Peak Oil

Monday, April 24, 2006

Peak Oil

Oil prices jumped past $75 a barrel Friday, rising to a record price on fears of political instability in the Middle East, Africa and Latin America.

Notice this supposed jump in price is purely based on speculation regarding the "turmoil" in these areas. Two paragraphs later there's a statement of fact:

Some economists said $100-a-barrel oil is possible, as demand remains strong and the world has almost no excess production capacity.

No excess production capacity is the key line here. Imagine if car manufactures had no excess capacity, that every car made had a buyer waiting for it. No used car lots. Cars just bought as soon as they hit the lot. That's the current situation with oil production. No excess capacity for production. We're barely making enough for everybody that's wants it.

It's almost certain that Saudi Arabia has reached its peak in production and is now in decline, and that basically means we've reached peak oil, folks. Even a small decline in production can have devestating effects on the economy:

The effects of even a small drop in production can be devastating. For instance, during the 1970s oil shocks, shortfalls in production as small as 5% caused the price of oil to nearly quadruple. The same thing happened in California a few years ago with natural gas: a production drop of less than 5% caused prices to skyrocket by 400%.

We are looking at shortfalls much larger than the 5% we experienced in the 1970s. And this isn't just something the Left is talking about. One of the leading proponents of this theory is Matthew Simons an energy investor and advisor to the Bush administration. Even the Dark Lord of Energy, Dick Cheney, has recognized the importance of all of this:

By some estimates, there will be an average of two-percent
annual growth in global oil demand over the years ahead,
along with, conservatively, a three-percent natural decline
in production from existing reserves.That means by 2010 we
will need on the order of anadditional 50 million barrels a
day.

Implied, of course, is that we will simply have to take this oil. There's no talk of changing our way of life in this country other than maybe getting a more fuel efficient vehicle. The solutions espoused in the mainstream of this country are not realistic at all. We will need additional oil; we will thus remain in the Middle East for the foreseeable future.

If you're not familiar with the topic of Peak Oil, I urge you to look into it. Websites abound on the internet. A great film on it is The End of Suburbia, which I recently posted about. There are a ton of books on the subject. You really can't begin to understand the nature of our foreign policy without understanding peak oil. When people scoff at the idea of a war for oil, they show tremendous ignorance of just how our economy works.

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Published in: on April 19, 2006 at 10:41 pm  Leave a Comment  

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