2009-09-18

Peak Oil Means the End of Production Growth


Back in the 150th anniversary of oil drilling and peak whiskey posts we talked about the problem of Peak Oil. The problem is that we are going to run out of growth in supply not that we will run out of oil. The graph above shows that ever since about 2005 the total oil output of the world has stayed more or less constant. It is a flatline with some fluctuations above and below. This flatline happened even though the price skyrocketed to almost $150. There are a lot of reasons to think this limit to production is geological and cannot be removed.

There is going to be absolutely no flatline in demand. The global population is still growing. The population of the United States is growing. The billions of people living in Brazil, India and China are experiencing rising standards of living and will want the vehicles that come with it. What happens when the supply stops growing and the demand grows and grows? Prices rise. A lot. Looking at the graph of global oil production lets us understand why.

The solution is that we have to find ways to save on gas. The focus for the future must be on reducing gallons used per hundred miles driven. If that means we have to settle for smaller less powerful vehicles, so be it. Those are all we will be able to afford anyway. Detroit should make gas mileage a top priority to stay alive and relevant in the decades ahead.

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