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October 05, 2007

The End Of Cheap Oil Peak Oil

The chief economist at the Canadian Imperial Bank of Commerce says we should expect $100 a barrel oil by the end of next year, and it's likely to be three-digit prices from then on out. AP (via John Robb):

Oil prices could top $100 a barrel by the end of next year and remain above that point for years to come, the chief economist of Canadian investment bank CIBC World Markets said Tuesday.

Jeffrey Rubin said rising demand within oil-rich nations such as Mexico, Venezuela and Saudi Arabia will put pressure on global oil prices in the coming years. That, combined with the increased cost of pulling petroleum from reserves deep under the sea or wringing it out of oil sands in Canada, will keep oil prices high even if demand in the Western world remains constant.

"We're in a world of triple digit oil prices for the foreseeable future," Rubin said during a speech to investors here.

Rubin said oil exports from OPEC countries, Russia and Mexico will likely decline by about 3 million barrels per day over the next five years. The biggest drop, he expects, will come from Mexico, a key U.S. supplier.

"Of the 3 million barrels, we're probably talking about 2 million barrels are going to come directly out of U.S. supplies," he said.

Rubin expects Mexican oil imports to the U.S. will dry up by about 2012. Some of that decline will be made up by imports from other parts of the world, but the lions' share — nearly a third of all U.S. oil imports — will come from Canadian oil sands, he predicted.

But replacing relatively easy-to-refine liquid crude with petroleum from oil sands is certain to increase costs, he said. By the end of the decade, Canadian oil sands are likely to represent the world's largest source of new oil supplies, he said.

"We're basically replacing low-cost oil with high-cost oil," he said.

Looking ahead, Rubin expects crude oil prices to average as much as $90 a barrel next year, rising to around $100 by the end of 2008. That would represent an increase of nearly 25 percent over Tuesday's settlement price of $80.05 a barrel for light, sweet crude on the New York Mercantile Exchange.

"Triple digit prices is not a spike," he said. "Triple digit oil prices is what is going to be required to maintain, let alone grow, world oil supplies." [Emphasis added]

What does this mean? John Robb summarizes nicely:

Over the past one hundred years, we have been able to plow through obstacles and limits to growth by throwing cheap energy at them (which makes even inefficient increases in social/economic complexity viable). What happens when energy isn't cheap anymore, but rather moderately expensive? Do those past increases in complexity come back to haunt us? Yes.

It would be hard to overstate the extent to which life in the developed world is organized around the availability of cheap energy. Mega-cities, sprawling suburbs, globalization itself. Most of what we consume comes to us from hundreds or thousands of miles away. And it's not just a question of energy. Oil is the raw material from which plastics, fertilizers, and pharmaceuticals are manufactured.

We're like the dinosaurs, just before the asteroid hit. Not that we're doomed, but we're about to experience rapid, nonlinear changes in an environment we depend on for our very survival. Our adaptation to that environment has been cultural and technological rather than biological, a crucial advantage over the dinosaurs. But the challenge will be substantial, and we don't have a lot of time. Given the rate at which oil is consumed, most of us are going to be surprised by how quickly we burn through what's left.

Posted by Jonathan at October 5, 2007 03:34 PM  del.icio.us digg NewsVine Reddit YahooMyWeb


Nice site i learned much..

Posted by: jojo at October 6, 2007 04:51 AM

I can only rejoice at the end of oil. It shouldn't be 100 dollars, it should be 1000 dollars a barrel. The higher the price, the sooner we can start looking in earnest at energy sources that are going to be more reliable and less politically troublesome than oil is.

We could change the habits of man, but seeing as we can't even stop ourselves from slaughtering each other, there's little hope of that.

But a new energy source, sure. Bring it on. Let's stop this incessant nagging about peak oil. Oil is the fuel of the past [uhuh, like literally]. Time for a new game.

Posted by: jack at October 6, 2007 12:16 PM