The End of Cheap Oil

In a recent blog I argued that the world is embarking on a nuclear renaissance in light of growing demand for power and in the face of energy supply issues.

In the event that you did not find the notion of a nuclear revival to be credible, consider this:

On July 18th, the National Petroleum Council delivered its report ( Facing the Hard Truths about Energy) to the US Secretary of Energy. Up until now this Council has always taken the optimistic route saying that new fields would be discovered and more advanced exploration technology would save the day. This years’ report marked a notable shift from past thinking. Even the title of the report suggests a shift in thinking. The report talks about how after 2015 oil output from non-OPEC nations will start to decline - something that until now was never spoken about in Washington circles. And buried deep in the report was perhaps the most shocking of all statements.

In the next 25 years, fully 80 percent of current wells and fields will be depleted. This means that starting right now, the energy industry must start finding new deposits - and not just little ones either. Any new production that is found will be met head on with a growing energy appetite from China and India. This will mean not only finding enough to replace the declining fields but finding that much more to meet the growing global demand.

Some recent stats by the International Energy Agency support the Petroleum Council’s report. The IEA says non-OPEC wells and fields are declining at a rate of 4.6% a year with some deep-water fields (ie North Sea) declining at 15-20% a year. The IEA goes on to state that the oil industry must now start finding new fields every year that will produce 3.2 million barrels a day. And this will just keep global output from falling.

Can the energy industry do it? Quite possibly….but at a cost. The next 5-7 years are going to see the energy industry have to spend literally trillions of dollars to find new oil. And what does that imply for us consumers driving our SUV’s and using electricity from oil and gas fired utility plants ? Higher energy prices !!

The Age of Cheap Oil is behind us. Accept it. Deal with it. Get set to face the future. The next number of years will be unlike anything you ever imagined.