$300 oil and all that

Our current global oil production and consumption is running at 88,000,000 barrels per day. In 2015 we will need 98,000,000 barrels per day. In that seven year period we know that current production is likely to decline, perhaps by as much as another 10,000,000 barrels per day. This is what global peak oil looks like folks. Nobody is able to add significant new production anywhere and they are trying hard.

This is a 20,000,000 barrel per day volume swing that must now be accommodated by forced rationing through the market. Global production must stabilize at a level were replacement remains possible. There is no evidence to suggest that the current levels of production can be replaced. The Tar sands are good for a portion of this shortfall but still only a fraction of it. All other new production is very deep and very expensive and cannot be delivered for years.

If the oil industry spent every dime they ever had on new oil, they could not catch up. It took us a hundred years of full out investment to establish 88,000,000 barrels of daily production. We must now create 20,000,000 barrels of daily production in seven years.

The only place it really can be done is in the squeezing of the last oil out of the major historic fields through the application of massive capital. THAI (toe and hell air injection ) will come into its own in this environment. But this all takes a price regime that supports such a massive jump in capital investment.

That is why we are going to see $300 oil very soon. The market only requires an excuse now.

The modern automobile must come off the road as quickly as possible. $300 oil will do very nicely in changing peoples habits. And I hate to even say it, but rationing will become necessary. There simply will not be enough oil available at any price to allow luxury transportation. Goods transportation must take priority.

We could maintain our consumption rate if the the daily volume can be stabilized and we let the market slowly prioritize usage. With heavy capital investment, this current level could be sustained for another 10,000 days before all the difficult oil is pumped out or mined and used. It remains that we will be doing economic handstands while this is happening since every addition to oil production must now be planned years in advance, while every reduction will be 'unexpected'.

I am in charge of the permitting of a very deep wildcat gas and oil test up in the mountains of Utah. It is one of the last untested bits of the huge Uinta Basin. The lease was available because it was part of the Ashley National Forest. The cycle will take a minimum of three years to complete before a drill can hit the ground. If we desperately needed that resource next year I could not help at all. Yet the information that I am looking for could be proven out in four months of work with a drill and a drilling bond for restoration.

I also know of a highly likely onshore billion barrel oil field. Without a proper deal and guarantees it will stay in the ground. I do not think any of this will change with $300 oil.

The major point that I want to make is that we are shaping up for a repeat of the 1978 - 1982 oil crunch that distorted the global economy and we are far less well positioned for this. There is no Saudi Arabia able to increase production at will. We have conversation and lies instead.

This is also likely to trigger a major downdraft in securities markets as investors try to figure out who the winners and losers are. It will take the auto industry around four years to retool to adjust to the new price regime. The baby boomers retirement is likely to be on hold.

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