Diminishing Marginal Utility

Excerpts:

“We have 1,500 days until peak and tomorrow we’ll have one day less,” Chris Skrebowski, the editor of Petroleum Review, told the ASPO-5 crowd today. Skrebowski’s projections, which focus on oil flows instead of reserves, has the world peaking at between 92 and 94 million barrels per day. Unfortunately, he said, “collectively we’re still in denial.”

Skrebowski joins a growing group that sees the peak occurring earlier than later. “It can’t be far off,” he said. And the consequences couldn’t be more profound. “We’ve built are entire society around oil. Everything depends on cheap and plentiful oil. We will have to change everything we do.”

The massive jump of oil prices since 2002 corroborates the emerging reality of tightening supplies, Skrebowski said. “What is the price telling us? Desperately it’s saying ‘send us more oil.’ That’s what economics does.”

But new supplies aren’t coming forth, he said. Nor is demand being appreciatively destroyed. “Neither is working. New supplies are not coming on line and demand is not falling, with the exception of the third world, which is getting priced out of the market. It just hasn’t hit us yet.”

Skrebowski’s comprehensive model balances incremental new oil flows with shrinking production for existing fields. Net increases seem possible for a few more years, he said, but by 2010-2011, declines will start outweighing gains—and that’s when the world will hit the peak. He dismisses optimistic projections from organizations such as Cambridge Energy Associates (CERA) as “utter tosh.”

Skrebowski says that mitigation efforts won’t affect the peak date by much—a few months or a year at the most. Oil-producing countries, for example, could decide to divert more supplies to domestic consumption, tightening the price noose on industrialized nations. “It’s an exquisite form of torturing us.” And the result could lead to an interesting sight: “SUVs on the streets of Mexico and Smart Cars in Houston.”