Bruce Pile

The Crude Oil Price Disconnect

The new projects schedule puts about 20 mbpd online by 2010. That's a lot of oil and has led the ultra optimists like CERA to predict a wall of oil coming with as much as 7 mbpd supply over demand by 2010 and oil at $40 or less. But there are several facts of science and math that the CERA types don't consider.

For example, there is the math of net energy. Even much of the oil bear contingent accepts that we are at or near the global peak for the old fashion conventional oil from easy to extract fields. They say we are nowhere near an oil problem though because of the flood of new unconventional oil on the way. However, if you look at the new oil we are depending on over just say the next 3 years, you see that about half of it is the rampup in deepwater and tar sand oil. These two sources have EROEI (energy returned on energy invested) estimated at around 3-4 with the old declining conventional field production EROEI at about 10 or better. Comparing these two values on the EROEI oil displacement curve means that it is taking 3 barrels of this new production to offset each barrel of declining conventional production! This amounts to about 7 mbpd in 2010 production that will be missing from the physical barrel to barrel accounting of new replacing old - 7 mbpd missing in action from the globe's net energy supply. This one factor alone completely does away with CERAs wall of excess oil by 2010.

Also consider the ELM (Export Land Model), which tabulates the effects of internal oil consumption increases by the enriched oil exporting nations. In the model, if exports are half of total production and conventional production is near peak (roughly the global case) and assuming conservative figures for existing production decline rate, internal consumption increase rate (about half of what is actually occuring in many major exporters), the amount of oil exported post peak winds up being just 10% of the total exporter's post peak production! A full explanation of ELM is at theoildrum.com. This causes much of the forthcoming wall of oil in the future to fall somewhat flat.

12 Potash Companies Sprinting Ahead

The piece at greenfaucet.com makes some very good points about bubbles. Food crops have actually been a big disinflator since 1980, so the switch to leading inflation is causing a massive pricing climb, after which crops are still historically very cheap just from a technical perspective, not counting the supply and demand fundamentals.