Deinonychus antirrhopus

Well done. When will oil become a buggy whip? I don't know but it will happen.
My take on the current situation is: we have $50 oil now because we had $10 oil in 1998. Gas in my town was $0.89/gal. What caused it? The asian contagion. If you look at the capital budgets for the major's and OPEC they slashed E&P budgets by 33% and diverted the $ to upgrades. Along came China and now we are short capacity.
Are we running out? Reserves of mid east countries are state secrets. Saudi for 20 years has listed reserves at 180-260 B bbl while pumping 60 B out of the ground. 4/21/05 they said we have 360 B bbl and mybe another 200 B in unexplored areas. This is equal to a 100 year supply for total US consumption.
I was in the business. Why is it so hard for the media and Wall Street pundits to figure out? Simple these days people shoot from the hip. Is it a characteristic of the TV society? Why do people no longer get data, study, think etc. They only use data that supports there political agenda.
I guarantee you the smart money crowd and Board Rooms get better data and analysis.
Jay S.

So I presume Drum has gone heavy buying futures? Last I checked (a few minutes ago) 2010 crude and 2011 crude was trading at lower prices than today's. If Drum is correct, there is a mint to be made, no?

Drum: That's a bit dense, isn't it? My life will also be made more difficult by the fact that the galleys don't contain any of the graphs and charts that will show up in the finished product, and I have a feeling those graphs and charts do a lot to make the text more understandable. Sigh.

But I shall persevere, and I expect that shortly I will be a minor expert on the arcane details of carbonate rock formations, Gas Oil Separation Plants, and geostatistical modeling. I'll bet you can hardly wait.

I assume this is some sort of attempt at self-mocking humor? If not, however, it does explain why he is so much smarter than the market. I would imagine that becoming a minor expert on geostatistical modeling -- without the aid of charts and graphs, no less! -- in a few days requires an extremely keen intellect.

That is truly impressive. I'm going to go out and buy some oil futures. If a man that smart says it, it has to be true.

Victor:

You might wanna stock up on wood futures, too.

I seem to recall reading an article from a few years ago describing what economists at the turn of the 19th Century were saying about the future. And one of the things that they were worried about was a shortage of wood.

Why?

Because wood was essential for railroad ties. And since everyone in the world (even in Africa, South America, and China) were busily building railroads, it was obvious that the expansion of the world's rail networks would be dependent on finding the right kinds of wood necessary for railroad ties.

You might stock up on copper, too. After all, all those countries that are industrializing are going to need copper to build their nation's telephone lines with. My old economic forecasts (circa 1955 or so) said that copper would remain a key strategic resource.

Jay S:

I think part of the silliness is the belief that the 1000-pound guerilla of Chinese economics means that even a 100-year supply of oil in Saudi Arabia will evaporate quickly, as the Chinese industrialize. That, and the intuitively more appealing idea of Malthus.

It's easy to overlook the additional problem that compounding of demand creates for a (perhaps) fixed supply.

That is, assume there is 100 year supply, at current world usage rates. But further, assume demand increases at 5% a year. That '100 year supply' gets exhausted in little more than 20 years, iirc. I'll check how close that remembered figure is a little later.

DOUBLING the alleged figure, assuming it's a full 200 year supply (at current usage rates), doesn't add much time in the face of a 5% annually compounding usage rate.

sofla:

But your example begs the question: Is it a fixed supply?

For example, if oil is $90/bbl, and it becomes economical to extract oil from oil sands or shale, has that increased the supply? The oil was there, but not worth extracting at $25/bbl.

In our lifetimes, oil that was at the bottom of the Gulf of Mexico, the North Sea, and the California coast went from unobtainable to worthwhile, due to a combination of changes in technology and prices. Does that mean that the supply of oil went up?

Conversely, some areas have been declared off-limits for oil drilling (ANWR, until recently, and the Georges Bank off Newfoundland). Does that mean the oil supply dropped? Did it remain fixed?

I can't speak for Kevin, but I can speak for myself (I'm the referenced post on that item) and I am not gloom and doom on oil.

I am however, of the belief that cheap oil is coming to an end, and that has ramifications both in terms of investments and society in general, especially since many so people have framed their lives around cheap oil.

I framed my youth around cheap oil...

No wait, that was cheap beer I framed my youth around. My bad.

We will never run out of oil. The oil sands in Canada are but one example of substitution that WILL go on if the price of oil goes high enough. Oil shale is another, the Rockies are littered with it.

If things get really out of hand, oil companies will resurect Nazi technology that turned coal into gasoline. The US has more coal than the Saudis have oil.

The real question isn't if oil is running out. The real question is do carbon dioxide emissions lead to global warming, and if so, do we WANT to keep relying on hydrocarbons for energy. To me, high energy prices are great because they make it economic to conserve energy. Eventually, C02 emissions will go down. High prices also makes nuclear power more attractive, and maybe even fringe technologies like solar and wind power.

As a Mechanical Engineer, high energy prices are great, because they drive innovation in my field.

We're not running out of "energy," we're running out of cheap petroleum, for which there is no good substitute at anywhere near close to the price.

People say "if we can put a man on the moon we can find an alternative to petroleum." What a wonderful example. We may have put a man on the moon, but we NEVER FIGURED OUT HOW TO DO IT INEXPENSIVELY.

I remembered incorrectly.

A 100 year supply at current usage rates, subject to a 5% annualized increase, would be exhausted in the 37th year (almost double the time I misremembered, but fully 63 years earlier than the 100 year date one might suppose if one is told there is a 100 year supply at current rates of usage and if growth in demand is neglected).

But, the issue is correctly raised, what if the figure is many times the known or 'proven' reserves?

The answer is it doesn't make much difference, if compounding of demand continues, as I said before (but using the wrong numbers).

The calculation shows a 200 year supply at current usage rates, subjected to an annual increased demand of 5%, is exhausted between years 49 and 50. That is, a doubled supply figure, supposedly out 100 years more than the first assumed 100 year figure, buys all of 12 years more than the first case.

We could assume 500 years worth of supply at current rates of usage, and STILL blow through it in a couple generations if the rate of usage compounds in this way. We all know the story of the strength of compound interest. Its equivalent is at work in chewing up the 'x amount of years worth of reserves' in an astonishingly short period of time.

No credibly purported amount of supply can withstand such compounding for long, so the key should be a reduction of the increase in demand, not an increase of supply.

sofla:

And in a couple of generations, of course, nothing will have changed.

What was the period required for the horse to give way to the automobile? Or the fiber-optic cable to replace the copper wire?

Exactly why would you assume that, as petroleum becomes more expensive, there would be neither increased production (of, for example, what are currently marginal fields, more expensive techniques, etc.) nor decreased consumption (due to, say, a combination of R&D, substitution, and conservation) nor increased innovation?

This is like the "analyses" that conclude that a China that continues to grow at its current rate in 25 years will own the entire planet (and strip it down to the bedrock). Yes, I suppose that's conceivable. But under what conditions would we assume that China (or any other country) would grow at the same rate for 25 years? Especially when politically its history is one of tumult and change?

But, out of curiosity---Would you bet with Julian Simon or Paul Ehrlich?

Dean asks Sofla: "Exactly why would you assume that, as petroleum becomes more expensive, there would be neither increased production (of, for example, what are currently marginal fields, more expensive techniques, etc.) nor decreased consumption (due to, say, a combination of R&D, substitution, and conservation) nor increased innovation?"

That's easy, Dean. Because Sofla doesn't understand basic economics.

I was not predicting anything for the future, Dean. I mention the issue of compounded usage rates to counter the irrational sanguinity of those who say that it is likely the recoverable supply of oil is so much greater than now estimated that regardless of growing demand, we have a supply for a hundred or more years out, and hence, no imminence to a shortfall of supply.

The numbers are shockingly unintuitive.

100 year supply? Gone in 37 years
200 year supply? Gone in 49 years
500 year supply? Gone in 67 years
1,000 year supply? Gone in 81 years
2,000 year supply? Gone in 95 years

Other than the abiotic oil theorists, I think the most optimistic view I've seen is for somewhere around 'a 500 year' supply (at current usage rates). Which would seem to moot the question of any imminence, except when shown that a (not unreasonable?) 5% compounded rate of increased usage reduces that time frame by almost 90%.

My point is that the fix must be on the demand side, that no credible amount of purported higher supply makes much difference.

Yes, of course, the price points, the ever increasing marginal costs of greater production and refining of lesser quality or contaminated production, the substitution effects, etc., will eventually trim increases in demand for oil, and perhaps even reduce demand for oil in absolute terms. A global recession, or a significant reduction of overall economic growth, as energy prices rise, will have the same effect.

The trackback isn't working. Those interested should head on over to voluntaryXchange for a discussion of geobioreactors.

In short - what if we can make natural gas by pumping club soda into the ground. It sounds crazy, but now there is evidence of why this works.

sofla:

So, I take it, you'd be betting with Paul Ehrlich? After all, that 5% compounded annually thing would seem to weigh the odds heavily in your favor, no?

Out of curiosity, though:

What has been the rate of growth in demand for oil since, say, 1960?

And what was the proven oil reserves at the time?

And most of all, given the rate of economic growth since 1960, including not only the United States and Europe but East Asia and South America, shouldn't we be out of oil by now?

I'm not predicting the future, either. I'm just wondering about how valuable these calculations are, in light of what we know of the past.

Speaking of technology Alexander Haig recently had a company on his show that says they can find oil and natural gas structures from the air. Watch the archived segment called Energy Exploration Technologies:

http://events.reflectsystems.com/clients/wbrtv/

Dean, I thought the Julian Simon/Paul Ehrlich bet was already decided, and indeed, it was, with the five metals' prices Ehrlich picked to be higher in some (10?) years, actually declining over that time instead. So naturally, I'd take Simon's side on that one (my idiocy having some limits).

Looking for another bet between them, evidently they didn't agree on the terms, so there is no extant Simon/Ehrlich Two bet to take sides on. However, of the 15 or so conditions that Ehrlich offered Simon to bet on in a second wager, a casual reading through them, comparing the early '90s to the early '00s already passed now, would appear to make Ehrlich correct on almost all of them.

Ehrlich seems not to have understood the recycling angle on metals, that they are not consumed permanently and altered into something else, but rather materials fabricated with metals, once obsoleted, are readily recyclable. (Of course, that is not true with petroleum products, in the standard account).

Your question about historical usage patterns is a good one. Do you know the answer? Recently, I found a reference to Carter's moral equivalent of war in the energy area, and in his national address, he said the world used twice as much energy in the '60s as it had the '50s, and twice what it had in the '60s in the '70s. A doubling rate of 10 years implies about a 7% annualized rate of increase.

Just because the boy falsely cries wolf doesn't mean a wolf will never come, just that it is understandable to disbelieve the cry of alarm and ignore it. But some Cassandras, as in the case of the original Cassandra, are right.

Some of these issues can and will be put to scientific tests. Boone Pickens recently noted that the world is using about 84 mbo per day. He suspects that this might be the peak. Walter Youngquist will have a new edition of GeoDestinies coming out soon. He may have more to say about so-called "shale oil". I have read that Southwest Airlines was buying futures when oil was cheap, possibly hedging several years consumption. United and other airlines are not so lucky. Some uraniun and metal stocks have been doing well. Is anyone following Suncor? Ford and GM are doing less well. There have been failed predictions in both directions. A few years back The Economist promised $5 oil. Bjorn Lomborg suggested that all sorts of wonderful things woud happen if oil ever reached $40. Micheal C. Lynch made a few bad price predictions. The next few years should be interesting.

According to the energy charting applet at http://www.bp.com/sectiongenericarticle.do?categoryId=2010516&contentId=2015065 it shows that proven reserves in 1980 were 669 billion barrels. Production ranged from roughly 59 million barrels per day in 1980 to 74 million in 2002. Proven reserves in 2002 stood at 1,145 billion barrels.

Allen do you know how BP obtains the data for "proven reserves"? Are you familiar with the "quota wars"? A major theme of Matthew Simmons papers has been the accuracy of data from Saudi politicians and others.

My take on the situation: You can't predict the future, but I could make a case that we run out of oil in 2325 give or take a few years. Yes, that's year 2325. How much oil type stuff is out there? To find out first check the definition of oil. Oil is: you drill a hole and how much oil flows to it? That's oil and the definition changes with time, economics, etc. EOR is the game in the US. Oil reserves in world are around 1.5 trillion bbl (and growing). Data source BP web site Annual Global Oil Report. Its been growing almost every year since they started doing the report. Total world oil type stuff (heavies, oil sands, oil shale etc) is 6-8 trillion and growing per Exxon CEO 12/8/04. Doesn't include coal, gas, wood, sugar cane etc. Remember my '47 Chevy would run on coal dust.

Oil is $50 bbl because we didn't drill enough holes in 1999-2004.

As a science type person, I think oil will be a buggy whip by 2325.

What me worry?

Some how the world never ends as many predict. I think it's the good Lords plan, in 50 years we won't be shivering in a cave because we ran out of oil. Global warming will have kicked in by then and we will be on a beach in the sun. Bring on paradise, if only it were true.

Like my Mom in Florida, "don't drill off the beach", but turn off her air conditioner and in 2 seconds she will have the head of the person responsible for not drilling off the beach. Same with the anti-crowd in California. There is 22 B bbl oil of stranded oil in California. Enough to supply them, what? 25-30 years.

We use lots of oil because its cheap. My 60 mile trip to work is an example and I am not planning to move closer.

Bush was holding hands with the Saudi prince and (I hope) casually mentioning that the 3rd is currently unemployed. Saudi's announced on 4/21/05 an "aggressive exploration program".

Jay S.

Jay, do you have a reference for the 22 B bbl of stranded oil in California?
http://www.hubbertpeak.com/us/ca/

To: yportne - re: Stranded oil USA p. 5 Oil & Gas Journal 4/25/05.
Another Calif article. in OGJ, L.A. new oil success p.24 8/9/04

Jay S.

To: yportne - re: Stranded oil USA p. 5 Oil & Gas Journal 4/25/05.
Another Calif article. in OGJ, L.A. new oil success p.24 8/9/04

Jay S.

Half Sigma,

We're not running out of "energy," we're running out of cheap petroleum, for which there is no good substitute at anywhere near close to the price.

People say "if we can put a man on the moon we can find an alternative to petroleum." What a wonderful example. We may have put a man on the moon, but we NEVER FIGURED OUT HOW TO DO IT INEXPENSIVELY.

I disagree with both claims. Sure, if you spend billions of dollars putting 20 or so people on Moon, then you can't do it inexpensively. But once you put a million people on the Moon, you can put a person on the Moon inexpensively. In a similar fashion, when alternative fuels and energy sources are produced in volume, we could see prices comparable to cheap oil, which incidentally might not be that cheap any more.

Jay, I looked at the study you mentioned from the 4-25-05 OGJ on "state of the art CO2 injection". As you probably know statements from the DOE are often met with some skepticism. Words and phrases used in the press release included might (several times), exterpolation and technically recoverable potential. I read 5.2 B bbl for CA. The 22 B bbl figure may have been their guess for oil in place?? EROEI was not discussed.
-Do you trust the pronouncements from OPEC countries on 'proved reserves'?

yportne A complement. Sounds like your from Missouri - Show Me. I am.
I agree on all 4 of your comments. But we do know CO2 works, we do know there is stranded oil in Calif., we do know DOE is a government agency and out of the knowledge loop and OPEC is a bunch of .....
Of course No one knows how much recoverable oil is down a hole after it's drilled and operated for a while. Its all guesstimates.
This current situation "feels like to me" very similar to what was said during the previous boom-bust oil cycles. This time may be different but I doubt it. I don’t see any information to say its different. Body language from the majors and OPEC tell me they think it won’t last. The only people buying marginal assets that are economical at $50 bbl oil are the Chinese.

What’s you take?

Jay S.

Ps – Concerning your question to Allen on how BP gets the data, I would like to know also. Why not give the man (Chief Economist at BP) a call, I have his name somewhere, not his number. He may answer the call. Worth a try.

For what its worth USGS appears to be closer then DOE on energy estimates.

See the Dec. 20, 2004 OGJ (and previous year end issues), for a discussion of how reserves are reported. The last I heard BP simply parroted the OGJ. Is it misleading to suddenly include Canadian oil sands as reserves? If they are to be included should there be some backdating to true dates? Campbell, Laherrere, Ivanhoe and others have addressed similar questions. See for example the first two issues of the Hubbert Center Newsletter at http://hubbert.mines.edu Should we necessarily trust Saudi leaders and individuals such as Saddam Hussein when they suddenly announce that their reserves have almost doubled? I recall being perplexed by the reserve increases reported in the late 80's. It was some time later that I learned about the OPEC quota wars.

Karl Hallowell,

"But once you put a million people on the Moon, you can put a person on the Moon inexpensively."

Millions? How many people have we put on the moon since 1972? ZERO! NADA! NO ONE! Some things never get any cheaper.

More and more people are going to college, yet the price goes up!

Easily extracted oil is a finite resource that's being used up.

Difficult to extract oil exists in greater quanities, but it will cost more because it's difficult to extract.

The age of cheap oil is over.

We have seen this over and over again. In the early 80's the age of cheap oil was over. In the mid 80s oil prices collapsed and did not increase for years. Oil prices started to turn around and the end of cheap oil was declared in 1996. In 1998 the price collapsed again. Is anyone seeing a trend here? Some operators are still using a price of $25 per barrel to run project economics. They doing this because they have seen "the end of cheap oil" a number of times. They have taken a substantial financial beating in the earlier "ends of cheap oil" and they don't want to have that happen again.

I suspect the reason some of the oil sand reserves are being booked now is because they are starting to be developed. This development / extraction provides a better idea of what the reserves are and makes it easier to book reserves under SEC rules.

half sigma,

Millions? How many people have we put on the moon since 1972? ZERO! NADA! NO ONE! Some things never get any cheaper.

But of course, we haven't bothered to put people on the Moon since then either. The key as I mentioned before is volume. Besides zero people seems a rather small test sample.

More and more people are going to college, yet the price goes up!

The subsidy keeps going up too. And it does appear that the value of a college education is increasing as well. So it isn't clear to me that you are spending more for the same thing.

Difficult to extract oil exists in greater quanities, but it will cost more because it's difficult to extract.

But will it cost then than oil does now? I don't see the guarantee.

"In the early 80's the age of cheap oil was over."

People who said that in the early 80s had some political axe to grind. They were liberal environmentalists opposed to technological progress. The oil in most producing regions hadn't even come close to peaking in the 1980s.

But now all oil producing regions are peaking, with the Middle East last to peak. Just like the lower 48 states U.S. oil production peaked in 1970.

Half sigma,

Many of the people pushing peak oil today have a political axe to grind also. They are the same liberal environmentalist you talk about in your post.

Half Sigma is right.

Back in 1956, M.K. Hubbert developed a clever analysis to predict that US oil production would peak around 8-9 mbl/day in the 1970-72 period, and he was almost precisely correct. And despite much higher prices in the 1972-1980 era, U.S. oil production declined throughout that decade and has continued to decline up to the present.

Using the same analysis today, global oil production is very close to peaking around 86-87 mbl/day, and when production peaks it will decline steadily NO MATTER WHAT THE PRICE OF OIL.

The simple calculation is that you have to find oil before you can produce it, and net new annual oil discoveries peaked around 1980 and have been rapidly declining ever since. Today, we have produced and consumed approximately 1/2 of all of the oil ever found - in Hubbert's methodology, the 50% production/consumption mark is pretty much where annual production peaks.

Please note what this doesn't say, and what it does say: (1) it does not say the price of oil is going to $1,000 per barrel - it says that annual production of oil is about to peak around 86 or 87 mbl/day and will not go up from there no matter what the price - a global recession brought on by high oil prices would REDUCE DEMAND in line with supply and that would lower prices, (2) there are other good sources of energy such as nuclear, natural gas and coal - but in the short-to-intermediate run, you can't run the transportation system on anything but gasoline derived from crude oil, and (3) the oil discovery and reserve data is reasonably accurate and the analysis is robust to minor errors in discovery and reserve estimation - the fact is there haven't been any huge oil fields discovered since about 1980 and without several of those mega-giant fields newly discovered, production of oil is going DOWN starting sometime in the 2005-2009 period.

Last, I worked on the Exxon/TOSCO Colony Shale Oil project for general contractor Brown & Root (pre-Cheney, lol) back in 1980-81. It was a disaster for too many reasons to go into, and while minor improvements have been made with in situ retorting, oil shale is not going to save us nor will Canadian tar sands either. The era of cheap oil is over, though there will be occasional cyclical declines when the global economies fall into recession.

Using the same analysis today, global oil production is very close to peaking around 86-87 mbl/day, and when production peaks it will decline steadily NO MATTER WHAT THE PRICE OF OIL.

Not quite. We have already had one peak and production rose again. The problem for Hubbert enthusiasts is that they tend to be sloppy in their terminology and think that there is only one peak.

I don't have a political axe to grind. I'm not against energy. I support developing nuclear power. I don't care if animals living in northern Alaska have to see a few drilling rigs while they're wandering around.

But for some weird reason it has become unpatriotic to acknowedge the truth, that the cheap easy oil that our planet has to offer is close to being used up.

I think that oil has to reach at least $100/barrel in order for use of it to decline and for really significant advances to be made in mining non-traditional oil like tar sands.

My money is where my mouth is. Most of my life savings are invested in oil and gas stocks. Are people who believe that the price of oil is going back down to $25 shorting these stocks or selling oil futures?

Steve: Sloppy is a little pejorative for a forecasting approach that worked so incredibly well 14 years before the fact . . . . . yes, it's true that although NA crude oil production peaked in 1970-72 and declined steadily thereafter, there were a couple of years in the late 1970s when there were small sequential upticks in production as the North Slope came on - but if you look at the Hubbert Curve plotted over time, it fits North American production with an R^2'd well over 0.8, and the fit is likely to be just as good with global oil production.

It's not that the cheap easy oil has been "used up" - we've only used about 1/2 of the net reserves discovered to date - but that's where the peak in annual production tends to occur, and it's undeniably close to occuring now. If you look at the IEA data, global oil production capacity has grown very little over the past few years, and today all the OPEC nations except the Saudi's are producing at sustainable capacity. Even the Saudi's are within 1-2 mbl/day of their sustainable capacity, and it's possible or even likely that the 1-2 mbl/day of excess Saudi capacity is high sulfer or heavy oil that's not that valuable on today's market (because there's a shortage of refineries that can process bad crude).

Fortunately, we will know the answer soon. If the global economy doesn't encounter a recession in 2005 or 2006, natural oil demand will grow from its current 85 mbl/day up into the 90s - if the Hubbert theory is correct, global oil production will probably never top 90 mbl/day.

Gentlemen, place your bets.

Anarchus, this sounds like a great idea. I happen to be a participant on the Foresight Exchange a reputation-based betting market, and I'd love to create a claim on the maximum amount of oil produced in a year. Currently there are several claims on when a peak will occur, if it occurs, but nothing on how high the peak will be.

For example, the year of "peak" oil (followed by two years with consecutive declines in oil production of 3% or more) is forecast to be roughly 2009-2010. The chance that this event occurs by 2020 is 83-85%.

My question, Anarchus. Is this peak estimate officially published somewhere that I could cite or link to? Or is it an informal estimate by you?

Half Sigma,

A bit of advice from somebody who works in the oil business. Putting all of your life savings in one group of stocks is probably not wise. Putting all of them in something as volatile as energy stocks is probably double plus unwise.

The comments about oil running out may be true--on a geologic time scale. On a human life scale I would not bet my retirement on it.

Your comment about oil needing to be $100 per barrel for significant advances mining non-traditional oil like tar sands indicates to me you may have some misunderstandings about oil production or have been unduly influenced by the peak oil folks.

Oil production from tar sands has been steadily increasing because there is money to be made. This increase began before the current run up in oil prices.

My primary concern / question about the peak oil is that the current oil prices look like a bubble to me. There are threats to oil production but supply looks adequate at this time and the high oil prices do not seem to be justified by basic supply and demand issues at this time. Conditions seem similar to what they were before the other major prices busts oil has seen in the past twenty years.

If I'm right a lot of people are going to get killed in the commodity / stock markets betting on higher oil prices. If I am wrong we have a few problems to deal with.

My other concern is that if this continues the solutions people will use to fix high oil prices will makes things worse. Things like windfall profits tax, and expensive government boondoggle projects are not going to help things.

I have read that Boone Pickens and his associates http://peakoil.com/article3982.html are betting 10's of millions that the world peak will be around 84 million bbl a day. He might be hurt if the price falls.
Incidently Hubbert's original prediction was for the lower 48. He did not have discovery data for Alaska or deep offshore thus could not evaluate these areas scientifically.

Anarchus,

R-squared numbers while not meaningless are not as important as you seem to imply. My problem with the Hubbert curve is twofold. One it is ad-hoc as I note in the post linked at the end of the extended entry. Second, it is being misused by the Hubbert enthusiasts who are using it to predict some sort of world wide catastrophe. We have never gone through a complete Hubbert cycle, and while that doesn't mean we never will, it doesn't bode well for those who think we must this time around.

Not sure I see the reason for the hue and cry. Oil is finite, eventually we'll use it up. So? SUVs will become prohibitively expensive to drive, plastics will get made from corn oil, Priuses will sell like mad, and there will be a gazillion articles in the legacy media about how American culture is "downsizing its expectations" and "discovering that less is more and small is beautiful."

I'm not sure how this becomes a world wide catastrophe. but lefties do love predicting those.

This site has many good comments. I enjoyed reading them.

For the Hubbert curve folks – How do you know where you are on the curve?

The Hubbert curve is like any business cycle curve, born, develop, grow, harvest, die. We know where GM is on their curve, they have made the big turn and are headed into the great beyond. But where is Exxon, Intel, or oil as a commodity? They are still growing.

How do you defined oil? You can make oil from coal, you can make liquids from gas. Do you count the 170 B bbl of heavies in Venezuela. Oil sands, oil shale, gas hydrates.

Plus what is meant by cheap oil?
When I was a kid oil was $3 /bbl. and gasoline was ~ $0.25-0.27 /gal. Using the CPI to adjust inflation, that puts oil today worth ~ $20 –22/bbl and gasoline ~ $1.80 – 1.95 / gal. The CPI index was ~27-30 when I was a kid and today CPI index is ~ 195.

So $25 oil today is the same price as 40 years ago.

To say we have reached the peak is to discount all the data that’s out there. That’s fine if you have inside knowledge. If not its like winning the SweepStakes.

In the book The Prize by Daniel Yergin, the volatility of oil prices is discussed. After the East Texas field came in the price fell to 10 cents a barrel and Yergin notes that some oil traded at 6 and 2 cents. There can be hidden price increases when the discounts for the undesirable heavy high sulfur are lowered.
-There is sone disagreement about the definition of 'conventional oil'. But it certainly doesn't include that manufactured from coal.
-Simmons suggests that a rear view mirror may be necessary to determine the true date for peak oil. See: http://www.odac-info.org/PeakOilUKConferenceProceedings.htm

http:/csis.org A Sam Nunn think tank has 2 long pdf's concerning Saudi oil. Lots of facts. My conclusion of their conclusion is ..."they don't know".
http://csis.org/features/050420_SaudiOilCapacity.pdf
http://csis.org/burke/saudi21/050428_SaudiOilCapBrief.pdf

There statement of the Bush - Saudi Texas ranch meeting is:
Abdullah-Bush Texas Summit
The US “signaled” to the Saudis that it wanted a commitment to increase oil supply in the short-run to ease the high oil
prices.
Saudi Arabia reiterated that it thinks that one of the reasons for the high gas prices is the bottleneck created by aging US
refineries. Possible Saudi investments in US refineries.
The Saudis presented their plan to invest $50 billion in the energy sector to increase production capacity to 12.5 million
bpd by 2009 and to reach 15 million bpd within 15-20 years.
The joint statement said, “Both nations pledge to continue their cooperation so that the oil supply from Saudi Arabia will
be available and secure. The United States appreciates Saudi Arabia's strong commitment to accelerating investment and
expanding its production capacity to help provide stability and adequately supply the market.”

The price of oil in Euros has hardly moved.

It is the dollar price that has spiked.

The "problem" is a monetary problem not a supply problem.

Is there any reason why we couldn't have monetary problems and peak oil? The worst of both worlds?