Ace updated his bottom-up analysis over at The Oil Drum recently. The were only two pieces of good news in there. The first was that there should be a roughly 1.5 million barrel per day increase in the production of NGLs beginning in the middle of next year and peaking by the fall. Unfortunately, that NGL peak tails off as soon as it is reached, basically sitting on a very slowly declining plateau thereafter. The second was that we should see global growth in ethanol by another 1.5mbpd but again, it hits a plateau and stops. And worse, ethanol takes from 2007 to 2012 to gain that 1.5 mbpd while C&C declines by 9mbpd over the same period.
Unfortunately global C&C production has already declined by 1% from last year. That 1% decline more than offset any other gains so far and with another 1% decline next year, this will mean that the NGLs and initial ethanol coming onstream will barely replace the prior two years of decline in production. After that it is all downhill, and rapidly, with decline rates forecast for about 4% annually. And this is a 4% decline with the ethanol and NGLs factored in which leaves us dropping from 86 mbpd to about 76 mbpd by late 2012. If we assume anything remotely approaching a similar economic response to the last time such a large drop in production occurred, then oil should triple to quadruple in price. That's right - we're talking about $200 per barrel oil by 2012.
The economic impact of this will be unlike anything most people living today can possibly understand. What's happening now in the credit markets is only the tip of the iceberg. Most of the baby boomers were either in college or young adults or older teens at the time the last such decline occurred and it happened quickly, was over quickly, and was only 5% of production. This time it is forever, with production falling endlessly until we approach bottom. I am going to recommend something that most of you will not do but I'll recommend it anyway. Go visit Survival Acres and order 6 months of stored food. Yeah, I know you don't really believe this is happening or that the government will take care of you. Too bad. I even recommend this for people living on farms and such, unless they already have 6 months or more of food stored anyway.
For those of you expecting an intelligent response to the looming energy crisis, I suggest reading Robert Rapier's Pure Venom article. Robert has a track record of telling it as he sees it, regardless of whether it's good or bad for his industry. I've disagreed with Robert in the past but I respect his positions because they are well-researched and intelligently thought out just about every time. You might also consider the words of Professor Ken Deffeyes about the recent National Petroleum Council report. (Note: I will try to update that to a more permanent link once he puts it in his archives.)
None of the babble coming from the vast majority of politicians these days looks very realistic. Most of it is noise wrapped around vote buying bills that assume that these converging crises are not real and will pass away so that the good times can roll again. Too bad that Ponzi schemes have to always come to an end, eh?
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