Charles Maxwell: The use of petroleum in the world is now up to about 30 billion barrels per year. The rate at which we have found new supplies of petroleum over the last 10 years has fallen to an average, of only about 10 billion barrels per year.
We’re obviously in an unsustainable situation. We are now using up a greater number of barrels that we have found in the recent past and that we have reserved in the ground. We are now beginning to use it up relatively quickly–with scary consequences for the future.
The peak of production usually comes sometime between 30 and 50 years after the peak of finding oil. “The peak of discovery,” as they call it. For instance, in the North Sea, the peak of discovery was in the late 1960s, and the peak of production was in the late 1990s. So it was around 30 years between the peak of finding oil and the peak production of that oil.
- I view a global oil production peak within the decade as a near-certainty.
- I think there is a small probability that the peak has already occurred, but we won’t know that until several years after the fact.
- I don’t believe that there is anything in the technology pipeline that can prevent a growing gap between supply and today’s demand.
- I believe that gap will be closed by price-induced rationing, which will be very hard on businesses and individuals.
Higher prices will result in a very difficult transition period in which we are forced to use less because we simply don’t have the money to use the oil that we have historically used. This will be a period of great economic difficulty.
The difference between supply and demand is not going to be very much at first. It would not normally cause a big rise in price. On the other hand, in 2014, that tightness begins to grow and it is now a trend. By 2015 perhaps we’re only able to produce 0.50% more with about 1.25% higher demand, so that we’re 0.75% short. And now we have to raise prices enough to stop some people from using that oil because it is actually not available.
We call that “the destruction of oil demand.” It is important because it forces the price of oil up on an accelerated basis.