Peak Oil News: U.S. has grown past its ability to meet its oil needs

Tuesday, June 10, 2008

U.S. has grown past its ability to meet its oil needs

By Robert Anderson

With oil prices spiraling up into very disconcerting levels, we need to come to terms on some dire oil market fundamentals.

Due mainly to excessive fuel consumption, we have grown past the ability of the system to supply us.

Peak oil is not a contrived shortage or a conspiracy. We are going deeper for smaller oil deposits. We aren’t discovering giant new fields like we did back in the 1950s and ’60s. And many of those are now starting to deplete.

Our current system of economics won’t solve this problem.

In fact, our faulty economic approach got us into this energy quagmire. We’ve always subordinated energy to economics when it should have been the other way around. These current sky-high energy prices are telling us that our economics of plenty are now getting trumped by basic geologic depletion.

To an economist, future dollars are always worth less because you can invest dollars and earn interest. The same applies to oil property development where property taxes, interest, and other overhead expenses are incurred. You don’t want expenses going out instead of oil income coming in.

So the value of future oil production gets discounted over time. This applies to little stripper wells or huge offshore rigs. Consequently, economics dictate that oil production should be explored, developed, produced, monetized and consumed as soon as possible.

There’s no incentive to retain and conserve our valuable energy resources. In fact, via tax depletion allowances, we accelerated the draining of our oil reserves into very cheap pre-peak economics. We’ll pay a lot more from here on out because we paid too little in the past.

Contrary to conventional economics, post-peak oil production is actually worth vastly more than pre-peak output. But this core fundamental was not even on economists’ radar screen. To them, oil was incorrectly deemed expendable and replaceable. So we developed, pumped and consumed lots of oil at economics that were too cheap and didn’t account for the true future value or pollution costs.

U.S. oil production peaked out in 1970. Our economic signals encouraged maximum oil output and consumption along with all the resultant pollution because economics dictated some other energy supply would flow into the inevitable higher prices. It hasn’t, and it’s time to come to terms with the fact that it might not.

The much heralded invisible hand of free markets has delivered too-rapid energy-resource depletion, sky-high peak energy prices, pollution, oil wars and huge wealth transfers to very unsavory regimes. Unfortunately, the imperative energy solution seems to be invisible as well.

We are bumping upon the limits to growth. We need to start acting like it. Oil is not well.

Robert Anderson is an independent oil market analyst. He lives in Kansas City.


At 5:28 PM, June 21, 2008, Anonymous Anonymous said...

It's been said that the man that knows the most is he who knows what he doesn't know. As I read through this blog, the really scary thing is that these experts (no quotes, and I'm saying this with total respect) are in little agreement and have no idea as to where we are or where we are going. They're dealing mainly with the primary effects of this phenomena, and it's the third and forth order effects that will be most critical. It's all so complicated and very interdependent and very interactive. It reminds me of the literature of 30 or 40 years ago that described the life of survivors of a nuclear holocast. Only I think that this will be much,much worse.


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