If You Don’t like this Oil Supply Plateau, Just Wait for the Slide!

by Robert Anderson on Tuesday, November 8, 2011 at 11:10am

Dear American voracious oil consumer,

Please take note. Its really pretty simple.

The global economy has been in the grips of a severe economic contraction for 3 years now. But have you seen oil prices? Over $115/bl across the Atlantic and +$95 in the U.S. (we’ve got a short term oversupply anomaly here in the Midcontinent). A slow economy used to deflate oil prices. What gives? Certainly not U.S. energy policy!

Its pretty simple. Lets do this with 3 pictures:

Contrary to classic economics, high oil prices have not translated into more supply or less demand.

Conventional global oil production is depicted here. In other words, it doesn’t include the expensive, polluting, poor net-energy projects like Canadian tar sands. We could also title this ‘cheap abundant oil’. In spite of sky high oil prices, its plateaued for the last 6 years! There’s been a very high incentive to produce more oil and it hasn’t happened. Oh oh.

So the global economy has tried to grow but the fuel that really allows this growth hasn’t kept pace. Its just like starving the food source for any organic system. Restricted inputs = contracted growth. And since we have a global debt-based fiat (funnymoney) financial system, when oil production stopped growing so did our true money supplies and economies. What economic growth we’ve had has been a result of just piling on more debt.

Economists didn’t think oil was any more important than any other input variable on their high faluting economic theories and equations. They were wrong! And the major oil company’s PR departments perpetuated this misconception. They still are! Read anything Dan Yergin and his crew has put out lately.

Here’s an economic concept they DID understand- if the global economy tries to keep growing and there’s not enough oil to supply it, oil producers profits will SKYROCKET! Since the U.S. is the largest oil consumer in the world -by far- and places like Venezuela, Russia and the Mideast are the largest oil producers (with the largest existing oil reserves) it won’t bode well for us here in the U.S. But this is our societal genre of late: greed is good! profits! bonuses! We’ve got this huge military machine. Maybe we can use it to alter our deficient energy and financial geopolitical position! Yeah. That’ll create more profits and bonuses!

OK so oil production has plateaued. What happens next? About 30% of the oil the world currently consumes comes from giant and super giant fields. In other words > 500,000 bls /day. The average age of these fields is >57 years! We quit discovering these giants back in the 60s! They’re going to start to deplete. But the new oil projects we’re bringing on- like Baaken in North Dakota- are little 2,500 bl/d wells where we’re drilling down and across 20,000 feet. In spite of the highly touted new technology, it just won’t be enough. So we are about to shift from a global oil output plateau to an ugly slide.  Our own U.S. Department of Defense has come out with a study indicating that the oil production plateau will start sliding by next year and global oil output will contract by 10 million barrels a day by 2015.

See why they call it ‘peak oil’? Its also peak economic growth!

Oh oh. If this oil plateau has created such economic chaos, whats going to happen when oil supplies actually start sliding? There is not going to be any bouncing up out of this recession -scratch that term, this depression- with oil supplies contracting. Maybe we can throw in a war with Iran and blame it on them!

Don’t worry. You’ll be fine as long as you are in that upper 1%. Oil company and military industrial profits will soar. Its going to be very profitable. And its actually really easy to move ill gotten gains offshore! I’d flee to a good oil producer!

The peak WILL happen, its only a matter of exactly when.


About OilisNotWell

I'm a proud, happy 4th generation Kansas Citian. I've been employed in downstream petroleum and biofuels for over 30 years. After eight years as a Refinery Rep and Midcontinent Marketing Manager at Wichita-based Koch Refining, I subsequently set up shop at the KC Board of Trade just off the Country Club Plaza. Back in the old pre-internet days, I actually launched the first faxed newsletter on oil markets in the world. It was highly regarded with 350 subscribers who were oil distributors, traders and oil industry executives. Subscription cost was $760/ year. I also worked for the Hermes Group which was the first Russian company to buy a seat on a U.S. commodity exchange (NYMEX). I wrote their international business expansion plan and traveled extensively throughout Russia, Ukraine and Eastern Europe. I've also literally worked for dozens of ethanol and biodiesel firms in the U.S. I enjoy spending our winters in Uruguay and Argentina when I can swing it.

Posted on November 8, 2011, in Uncategorized. Bookmark the permalink. Leave a comment.

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