Economy restructuring and peak oil
VHeadline.com oil industry commentarist Andrew McKillop writes: World oil demand is increasing at a probable new long term rate of about 2.8%-3.3% annual, close to two times the average annual rate during the long âcheap oil intervalâ of 1986-99.
At the present trend rate of demand growth we get to 88-90 million barrels/day (Mbd) as total world production capacity by 2007-2008.
According to an increasing number of oil analysts and experts this may be an effective and absolute ceiling of world production capacity. This effective peak is due on one hand to increasing rates of capacity loss from depletion (around 1.25-1.5 million barrels/day lost each year).
On the other it is also brought closer by decreasing rates of new or expanded capacity being added, for a variety reasons including generally higher capital costs and much smaller average field sizes. In addition, world discoveries trail far behind world consumption on a yearly base (annual consumption is on average far above yearly discoveries, and is running at about 30 billion barrels consumed for 7.5 billion found).
Under any hypothesis, increasing amounts of so-called âtertiary, synthetic or extreme environmentâ oil production will be needed, at much higher cost and longer lead times, reinforcing the effective limit on peak capacity to around 90 Mbd.
The so-called âfinancial communityâ and notably the presidents of the US, European and Japanese central banks claim that high or âextremeâ oil prices can only depress economic growth, which would lead to a fall in world oil demand growth, or even to zero growth (or a fall) of world oil demand.
In fact the real world, real economy does not operate this way. Increasing oil prices in fact tend to reinforce and increase economic growth at the world level, leading to further oil demand growth. This process will continue until oil prices greatly exceed US$75/barrel, which in constant dollar terms (corrected for inflation and world purchasing power of the dollar) is far below the most recent peak price attained in 1979-1980.