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Economy
Peak oil already arrived in 2006
Warnings that the capacity for global oil production is soon to drop off were wrong: it’s not soon, it’s now
By Kevin Potvin
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Energy Watch Group is a Germany-based group of independent scientists and energy experts who this month released a report that includes nearly 100 pages of exhaustive technical analysis of every oil producing field in the world and every known and proven reserve.
The report concludes that global oil production has already peaked at about 83 million barrels per day some time in 2006. They predict that global production will now fall every year, including this year, even with a quintupling of production in Canadian tar sands and new discoveries and developments elsewhere in the world. By 2020, they predict only 58 million barrels will be produced per day, and 39 million barrels per day by 2030. These predictions are made without regard for how high the price of oil goes in the meantime because their analysis is based solely on the technical limitations of oil production and its availability.
The group chose not to speculate about where the price of oil would go as peak production declines an average of 2% per year beginning this year. Last week, the price topped US $90 per barrel before settling back to $87 as of this writing, up from about $65 at the end of 2006.
But we can speculate. A 2% drop in the total capacity of global oil production may have been responsible for this year’s 33% rise in the price of a barrel. Two main factors produce pressures both up and down on that price: less oil for buyers pushes the price up, but a higher price pushes more buyers out of the market, providing a tempering effect on extreme price rises.
According to government and oil company sources in Canada, about 60¢ of the current price of about $1 for a litre of gasoline is unrelated to the price of oil at the wellhead. This portion is represented by refining costs, taxes, shipping etc. and will likely remain the same. It is the remaining 40¢ portion of a $1 litre that is represented by the price of oil at the wellhead, and that portion is what may rise 33% per year as peak production drops 2% per year. This could mean that by mid-2012—the anticipated completion date for the expansion of Highway One, for example—the price of a barrel of oil could be as high as $350 and the resulting price of a litre of gasoline may be as high as $2.26 per litre. The average full tank fill-up at a gas station would therefore reach as high as $160 from the current $68.
Put another way, a round trip from Langley to Vancouver, such as might be taken every day for work by a commuter using Highway One, today costs $11.29 in gasoline costs, or about $2,500 per year if we assume 220 work days. By the time the new double-wide Highway One is open in 2012, that same commuter will be spending $25.50 per round trip for gasoline, or $5,600 annually for their work commute, for a rise of $3,100 over what she is paying in gasoline costs this year.
Put yet another way, the cost of a 3-zone bus pass is currently $3,300, or about 32% more than the cost of gasoline for the same commute. With no further price hikes for the bus, it will end up $2,300 cheaper than gasoline, or about 41% less by 2012. There will therefore likely be far more demand for buses than for space for cars on the highway by 2012, and there will also likely be sufficient space for those buses in the absence of so many cars on the highway as it exists today. The expansion of Highway One is destined therefore to be an enormous white elephant the day it opens.
It is also likely that those who continue to commute by car in the absence of sufficient buses will take the increased costs out of other budgeted items like meals at restaurants and bars and purchases at small businesses, spelling economic hard times for the local economy.
The Energy Watch Group did release other conclusions that hint at such social and economic changes, and these are worth quoting in their entirety:
“This [the decline in oil production] will create a supply gap which can hardly be closed by growing contributions from other fossil, nuclear or alternative energy sources in this time frame. The world is at the beginning of a structural change of its economic system. This change will be triggered by declining fossil fuel supplies and will influence almost all aspects of our daily life.
“The now-beginning transition period probably has its own rules which are valid only during this phase. Things might happen which we never experienced before and which we may never experience again once this transition period has ended. Our way of dealing with energy issues probably will have to change fundamentally.
“The International Energy Agency, until recently anyway, denies that such a fundamental change of our energy supply is likely to happen in the near or medium term future. The message by the IEA, namely that business as usual will also be possible in future, sends a false signal to politicians, industry and consumers—not to forget the media.”
We can detect the reception of just such an array of false signals in our own local politicians, industry, and consumers who continue to think such projects as the expansion of Highway One will still make sense by the time they are completed.
The report hints that the world’s major oil companies tacitly agree that global oil production has peaked. They have each systematically reduced investment in oil exploration the last five years by between 30% and 50% despite increasing prices available in the market. The experts say it’s because there is hardly anywhere left to look for undiscovered oil.
As an aside, we also learn that putting in your car synthetic fuel derived from Alberta tar sands generates the same amount of CO2, when production and refining processes are included, as if your car was fueled with raw coal.
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