the "good ol' days."
The prices that we're paying at the pump today are, I think, going to be 'the good old days,' because others who watch this very closely forecast that we're going to be hitting $12 and $15 a gallon, and then, after that, when world oil production goes into decline, we're going to talk about rationing.There remains a wacky cadre of people who just don't want to believe that the Earth has a finite amount of petroleum. They tend to cite Russian geological science that claims petroleum is not a "fossil" fuel at all, that it is abiotic and that it can be and is created in situ. Indeed, some recent evidence for abiogenic hydrocarbon production has been discovered and found to be occurring in hydrothermal vents in ultramafic seafloors. But that certainly does not preclude petroleum from being produced by nominally considered processes. Besides, if the Russians had geological knowledge that allowed them to find sources "fossil fools" wouldn't, why has Russian production recently gone into decline?
In other words, not only are we going to be paying high prices and have considerable economic problems, but in addition to that, we're not going to be able to get the fuel when we want it.
The idea is that [world oil production] would hit a sharp peak and then drop off, and what's happened is, we've hit a plateau in world oil production, and that plateau has been ongoing since about the middle of 2004.
Others contend that Big Oil is just hoarding it to drive up prices, but Big Oil now controls only about 10% of world oil reserves, and nine of the ten biggest oil reserve holders are National Oil Companies (NOC). Though Big Oil are tightly aligned with most of these NOCs, those companies exercise control of their petroleum reserves with a vigourous nationalistic fervor often frowned upon by western interests. People also seem to be generally unaware of the fact that, rather than sinking those massive profits into production reinvestment, oil companies have been spending vast sums in a now years-long stock buyback scheme. Last year, ExxonMobil spent $38 billion buying back their own stock, which seems to signal to most analysts that they know, the jig is up.
What we do know is that current pricing regimes have become detached from nominal price curves, a combination of investor speculation, unchecked and rising demand in Asia, and conflict regions unsurprisingly surrounding various oil deposits -- not only Iraq, but in the Niger Delta as well.
There remain several new and developing prospects, such as the Alberta tar sands and, my personal favourite, drilling in the Arctic Sea now that the sea ice is making way for exploration. Northern Alberta is being turned into the world's largest toxic waste site, while drilling in the Arctic Seabed surely smacks of a status quo desperation we would do well to avoid.
With world oil consumption expected to rise from its current level of ~ 31 billion bbls/year, new discoveries simply cannot match both rising demand and the production declines that are now seen in most major deposits. The world's two largest oil producers, Russia and Saudi Arabia, are both in decline, with Saudi Arabia witness to an 8% decline in 2006.
We all need to stop pretending, fantasizing that untold, massive oil deposits merely await discovery, as though decades of exploration have not already revealed themselves. Certainly large deposits may exist somewhere, but wherever they might be, what is certain is that they will not be easily exploitable. But if oil company lust for drilling in the Arctic seabed indicates one thing, it is that the economic petroleum paradigm that dominates will not easily pass from this earth.
Perhaps a $12 gallon of gasoline in the United States will help move things along, make us realize that The Party's Over.
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