Monday, October 25, 2010

UL: The End of Oil's Golden Age

One can argue that the world would be very different from what it is today if we hadn’t found crude oil and invented how to leverage this very convenient and relatively cheap energy source. The energy density of oil derivatives such as gasoline is superior to any other substance in liquid or gas form. That’s why the majority of cars are propelled either by gasoline or diesel and airplanes use kerosene.

Also, approximately 15% of oil is used to make asphalt, plastics and a wide variety of critical chemical products. Therefore, crude oil plays a key role in the modern globalized world economy. It has truly enabled a golden age for those that can afford to leverage it.

Unfortunately, oil is a finite resource and some day we will run out of it if we continue consuming it like we do. Long before this happens we will have serious problems, as soon as demand exceeds the supply. This is the essence of “peak oil” concept. International Energy Agency (IEA) estimated in their 2008 World Energy Outlook that oil production should not peak before 2030 if 64 million barrels per day (mb/d) of additional capacity is taken into use between 2007 and 2030.

In theory this is possible, but in practice there is a very real risk of under investment since the required new capacity is equivalent to six times the current production of Saudi Arabia. Therefore, the report concludes that an oil supply crunch can happen as early as 2015.

It is immensely hard to estimate the maximum rate at which the oil can be extracted from all different sources, both conventional and unconventional. Therefore, it is also hard to estimate when oil production will peak. What seems fairly certain is that it will do so within the next 30 years, and I personally believe it will happen within the next 10 years......Read the entire article.


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