As I'm sure you've heard by now, on Monday energy super major British Petroleum reported that pipeline problems forced a shut down of Prudhoe Bay, the biggest oilfield in the United States, cutting the country's daily crude production by 400,000 barrels per day (bbls/d).

The shutdown caused crude prices to spike over $2. Take a look:

And if you think this is bad...just wait ‘til the catastrophe really comes to a head.

The mainstream media is currently having a field day with the Prudhoe Bay shutdown claiming that this oil accounts for about 8% of domestic production.

Well, this is true.

But here's the thing...

When compared to the world's current total oil production of over 85 million barrels a day (MMbbls/d), this 400,000 isn't much. In fact, the amount of oil lost as a result of the Prudhoe Bay shutdown accounts for less than half of one percent of total global production.

Now, in truth the crude that was coming out of Prudhoe Bay was the light, sweet stuff. And this class of oil is vital to the energy infrastructure because it's easier and much cheaper to refine.

But I think the talking heads on CNBC are too focused on this one loss in supplies and they're missing the bigger picture.

First of all, Prudhoe Bay was discovered over 29 years ago. And when the field was first brought into production, BP estimated that it would produce for only 25 years. So, right off the bat we know that Prudhoe Bay is living on borrowed time.

BP has managed to extend the life of Prudhoe Bay by employing water injection -- a so-called ‘enhanced recovery technique' that maintains the production rate of a reservoir over a longer period of time.

However, over time, the volume of water that is lifted along with the oil increases, thus the volume of oil declines proportionally until eventually what flows out of the reservoir is almost pure water, and the field is no longer worth operating.

And that's essentially where Prudhoe Bay is today. It's almost no longer worth operating. In fact, I read something this morning that said three quarter of the liquids coming up out of Prudhoe Bay is water.

And the really scary part is this...

Prudhoe Bay is a paradigm for the entire world because all of the world's giant oil fields are basically in the same situation.

The world's oil is living on borrowed time.

The fact is that the world is quickly running out of cheap, easily accessible oil. And there's little we can do about it.

Look... Only about 50 super-giant oilfields have ever been found. These are fields that able to produce over a million barrels of oil per day. But now most of them have been essentially sucked dry. In fact, today there are only four oilfields with a production capacity over a million barrels per day left.

You read that right... There are only four oil fields left in the world that are able to produce over 1 million barrels per day.

And despite new oil finding technologies, even the discovery of smaller fields are falling. In 2000 there were 16 fields discovered that had the capacity of 500 million barrels of oil equivalent or bigger. In 2001 there were nine. In 2002 there were just two. In 2003 there were none. That's right... Zero!

But it gets even worse...

The four super-giant fields that I mentioned a second ago represent about 11% of the world's total production. But get this... Three of those fields are officially in production decline including Ghawar, the world's largest oil field. And there's a lot of speculation that suggests the fourth is in decline as well.

Moreover these reservoirs are producing more and more water each day. In fact, Ghawar is said to be producing nearly 55% water.

As a result of all this, crude producers are struggling to feed the world the oil it demands. And this demand is only set to go higher.

Get this... The Energy Information Administration estimates that global oil demand will skyrocket over 40% from 85 MMbbls/d today to close to 120 MMbbls/d by 2030.

That's a near 50% climb in less than a quarter century. And with falling production and a lack of new discoveries, there's no way supplies will be able to keep up with demand.

But let me put it in stark terms. Between now and 2030, there's going to be a net gain in demand of 35 million barrels. (120 - 85 = 35).

So the world needs to find an extra 35 million barrels of oil PER DAY! Now, Saudi Arabia is producing about 9.4 million barrels per day. So, to meet the 35 million barrel increase the world will experience in 2030, the world needs to find an additional 3.7 Saudi Arabia's.

Yes... It's gonna' get ugly.

Even today, global oil demand is outstripping supplies by over 500,000.

According to the EIA's International Petroleum Monthly, total oil supplies for the 1^st quarter of 2006 was 84.62 MMbbls/d. But total world demand was 85.15 MMbbls/d. (By the way... 85.15 MMbbls/d equals 985 barrels consumed per second!)

And with falling production and a lack of new discoveries, it's highly unlikely that we'll be able to come up with enough supplies to keep up with demand.

These are the real oil problems we have today. Forget about losing a measly 400,000 bbls/d of production. That little bit of oil can't help us out of this mess anyway.

There's no doubt about it friend... We're slowly coming to the end of cheap oil. And sooner or later we're all going to have to pay the piper.

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