Great Oil Crisis Deepening

As me readers know, I have been very pessimistic about the real future of our century old oil economy. We are confronting one of the great crisis of history. It is necessary to transition to a non oil energy regime for the all critical transportation sector.

Current production is sort of cruising around 85 million barrels per day. Projected demand increase over the next twenty years is about 30 million barrels per day. Anticipated decline of current production is another 30 million barrels over the next twenty years.

We need to discover at least six Saudi Arabias to plug this hole. In the past 100 years we have discovered exactly one. It is simply not going to happen.

We will add a million barrels per day, here and there. The tar sands is good for a couple, and several deep sea projects are good for several million more.

The fact is someone has put pencil to paper to estimate how much must be invested and it is several times the entirety of the US gnp. We must do a centuries worth of capital investment in the next decade or two.

The only glimmer of hope in this ugly oil picture is the nascent advent of THAI technology. It is now in early days in the tar sands. It works by injecting air at high pressure into the oil bearing formation at the toe of a horizontal production well. Spontaneous combustion ensues at 600 atmospheres achieving a 600 degree burn front. This liberates oil that is also upgraded to about 15 gravity oil that then flows easily into the production well. It appears to work, and quite frankly, it has to work.

This technology should unleash most of the global tar sands for high yield production. It is believed that Canada has about 2 trillion barrels of such reserves in place and our friend, Mr Chavez, has another trillion. It may even do something for the infamous Green River shale in the Western USA.

The point that I am remaking is that we have to resolve a potential 75% swing in global oil production in the next two decades starting yesterday as tightening supplies and rising prices are confirming.

The first fix will be to drive the personal automobile off the road, and as I posted earlier, this means $300 per barrel oil. This will be able to offset the first decade of production decline.

The second fix is to use THAI to ramp up tar sand production to the levels necessary. The good news there is that the capital roll out will be fairly fast.

If we are really lucky, we may even get to drive our cars once in a while. D0es anyone still recall world war II gasoline rationing? Coupons anybody?

In any event, the new price regime should make oil non competitive against various renewable options. And that is the third and permanent fix.

In the meantime, we all need to take stock on how we will cope if the automobile abruptly ceases to be available regardless of price and hope it is not necessary, because that will be the break point. That gasoline is our real strategic reserve.

This is shaping up to be a revisit of the first oil crisis, even to the housing crash and reckless banking. The only thing we are missing is a run up in interest rates to 18%. They are not that stupid this time around.

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