Anthony Taunton operates a crane where workers pressure-wash and rack drilling pipe aboard Thunder Horse, a BP drilling platform in the Gulf of Mexico. BP's large find there probably won't help global oil prices, which may be edging up.
(Bob Fila/Chicago Tribune/MCT/File)Photos (1 of 1)
ECONOMIC SCENE: $4 a gallon gas? Peak-oil experts say yes
Gas prices will soar as oil production peaks, then falls.
By David R. Francis | Staff Writer/ October 19, 2009 edition
Get ready for $4-a-gallon gasoline.
That’s the forecast of adherents of the “peak oil” thesis, the idea that oil production has flattened and will decline because of economic, geological, and technical restraints. Once considered a fringe theory, peak oil has become mainstream thinking in the oil industry in the last six months, says Steven Kopits, who runs the New York office of Douglas Westwood, an energy analysis firm.
So what about all those new oil finds – some 200 announced on five continents this year – including BP’s giant discovery in the Gulf of Mexico last month? Development of such new fields, many deep under the ocean, takes years and will only help offset the decline in oil production elsewhere, analysts say.
What about a boost in Iraq’s production from 2.5 million to 6 million or even 8 million barrels per day (b.p.d.) if all goes well in that country? Rising world demand will easily outstrip that gain.
Biofuels? Canadian oil sands? Ditto.
“In the next few years the supply [of oil] will tighten and this will lead to higher prices,” says David Bowden, executive director of the Association for the Study of Peak Oil & Gas-USA (ASPO-USA) in Denver.
Rising energy prices will have a profound impact on the economy and the American way of life, peak-oil enthusiasts say. Higher prices could even lead to a seesaw economic recovery, some argue. If oil prices rise much higher, the economy will slow down again until the demand for oil is curtailed, pushing prices lower once more. Then the economy could surge forward again. And the pattern could repeat.
Mr. Kopits figures the $147-a-barrel peak price on July 11, 2008, was one factor in exacerbating the “great recession.” Crude oil has been running around $70 a barrel in recent New York trading.
When exactly the world reaches peak oil is up for debate.
Kopits says oil probably reached a “practical peak” in late 2004 when world output flattened out, not keeping pace anymore with rising economic growth. (A practical peak means production would rise only if prices skyrocketed and stayed there.) Several investment banks hold that the world’s July 2008 production of 86.7 million b.p.d. was the practical peak. An Australian-based investment advisory firm, Macquarie, says peak oil is happening this year at 89.6 million b.p.d.
The International Energy Agency, adviser to 28 industrial nations, is far more optimistic, expecting global supply to rise through 2015, though not keeping up with demand.
Peak-oil issues are to be discussed by some 500 attendees expected at the ASPO-USA’s annual conference Oct. 11-13 in Denver.
Although President Obama deserves credit for boosting US fuel economy standards for cars, neither the Bush nor the Obama administrations have tackled the problem adequately, says Mr. Bowden. Nor do Bowden or Kopits see an easy substitute for liquid fuel in transportation.
There’s an abundance of natural gas. But it would take a new service station infrastructure before compressed gas could replace gasoline on a wide scale. The American auto fleet could resemble that of Europe with its smaller, more efficient vehicles, but that would take a decade or so.
Combined, these factors make $4-a-gallon gasoline more probable in the years ahead, peak-oil analysts say.
“It’s probably not going to get better,” Kopits warns. No one in the industry expects a breakthrough in discovering relatively affordable new oil. “There are no bulls in oil,” he adds.
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Comments
2. Mr Johnson | 10.19.09
Peak oil definition of “the idea that oil production has flattened and will decline because of economic, geological, and technical restraints” is laughably incomplete. Add in political / environmental restraints and the picture becomes clear.
3. boomhauer | 10.19.09
I assume the intro:
“BP’s large find there probably won’t help global oil prices, which may be edging up toward $4 per barrel.”
is referring to gallon of gas, not barrel of oil.
4. dan strayer | 10.19.09
CSMonitor–check your caption. Oil is not $4 a barrel.Otherwise, a good and timely article. Read the “Oil Factor and it’s successor for more info.
5. Tom King | 10.20.09
What about all the oil in the Bakken (and other) reserves we’ve been reading about? Is it a hoax? Or a chokehold by environmentalists?
6. Jack Lohman | 10.20.09
$4 gas occurred only because congress allowed speculators to have their way with us. Sort of like holding down your kid so the bully can rape her. Will it happen again? Perhaps, as long as the campaign bribes keep flowing to our politicians.
7. dale | 10.20.09
Your caption incorrectly says oil will be edging up to $4 a barrel. You, of course, meant gas will be edging up to $4 a gallon. $4 a barrel? A thing that dreams are made of!
8. Terry Templeton | 10.20.09
If this info is cerect we hav a lot of oil.
http://www.usgs.gov/newsroom/article.asp?ID=1911
9. K. Cash Luck | 10.21.09
Use methane which is natural gas. Source? Animal and human waste. Use the waste frpm my septic tank and from city sewers and treatment plants. As long as we have people we have source of methane gas. They use this gas for power (lights, heating and cooking) in the India, Dehli Toilet Museum and in Taiwan. The gas could also be used to drive trucks and autos.
10. Kye Goodwin | 10.21.09
Mr Johnson, re your comment 2, agreed that the offered definition of Peak Oil is not very illuminating. Peak Oil is basically a consequence of geology (a finite original endowment of oil) and is happening despite technical innovation and economic demands that the supply increase without limit.
Tom King, re your 5, Yes there are untapped oil fields in the world but it is a question of scale. Even with no environmental rules at all within the US the problem would be barely changed because the amount required is huge compared with any reservoirs that are currently off-limits.
Jack Loman, re your 6, high oil prices are destroying the American economy and had a great deal to do with removing the Bush administration from power. If America and the Bush regime didn’t have the power to do anything about high oil prices then they must be the result of fundamental supply and demand not nameless phantom speculators. Where could these evil speculators be hiding as they take down the biggest powers that be? The belief that speculation is the problem is wishful thinking. Oil prices have now been high for about 9 years, and super-high for 4 years of that.
12. Bill R | 10.22.09
Several people have pointed here to the Bakken find as refuting a near term peak. They are confusing a resource or resevoir size with how quickly the oil can be removed — which is a RATE. The Bakken field to my knowledge is both extremely deep and technically difficult… this means that it will take both a considerable time to develop and that the RATE at which the oil can be removed is small. If you have a million dollars in the bank but can only remove it at 30,000 per year, are you rich?
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1. Bill Simpson in Slidell | 10.19.09
Very few politicians in Washington realize that the most immediate danger from world oil supply peaking, is not running out of oil. Decades before the pumps go dry, the exploding price of gasoline, jet fuel, and diesel will totally wreck the economy by destroying demand for nearly everything, except for items that people will need just to survive. Many millions of people have jobs that will evaporate as everyone, except the wealthy, is forced to spend more and more of their income on fuel. China is now buying over 12,000,000 cars every year, so you should not think that I am discussing some distant event. The financial collapse will happen within 5 to 10 years, and there will still be plenty of oil left in the Earth. Only the rich will be able to afford it. It won’t be pretty, especially with no plan. Think Katrina times a million.