Future Oil Production

Its been a while since my last post, gold and the markets are in a holding pattern so there has not been a lot to report on. Although it is May, so I have sold and gone away!

However the issue of oil supply came back into focus last night after I came across the Finite World blog. The excellent article I read describes the lack of sufficient price for the global oil companies to continue to invest in drilling, combined with the lack of success in said drilling. The result is a scaling back of capital spending..OUCH!

Oil production has been basically flat since 2005, with the increased consumption in the developing world coming almost exclusively from less consumption in the developed world (which explains why they are in recession; input costs are damaging their economic systems). The easy to get oil is gone and a price of $100 a barrel has enticed shale deposits onto the market. But shale is a marginal story not the main event. It is simply the invisible punctuation mark at the end of that statement “The easy to get oil is gone” .

The elephant in the room is the disincentive for listed oil companies to invest. When that happens you know you are looking at an industry in a death spiral. Peak oil may have gone to the back-burner as an issue, but the graph below tells me it is still front and centre. This implies continued limited supply and high and higher prices going forward, continuing recession in the western economies and spreading to others, no end in sight for the debt debacle we are trapped in as economic growth will not come to the rescue, and the possibility of social unrest as food prices again climb. Not a pretty picture, but the mirror image of a century of cheap oil. Everything has its limits.

With our planet suffering under an exponential growth in coal consumption perhaps we will look back in a hundred years and realise that peak oil was a good thing?

God bless

Kevin

Kopits 40 Oil majors capex and production

 

 

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