Charles Maxwell, a former energy exec who is now an analyst at Weeden & Co., says “peak oil” will drive oil prices to $300 a barrel over the next decade.
Alternative energy won’t save us, he says: It’s just too small a percentage of the overall energy market to matter. And neither will natural gas, coal, and other fossil fuels, which come with their own problems.
What will save us–because we’ll be forced to do it–is conservation: We’ll find ways to do more with less. We’ll also have to start eating root vegetables in the winter, because it will be too expensive to fly in plane-loads of vegetables from Chile.
Olivier Ludwig of IndexUniverse has a good interview with Maxwell here.
Here are some highlights:
Ludwig: You’re a believer in the peak oil theory, correct?
Maxwell: Yes, but remember, we won’t run out of oil for thousands and thousands of years. There will always be some kind of drilling going on in some isolated place in the world and new supplies will be available.
What we’re saying is that there are oil fields around the world that are young and vigorous and still full of gas with good pressure—remember, it’s the gas that drives oil out through the rock. But the older mature fields have had a good deal of their gas taken off, and with pressures dropping, they’re slowly reaching the stage where they can’t move the oil through rock, and production begins to falter….
Globally, I believe we’re quite close to the peak, simply because we’ve gone from 6 per cent increases in production to 3 per cent per year increases, to half a per cent per year increases. I think peak will come between 2015 and 2017. So, we’re nearly on it.
Ludwig: Do you have any near-term anxiety as people find out they’re out in the cold without their pants on?
Maxwell: Yes. And what we have to keep in mind is that oil is particularly useful in the transportation sector—starting with aeroplanes and boats and going on to trucks and trains and cars. About 97 per cent of transportation depends on oil. So when we talk about oil production slowing down and reversing, you’re talking about a huge cost to the transportation sector. For instance, right now we don’t worry about winter when we go to the supermarket—you get a head of cabbage or lettuce, but it will say: “Grown in California.”
Ludwig: What is your oil price outlook as this whole new world order begins to take shape?
Maxwell: The supply and demand of oil in the world today are pretty close to each other, and there shouldn’t be too much deviation in 2010 and 2011. We think prices will stay within a band roughly between $67-$87 a barrel. When it gets up toward $87, it seems to retreat, and when it gets down toward $67, it seems to take off again. That’s because supply and demand are in rough balance.
But as the economic recovery continues, as more people use oil because there are more people in the world, and China and India continue to progress with rapid expansion of cars and the roads they are offering their people, demand for oil will continue to climb between 1 and 1.5 per cent per year. That, combined with the depletion of these mature oil fields we’ve talked about, will bring us to a plateau by 2015-2017, where the rising production of newer oil fields will equal the falling production of old fields.
At that stage, prices will break through this $87 boundary—in about 2013, I’m thinking. And by 2015 we’ll be up to around $130-$150 a barrel. And then by 2020, when we have 1.5 per cent increases in demand each year and 0.5 per cent declines on the downside, then we’ll really be in a fix. At that time, I’m looking at $300 a barrel in money of the day. But remember, by then we will have the full effects of inflation over the prior 10 years, so it would probably be something like $200 a barrel in today’s terms, but it will have a nominal price of about $300 a barrel.
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