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Peak supply but not peak prices

The most recent data, Vodra said, say that global oil production has been on a plateau since 2005.   Price increases and demand growth over that time frame have failed to increase production.

Vodra noted that the UK Industry Task Force on Peak Oil and Energy Security recently reported that 29% of new production of oil will come from deepwater oil, even though that source now represents less than 5% of global production.  The recent British Petroleum disaster makes that prediction suspect, he said, but even if it were accurate, it implies an incredible decline in the rate of production from land oil and a dramatically increased reliance on more expensive deep-water drilling.

Most observers in the peak oil camp predict global production will begin to decline in this decade.  One such authority is Nathan Lewis, a professor at the California Institute of Technology.  Lewis has stated that energy is the “single most important challenge facing humanity in the 21st century.”   Based on projected rates of consumption and population growth, Lewis believes there are between 50 and 100 years’ worth of oil remaining on the planet.

Skeptics can counter that oil companies have 40 years of proven oil reserves and that this figure has been constant for the last century.  Lewis, however, says such numbers merely reflect the economics of the oil industry.  Oil companies have little incentive to explore and develop new reserves beyond a certain point.

More broadly, Vodra fears the “drill, baby, drill” mindset is winning out over initiatives like cap-and-trade, which would have imposed economic penalties on carbon production and, he believes, would have stimulated the research into alternative energy sources that could relieve the world’s reliance on oil.  Last year’s Copenhagen conference failed to produce any meaningful answers.  Now, Vodra fears “nobody in authority is interested in developing an economy that doesn't use fossil fuels.”

A lack of leadership, particularly with respect to energy conservation, is making Vodra increasingly pessimistic.  He faulted President Obama for failing to use the BP oil spill as an opportunity to spark conservation efforts.  That crisis is largely forgotten, he said, and Americans are back to buying SUVs in record numbers. 

Political gridlock is a main factor hampering the development of alternative energy sources and continuing our dependence on oil.  Ramping up an effort on the scale needed to tackle the problem head-on, Vodra noted, will likely take years and significant up-front expense, exacerbating the inertia.  The large capital outlays necessary to implement programs like building new coal plants, windmill farms, or funding research and development on photovoltaic technology, Vodra said, requires “up-front capital we don’t have.”

The only good news on the energy front that Vodra cited was that the Republicans in the House appear to be taking on the ethanol subsidy, which Vodra called “pointless” and “a waste of money.” “It’s a farming program and not an energy program,” Vodra said.

Mostly, though, Vodra worries that there is simply no more easy oil to get.  “When oil breaks triple digits,” he said, “it becomes unaffordable, and we go into another recession.”