Posted by Jessica Collins.
Consumers grumble about rising gas prices. The price of goods – inputs, outputs, intermediates – escalates; businesses struggle. As the price of oil steadily climbs to an all-time high and U.S. currency, markets, and overall economy are left to suffer in its wake. You think it’s bad now? The situation may be getting worse.
In addition to being the backbone of the global economy, oil is a non-renewable commodity whose demand curve has increased steadily over the past two decades.
Lead by population supergiants China and India, the world has embarked on an unmatched boom in global industrialization (read: oil consumption) that has forced the price of oil up 56 percent to-date in 2008 and over 365 percent over the last decade. [1]
Source.
In addition, analysts estimate combined global demand will exceed 120 million barrels per day (bpd) in 2030, an astonishing 41 percent increase from current production levels. [2]
The problem? The world may not have enough oil to go around. Will we completely run out of oil? Not likely. Many have dismissed the idea that the global community could ever completely deplete the world’s oil supply. However, it’s not extracting that last drop of oil that will send the world into its biggest energy crisis in history. Not even close. The true turning point occurs when the gap between the demand for oil and its accessible supply becomes so great that the resulting price brings the world economy to a grinding halt. Unlike previous energy shocks of past decades, this unprecedented energy crisis is based on accelerating global demand, rather than sudden, short-term interruptions of supply. The result? “A long period of significant hardship worldwide.” [3].
Don’t think it could happen? Assuming a daily consumption of 21 million barrels per day, at $135 per barrel, the U.S. alone spends approximately 15 percent of its $6.8 trillion net income on oil. Increase the price to $200 per barrel and the percentage of take-home income spent on oil increases to 22 percent. “In other words, the U.S. [could be] broke long before oil prices hit $200 per barrel, and the rest of the world is sure to follow.” [4]
This is not just a problem for our children’s children. Several key figures in the oil and gas industry, including the CEO of France’s Total Petroleum and the CEO of Royal Dutch Shell, have recently expressed concern about the situation. [5],[6]. Even ExxonMobil, which continues to post strong financial performance, recently reported a 6 percent decline in production and have readjusted long-term reserve projections. [7]
Think this is only a problem for SUV owners and Big Oil executives? Think again. Every aspect of modern life depends on oil. Never mind that virtually every type of good is brought to market using oil-based transportation – food, water, modern medicine, and all technological devices rely on oil and oil byproducts. As explained by commentator Robert Wise:
Nearly all the work done in the world economy, all the manufacturing, construction, and transportation, is done with energy derived from fuel. … And, the lion’s share of that fuel comes from oil and natural gas, the primary sources of the world’s wealth. [8]
While higher oil prices will stimulate the development of additional oilfields, the remaining oil is difficult to produce, expensive to extract and refine, and is owned by a small majority of the world that seems to hate everyone else – or, at least, the U.S. Moreover, while new production may slow the decline in production, it cannot completely prevent it.
What about ‘alternative energy’? Some alternatives, like natural gas, have showed promise, but it too is a limited-supply fossil fuel. [9] Further, all of the current ‘viable’ sources of alternative energy (e.g., wind, solar, biofuels, biomass, hydrogen, and even nuclear) are extracted, collected, generated, or otherwise based, in whole or in part, on oil and oil-based fuels. [10] In addition, not one alternative energy technology is currently suitable for wide-spread commercial implementation. Even if the technologies themselves were ready to be implemented, the necessary infrastructures are primitive, if present. Implementing alternative energy sources is, at best, daunting: it requires massive short- and intermediate-term investment and represents a massive drain on the dwindling pool of global capital.
The global shift to alternative energy sources is inevitable. The challenge, then, is to execute the transition seamlessly and efficiently by appropriately allocating capital to winning sustainable alternative technologies thereby permitting the global economy to maintain reasonable growth levels. On the other hand, inefficient execution of this crucial transition will almost certainly result in a severe depletion of global capital, leaving little or no financial resources for investment in other areas of the world economy.
Financial Market Commentary 
Peak Oil Theory and the Energy Crisis: Not Just for SUVs Anymore
Posted by Jessica Collins.
Consumers grumble about rising gas prices. The price of goods – inputs, outputs, intermediates – escalates; businesses struggle. As the price of oil steadily climbs to an all-time high and U.S. currency, markets, and overall economy are left to suffer in its wake. You think it’s bad now? The situation may be getting worse.
In addition to being the backbone of the global economy, oil is a non-renewable commodity whose demand curve has increased steadily over the past two decades.
Lead by population supergiants China and India, the world has embarked on an unmatched boom in global industrialization (read: oil consumption) that has forced the price of oil up 56 percent to-date in 2008 and over 365 percent over the last decade. [1]
Source.
In addition, analysts estimate combined global demand will exceed 120 million barrels per day (bpd) in 2030, an astonishing 41 percent increase from current production levels. [2]
The problem? The world may not have enough oil to go around. Will we completely run out of oil? Not likely. Many have dismissed the idea that the global community could ever completely deplete the world’s oil supply. However, it’s not extracting that last drop of oil that will send the world into its biggest energy crisis in history. Not even close. The true turning point occurs when the gap between the demand for oil and its accessible supply becomes so great that the resulting price brings the world economy to a grinding halt. Unlike previous energy shocks of past decades, this unprecedented energy crisis is based on accelerating global demand, rather than sudden, short-term interruptions of supply. The result? “A long period of significant hardship worldwide.” [3].
Don’t think it could happen? Assuming a daily consumption of 21 million barrels per day, at $135 per barrel, the U.S. alone spends approximately 15 percent of its $6.8 trillion net income on oil. Increase the price to $200 per barrel and the percentage of take-home income spent on oil increases to 22 percent. “In other words, the U.S. [could be] broke long before oil prices hit $200 per barrel, and the rest of the world is sure to follow.” [4]
This is not just a problem for our children’s children. Several key figures in the oil and gas industry, including the CEO of France’s Total Petroleum and the CEO of Royal Dutch Shell, have recently expressed concern about the situation. [5],[6]. Even ExxonMobil, which continues to post strong financial performance, recently reported a 6 percent decline in production and have readjusted long-term reserve projections. [7]
Think this is only a problem for SUV owners and Big Oil executives? Think again. Every aspect of modern life depends on oil. Never mind that virtually every type of good is brought to market using oil-based transportation – food, water, modern medicine, and all technological devices rely on oil and oil byproducts. As explained by commentator Robert Wise:
Nearly all the work done in the world economy, all the manufacturing, construction, and transportation, is done with energy derived from fuel. … And, the lion’s share of that fuel comes from oil and natural gas, the primary sources of the world’s wealth. [8]
While higher oil prices will stimulate the development of additional oilfields, the remaining oil is difficult to produce, expensive to extract and refine, and is owned by a small majority of the world that seems to hate everyone else – or, at least, the U.S. Moreover, while new production may slow the decline in production, it cannot completely prevent it.
What about ‘alternative energy’? Some alternatives, like natural gas, have showed promise, but it too is a limited-supply fossil fuel. [9] Further, all of the current ‘viable’ sources of alternative energy (e.g., wind, solar, biofuels, biomass, hydrogen, and even nuclear) are extracted, collected, generated, or otherwise based, in whole or in part, on oil and oil-based fuels. [10] In addition, not one alternative energy technology is currently suitable for wide-spread commercial implementation. Even if the technologies themselves were ready to be implemented, the necessary infrastructures are primitive, if present. Implementing alternative energy sources is, at best, daunting: it requires massive short- and intermediate-term investment and represents a massive drain on the dwindling pool of global capital.
The global shift to alternative energy sources is inevitable. The challenge, then, is to execute the transition seamlessly and efficiently by appropriately allocating capital to winning sustainable alternative technologies thereby permitting the global economy to maintain reasonable growth levels. On the other hand, inefficient execution of this crucial transition will almost certainly result in a severe depletion of global capital, leaving little or no financial resources for investment in other areas of the world economy.