Saildog

Peak Oil Demand

This idea of "Peak Demand" is nonsense. Supply clears demand as determined by price. If supply is inelastic (as it is - increased production beyond todays capacity is not possible because of geology, politics, infrastructure etc) demand and price will always reach a balance based on the available supply. Note that production is a <i>flow</i> measured in barrels per day - reserves are irrelevant. Oil has effectively become the limiting factor on economic growth, mitigated only to the extent we can use it more efficiently. Efficiency will no doubt consist of substitution with gas and other energy sources as well as technologies and living arrangements that reduce usage. However other energy types are not as energy dense or convenient (liquid over a wide temperature range). Natural gas will not power aircraft for instance. Scale and timing are all important. Solutions that take 30 years to implement are not solutions.

The first and second laws of thermodynamics, absolutely essential in understanding economics (but not - even by most economists), are coming into play. They cannot be circumvented, broken or ignored and they will determine our future.

We need to begin to think about a future not dominated by economic growth based on ever increasing natural resource consumption and destruction. The resources are simply not there. This means dramatically altering our entire frame of reference, including limits to population growth.

Who's Really to Blame for Rising Oil?

The author of this article needs to learn Economics 101, then read a but of Herman Daly, then some Hartwick, even some Harold Hotelling. He knows nothing.

To point out the bleeding obvious supply is static and demand is such that all will be taken up at what ever the latest high price is. It is inelastic. No one will care if you do not buy gas on a Monday.

The Reasoning Behind Oil's Irrationality

From an investment perspective I cannot fault this article's conclusions. But his reasoning did prompt a recall of that syndrome of not seeing the wood for the trees.

The fundamentals are why oil is $90+ and will carry on trending up.

Whinging about oil locked up in ANWR, Venezuela etc misses the point that we have passed the point when oil becomes more valuable in the ground than as dollars in the bank.

It doesn't matter why production has remained flat at 85m barrels a day since 2004. The fact is that it has. Meanwhile China, India, Russia and most of the OPEC countries are using much more oil. As production is flat, that must mean more and more people in other countries are using less oil. That is why the price is trending up. It doesn't seem so difficult to me, but nobody else had said as much that I have read. Jeffrey Brown's Export Land Model is very alarming. Is suggests that net oil available for export is in an accelerating downtrend.

The final point is field decline. The North Sea is declining at around 8%, while Canterell crashed 20% in 2006. Global field decline could be anything between 4% and 10%, though nobody knows the exacty number. Platts report field declines of 8% in certain Saudi fields, but we don't know which fields, or what the overall picture is.

If we take the low end and round it down, global field decline from existing production is 3m barrels per day every year. In other words, with flat production since 2004, new production additions in the 3 years have totalled 9m barrels per day. That is more than total Saudi production. How many more Saudi Arabias are there?