Thursday, March 13, 2008


Acceleration, in the world of engineering and science, is a change in speed or direction; the rate as which change takes place. For all the sudden interest, rather belatedly one might add, in the price of oil the price is actually just following the trend of the last 7 years: it's right on track. The data for the graph is from EIA (US government), the trend line (a second order regression) is by prof pi.

The price of oil is increasing for several reasons, speculation by investors (to some extent) but most importantly, world production is flat and has been for the last three years while oil consumption by China is increasing at nearly 20% per year and India is not far behind. Very simply, more people want their part of a what is a limited supply.

Gasoline at $4 per gallon by the summer of '08 and nearly $6 by the summer of '09; unless there is a major US recession the rest of the world will buy what we don't use.

Prior to the year 2001, the price of oil had been nearly constant for almost 30 years, an entire generation.

The world has been pumping oil out of the ground for more than a century, and many of the largest, and oldest, oil fields are now in decline (as the mathematical model by M. King Hubbert would predict).

The continental US is now down to about half the rate of our best year (1970), and our production continues to decline. Cantarell in Mexico, the Alaskan North Slope, the North Sea, etc., are all in decline. For the next four years there are enough new major fields coming online to off set the decline of existing production.

After 2012, the rate at which the price of oil is increasing is going to jump dramatically. There won't be any new fields to offset the depletion of the existing fields.
The demand for oil in the years beyond 2012 will greatly exceed the supply capability of the existing oil industry, both OPEC and non-OPEC combined.

Big oil producing operations are huge engineering projects, requiring years from concept to funding and construction. Anything due to come on line in the 2013 to 2015 time frame needs to be well underway now; there simply aren't any such projects.
One of the strangest after effects of the Spitzer stupidity is that his replacement seems to be (a) aware of the peak oil problem, and (b) willing to articulate it. Difficult to imagine but some public benefit may actually arise from such folly as the last week has seen.

In the words of H. L. Mencken, "politics is the only thing that exceeds sex in which the pursuit is more costly, the pleasure is more fleeting and the position is more embarrassing." It's not clear that even one as cynical as Mencken had imagined what combining sex, politics and relentless TV coverage could wreck.

Thanks for taking a lap around the track with me, see you on the next pit stop.

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