We’re getting closer to the edge – actually, we may have already fallen off the edge and are experiencing the side-effects of expensive oil. The erosion of the Canterell field in Mexico only increases US dependence on its quasi-enemies for economic growth.
Any discussion about oil prices over the next decade must include an attempt to quantify emerging economy demand as an important driver at the margin. Here is a simple thought experiment using Chinese demand to give some idea of the magnitude of the supply issues we face:
- China moves from 3 bbls/person/year to the South Korean per capita consumption level of 17 bbls/person/year
- Transition takes 30 years
- No peak in global production
In next 10 years we must find 44 million BOPD. If you superimpose peak production on top of this demand profile using the following parameters oil prices would increase approximately 250% in real terms over next 10 years:
- Oil demand elasticity of -0.3
- Current production 84 million BOPD, current price US$ 80
- Peak production 100 million BOPD
- Post peak decline rate of 3-4%
Thanks for the interesting observation. While I agree that the price must rise, I don’t think it can rise infinitely. Demand will get destroyed as society breaks down.
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