Peak oil peeking at us?

And if you think illegal immigration is bad now, wait till Mexico's Cantrell oilfield burps it's last barrel, it's already peaking.

The reasons for oil production's current plateau are as much political as geological. Mexico and Venezuela both very likely have major undeveloped oil fields, but they also have laws that make it essentially impossible for oil companies to explore in their territory. (Mexico's congress is working on changing this right now. Venezuela's is not.) Russia and Iraq have mismanaged their assets, leaving huge areas of Siberia and southern Iraq unexplored to this day. Iran could ramp up production tomorrow if trade embargoes were lifted. And for that matter the US has three major known oil fields not being developed for political reasons: California's southern coast; Florida's gulf coast; and ANWR. If expensive or scarce oil ever becomes a seriously painful global political issue, and not just an inconvenience like it is today, we will begin to see progress on every one of these fronts. (Granted, it will take years of expoloration and development before any of them actually starts production, but it will get there before civilization collapses.)

Charles is not at all off base here. The state of the dollar has a huge impact on oil prices. CNN business had an article today about the possibility of the Fed taking some action to prop up the dollar for that very reason.

That we have to develop more non-oil, non-corn energy sources is a given.

People are already shifting behaviors in response to gas prices. Sales of mopeds and bikes are way up. Bus/train ridership is up in Minneapolis, and we're seeing SmartCars and little electric 3-wheelers on the streets. At my store, we are burning through vegetable seed packets. Everyone appears to be planning to plant this spring, if it ever arrives, and more people are talking about adding greenhouses to their homes. Season extension, via hoop houses, is the buzzword in Midwestern agriculture. We may be able to add 4-8 weeks, or more, of veggie growing time, depending on latitude and crops.

Crises can bring out creativity.

There's plenty of room for contraction in demand, via smaller cars, etc. The transition will be difficult and painful for some, but at some point demand will prove elastic, or prices will rise enough for production of substitutes to become profitable.

That is, if we can keep stupid and opportunistic pols from doing stupid things, like price controls, rationing, and punitive taxation.

The price of oil does have something to do with the value of the dollar right now, but not in the way most people think.

Most oil producing countries keep their currencies pegged to the dollar. In order to do so, they have to "print" local currency to take the dollars off the hands of domestic exporters and then recycle the dollars into dollar-denominated government securities.

With US housing agency paper going at 3% right now and the dollar depreciating at a much greater rate, what are these countries supposed to do? Sell even more oil, print even more local currency to buy back even more dollars, generate even more hyperinflation in their domestic economies, and then lose money on their investments? Are you kidding? It makes more sense to keep the oil in the ground for now.

Don't expect the New York Times or the mainstream media to figure out what's happening in the commodities market anytime soon. They're great at explaining economic events once they're over. That's about it.

"But I am willing to bet, and am eager to bet, that commodity prices will reach a speculative peak sometime in the next few months and then PLUNGE. That's right, PLUNGE."

CAre to make it interesting? What's your short position?

First of all not all oil is bought at $120 a barrel. that is for the good light oil from which you can get gasoline.

My family has some property in East Texas for which we recently signed a lease with a driller. the driller has to line up investors who will supply the capital needed to get the rig and crew on site to drill the well. The oil they are drilling for costs at least $35 per barrel to get it out of the ground. Now the driller has to get much more than that to make a profit. Once the oil is out of the ground you have to ship it to a refinery. there are two ways for that. If a large field you build a pipeline from the field to gathering point. If not you bring holding tanks on site then use a tank truck to take the crude to the refiner.

That is for an area that is open for exploration. Let us not forget that there are large areas of the US both onshore and offshore that are closed to exploration and production. The entire Atlantic Coast is closed as is the Pacific. Florida continues to refuse to allow for offshore Gulf drilling.

Oil is out there you just have to drill for it. Also it takes time to shoot the seismic, interpret it, site the well, spud the well and drill the well. Even then you might hit a dry hole.

If our government were to open up areas for exploration and drilling we might see an effect.

and lets not forget that our refining capacity is still limited to certain key areas of the country such as the Texas/Louisiana Gulf Coast. and that area is also known as Hurricane country, and Hurricane season will soon start.

but then who cares about all the above since we know that the oil companies are purposefully manipulating the price of oil and the availability of gas

mdavid, I'm not saying peak oil isn't a gripping concern. I happen to be convinced that it's real. I'm just saying there are other more proximate causes right now for the sharp rise in oil prices. An economic downturn may buy us some time, but not much.

pyrrho, I leave my investments to the professionals.

Are your sure you read The Black Swan? I'm starting to worry about you!

Peterk, America peaked in oil production back in the '70s, and we have been going down, down, down since even as we looked harder and harder. All we are doing now is picking up scraps.

Exactly how can evil oil companies manipulate prices when they don't produce but a tiny fraction of worldwide crude? Nation states (Middle East/Russia) have all the swing supply here. Everyone else has peaked and is running dry, one by one.

BTW, not *those* professionals.

I will be riding my bicycle for most of my errands and shopping needs. I don't have to go far, thank God. I don't need much. The oil companies will not make much on me. I will be burning the wood that I grow. I will be growing my own corn, freezing it and canning my vegitables this year. I know how to survive in a recession. I will not buy anything from China or watch a Chinese made television that could poisoned me. Who knows, they could leak CO or Raidon or some unknown radioactive material? The magic bullet!

OT: Albert Hofmann has died at age 102.

Peak oil is a concept that has been already considered by and calculated in the plans and projections of serious energy professionals. I heard of the peak oil theory for the first time about five years ago (long before it became a cause celebre on leftie/crunchy blogs) at a luncheon seminar hosted by that bastion of enviro-leftism, the Petroleum Club of Houston. It was seen as a problem to be dealt with, but not a panic-inducer. If peak oil is a real phenomenon, it will be a problem to be dealt with and overcome, not a civilization-ender or any of the other parade of horribles that no-talent assclowns (can I use that term on this site?) like James Howard Kunstler say it will be. Settle down, everyone.

The current 'running out' wailing is nothing compared to what we heard in the Seventies. There have a been a few spectacular falls and rises in the price of oil since then.

mdavid, the point of my post wasn't that there is some specialized knowledge at the Petroleum Club of Houston. It's primarily a social club, after all. My point was that peak oil theory isn't some obscure theory that energy professionals are unaware of and will take them by surprise.

If you read websites that talk about the subject, you might think that only a gnostic elite of environmentalists and leftists know about the theory and believe in it, and I've seen that tone in both enviro-left websites that talk about it as the wave of the future and conservative websites that dismiss it as liberal cant. That's not the case, and that's the main point I was trying to make. Last, I'll absolutely agree that Matthew Simmons is someone to listen to on this subject, and unless I'm mistaken, he's not counseling panic or apocalyptic thought, but merely that this is something that we'll have to get used to and manage as a society. Which we will.

A SWAG re. peak oil, commodity prices, & speculation:

I wonder if current oil prices are due not to exclusively to changes in fundamentals (i.e., long-run supply & demand, & expectations of the same) or speculation, but rather a combination of the two? I.e., that most of the run-up in oil prices over the past few years is due to peak oil concerns, but the recent spikes are the result of speculation in commodities? If this is so, then a "popping" of the commodities bubble would indeed bring oil prices down in the short term, but only to (say) $90/bbl, instead of $30/bbl. Then a long-term increase, as more & more people digest the concept of peak oil.

I think MI, Mark, Pyrrho & Charles have made some good points here. The recent run-up from $80-$90/bbl in January has all the marks of a speculative bubble. And yes, it probably won't fall back to $30/bbl again, but will settle in some intermediate range.

We also ought not to fool ourselves into think that demand is utterly inelastic. If oil were to rise to $200/bbl, it seems to me that developing countries like China and India (who get mentioned every time someone suggests "increased world demand" is driving the price) would the countries hit hardest. How are they, let alone consumers in the West, going to afford $200/bbl oil?

No one in the 1970's would have been willing to predict that oil would become relatively cheap again the 1980s and (especially) the 1990s. So although it's hard not to believe that drastic changes are in store and that oil is going to be forever expensive, the theories that have led to the peak oil talk are just theories. They might be right, and they might be wrong.

My wild, irresponsible prediction, not backed by a wager of any dollar value: oil will hit $127/bbl. sometime in the next few weeks or months, and then start dropping like a stone. We will see oil again priced below $55/bbl, perhaps even by the end of the year. If the classic three-spike bull market pattern holds, "peak" oil may be just around the corner, and not in the sense that the term is usually used. The third spike is always the highest, least steady of the three. We're on it now.

Oil futures deliverable every month through 2015 are trading at over $105/bl.

http://futures.tradingcharts.com/marketquotes/index.php3?market=CL

Jeff Sullivan, We also ought not to fool ourselves into think that demand is utterly inelastic.

1) What we are going to replace crude with? I'm all ears. Note that natural gas is peaking as well. We have coal, nukes, limited renewables, and conservation left. I would note we use NG and oil to make fertilizer as well.

2) The high prices in the '70s was due to America (the largest oil producer at the time) peaking. We just moved production to the Middle East after we ran dry. We will indeed run out worldwide; no mystery here. It's non-renewable resource.

3) Oh, we can afford $200/bbl. So can China. We just won't use it casually like we do now. In fact, $200/bbl is still $0.30/cup. That's giving oil away. We will see far higher prices than $200 over the longer haul.

4) We will see oil again priced below $55/bbl: I sure hope so. Prices should go jump around, and I've been a little miffed that they haven't dropped before the big runnup (I made some minor bets that they would, but now I think I'm wrong). But if they do drop it will be temporary as we near the worldwide peak.

5) Remember, guys like Simmons were accurately predicting today's prices when oil was $15/bbl and everyone was laughing at them. "Experts" all thought $100 was insane, while Simmons was saying $300/bbl+ will be needed to sufficently slow demand to match supplies. Disoveries have have been falling behind consumption since the 1980s. Our lack of crude is a very long term thing, and we have demonstrated over the past 20 years that we can't find more. Prices must reflect this. Europe/Oz drivers pay $200-$300/bbl oil (with taxes) at the pump already and it isn't slowing demand there a bit. Keep that in mind. And we haven't even factored in Saudi/Russia holding back supplies, which the Hirsch Report predicts.

If you discovered oil today, it would take more than 5 years to begin pumping crude out of the ground. A lot of oil companies went bankrupt in the early 1980s when oil prices collapsed along with all commodity prices. Remembering the past, many resource companies did not boost production as soon as oil prices increased, but rather waited for confirmation of a stable level of higher prices.

As mentioned, there are political limitations. Most oil companies are under the control of national governments and oil production is headed in the same direction as the Soviet economy. Whether peak oil is here or not, output is definitely below where it could be if there was a free market in energy.

Finally, Simmons doesn't say we're running out of oil, but running out of cheap oil. But if you really believe in peak oil, then the drastic course of action is to open ANWR and the entire continental shelf to drilling, otherwise the economy will be killed. Oil companies need to start planning today if you want to see oil in 2015. Every year you wait delays the start of production and ensures a man made shortage. Alternative energy will be unable to replace current energy production before 2020 at the earliest, and that's being extremely optimistic. Nuclear energy also has a lead-time of years and if peak oil is near, the governmet needs to fast track new plants yesterday and begin construction today. My guess is that if peak oil became a reality, you would even see Democrats handing out huge subsidies to oil companies and using Federal power to build nuke plants over local objections.

I'll try this again. ANWR, even if it were opened today, and could pump out oil today, even by the most generous estimates of what is available, could supply US oil needs for 5 YEARS. That's at current consumption rates.

That's it. The holy grail of ANWR is a FIVE YEAR bandaid for our oil needs, and at the most generous estimate of how much oil is there. And entirely discounting the TEN YEARS its going to take for the infrastructure and the pipeline its going to have to take to get it from point A to point B, the fact that no pipe is big enough to get the oil to us in sufficient quantities, and that we don't have the refinery space to accomdate our ever growing oil jones.

That's oil at about 2020, even if it were started today, not 2015.

Given the estimates of continental shelf oil, the combined oil from BOTH sources, again, not accounting one bit for increased demand, the amount of time and (yes) oil needed to get to it, and only based on strictly US usage is enough for.. 20 years. Total.

That's it for the 'not cheap' oil.

And in human history, given the amount of time it'd take to change from one power source to another, without extreme economic disruption.. that means even if we DO use that oil, we better use it for us, and better use the time that buys us to find something else.

I want a 70+ MPG [MINIMUM] plug-in, hybrid, five passeger car YESTERDAY. No more concepts. No more "oh, look, forty-eight cupholders and a pony for each kid." No more gold trimmed Escalades, pimpin' out, or flywheel rims. 70+ MPG, plug-in, hybrid, five passengers. Period. And no "premium" charges at the dealer neither. You can make 'em just as cheap as gas cars and you know it.

IIRC, '90s-vintage Geo Metros & Honda Civics used to get 40-50 MPG easy. No hybrid tech necessary, BTW. Of course, Civics don't get that many MPGs anymore - not sure what happened in the intervening model years.

Part of the problem that nobody seems to be paying attention to is the collapse of the dollar. The greenback has lost some 30-40 percent of its value in recent years, thanks in part to the current Administration's and Congress' spending frenzy. From what I've seen, oil's price in euros hasn't changed all that much.

So simmer down, people. The oil situation is a problem, not a crisis. The solution, unfortunately, is not going to be palatable to very many people---the central government has to turn the spending spigots off.

Your servant,

Lord Karth

The greenback has lost some 30-40 percent of its value in recent years, thanks in part to the current Administration's and Congress' spending frenzy.

There's also our trade deficit, along with the massive currency interventions conducted by China, Japan, et al.

See also my 8:15 PM post, above.

From what I've seen, oil's price in euros hasn't changed all that much.

Do you have data to back this up? My understanding is that, since oil is fungible, prices around the world should be pretty much the same, after adjusted for exchange rates. Arbitrage would rapidly eat up any significant difference in euro-priced oil vs. dollar-priced oil. See also here:

europe.theoildrum.com/node/3753

eurotrib.com/story/2007/10/26/14216/498

1. "Building more factories" as is suggested in the article will do nothing to boost fertilizer supply if there's not enough natural gas feedstock to go around (this is analogous to the cry of "build more refineries!" as if that will magically create more supply).

As I understand it, natural gas is not a sine qua non of fertilizer production; it's merely used now for convenience. All you need is air & water, and energy to hydrolyze the latter and do Haber-Bosch on the former (*). The energy needn't come from natural gas or oil; nuclear, geothermal, hydroelectric, coal, etc., would also suffice.

(*) peakoildebunked.blogspot.com/2007/11/314-peak-oil-and-fertilizer-no-problem.html

Except for one problem.

World usage isn't 10 million barrels a day. US usage alone is 20 million barrels a day, and the entire store at ANWR, at that level of usage is good for... less than ONE year, for us alone.

Even the continental shelf adds in only a couple of years more, and again, just for us.

It'd be closer to adding in, at that 9 million barrels a day (reducing the true level exponentially) another couple of barrels.

We don't have an oil production crisis. We make more than enough oil, though eventually the oil will run out.

What we have NOW is.. commodities traders are using the current political situation and the knowledge that the oil companies have used the crises (both the war and Katrina) as an excuse to boost prices as a means to boost the prices even more by buying, and STOCKPILING oil.

They are trying to get prices to ridiculous heights so that they can then release and sell the oil they have accumulated to make a mint.

This doesn't mean there is no crisis, but the crisis isn't about how much oil we produce. It is about how much oil is LEFT. And how long will it last.

How easily we fall prey to such manipulations of the market, whether by commodities traders now, or by OPEC back in the 70's, and how the best way to both deal with the inevitable (unless you know of a way nature is making more oil.. then feel free to share) depletion of natural oil sources and independence from foreign oil for our own security, both economic and political.

It will take 10 YEARS to get ANWR up and running even if we started today. That's how long it will take to make the pipeline. By then, who the heck knows what the oil situation will be.

We could, instead, just in the interest of long term planning, use that 10 years and that money TO develop those other sources. Because, not even as a small boost, ANWR isn't the answer to anything. It is, at best, like offering a raging alcoholic one shot of booze. Not even enough to satisfy the current DT's, much less to fill his needs for any significant amount of time.

I was just reading a report from an i-bank yesterday that pointed to conventional statistical measures used to measure the phenomenon and they concluded that speculative buying of oil was withn normal bounds and was NOT the cause of the price spike.

pyrrho is making the argument that, because certain prices have gone up rapidly only to sink later, oil would follow this pattern. That's not an argument; it's an extrapolation. And oil-rich countries aren't choosing not to produce enough extra oil to satisfy demand; they are unable to do so.

If it were water, nobody would be procrastinating about how to solve the problem because it isn't going to happen today.

Karen, I think you give our fellow humans too much credit. :-(

I also think "procrastination" is too polite a descriptive. They fail to act because they don't want to spend today's profits on tomorrow's resources. Personally, I think "greed" is much more accurate...