Health & Fitness
Pain at the Pump is Only the Beginning
The pain you are feeling at the pump is nothing compared to prices in a few years. Global oil production has plateaued and that means ever increasing prices and economic decline.
Even before this recent spike in gasoline prices we were paying upwards of $3 per gallon. This temporary $0.27 price increase would be tolerable of gasoline were still under $2 a gallon but it isn't.
Why?
There are a lot of explanations but lets start with the fact that our gasoline is expensive because the oil used to produce that gasoline is expensive.
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To remain in business the refinery must sell its outputs for more dollars than it purchased its inputs. If they buy $100 worth of oil they must sell the refined products for more than $100 or they go out of business.
Expensive ingredients make for an expensive meal. This is pretty easy logic to follow.
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So the next question obviously becomes, why is oil expensive?
Before you go blaming speculators or regulated federal lands please read to the end.
As it turns out this question of why oil is expensive is pretty easy to answer. For over 100 years humanity has been able to pull ever increasing amounts of oil out of the ground.
The law of supply and demand has made this possible. As the supply shrinks or demand goes up, prices rise. When prices rise it encourages more people to find and produce oil. This additional supply of oil reduces demand pressure on prices and they fall again though probably not as low as they were before.
The same thing happened in 2004. Oil prices started going up and this led to an increase in global oil production.
Then in 2005 something strange happened. The price of oil went up quite a bit but it was NOT followed by an increase in production. In fact, production began to fall slightly despite a relatively large increase in price per barrel.
Between 2005 and 2007 the price of a barrel of oil rocketed upwards while production continued declining globally*.
Since then global oil production has been on a plateau (hasn't gone up) despite record amounts of effort, drilling, investment and technological advance.
The Bakken in North Dakota is a perfect example. A typical tight oil well in North Dakota costs anywhere from $6,000,000 to $10,000,000. Even more if you include multiple frac jobs to restimulate the well.
A typical tight oil well is expected to continue pumping for almost 30 years. In that time it is expected to produce about 550,000 barrels of oil. This sounds like a lot but globally it is a tiny drop in a big bucket.
The world consumes more than 550,000 barrels of oil every ten minutes. The US consumes more oil than that in 45 minutes. In all of 2012 North Dakota supplied the world with 17 hours and 46 seconds of oil**.
When the Ghawar field in Saudi Arabia was first tapped they could produce more than 100,000 barrels of oil per day from a single well. Today North Dakota produces slightly more than 700,000 barrels per day from over 5,000 wells. That breaks down to less than 150 barrels per day from each. That is peanuts.
Given the above information we can conclude that oil is more expensive now because it is much harder to produce.
But as the title of this post entails, this is only the beginning.
At some point very soon (within the next few years) the amount of oil the world can produce daily is going to begin to decline. The age of oil will be over. We will be past the peak of oil production.
As I've noted in previous posts here, peaks in fuel production have huge economic and social consequences.
From: http://fridley.patch.com/blog_posts/a-lot-can-happen-in-an-hour
"Argentina collapsed in 1999 after their oil production peaked in 1998 and began to decline. This is no coincidence.
The Former Soviet Union collapsed in 1991 after their oil production saw a peak in 1987 and began to decline. This is no coincidence.
World War I broke out in 1914 after coal production in Britain peaked in 1913 and began to decline. This is no coincidence.
The global economy nearly collapsed in 2009 after global crude oil production hit its peak in 2005."
Are you prepared?
For more information on resource and debt limits and how they effect the economy please visit the following links.
*Rising oil prices obviously caused gas prices to go up too which limited the amount of money in consumers' pockets and increased financial risk causing interest rates to rise. This was bad news for everyone with an Adjustable Rate Mortgage because suddenly their mortgage payments became too much to handle and the bottom fell out of the housing market. For more information about how rising oil prices popped the housing bubble read http://ourfiniteworld.com.
**North Dakota produced a total of about 2 Days 11 Hours worth of oil in 2012 but a majority of it was reinvested back into the extraction process either as cash or directly as fuel.
