Baltimore, MD—Last week we explored global peak oil. We concluded that oil prices are going to skyrocket in just a few short years. This week I'd like to examine the state of peak oil in the United States. And, more importantly, figure out just how we're going to avoid the crash.
The death of cheap oil is going to become as widely known this year as global warming. In fact, people will be more concerned about our energy crisis than the weather.
I know last week I told you to forget about depletion, but now it is time to consider its consequences.
Oil depletion results from extracting and consuming oil faster than it can be replaced. Oil wells typically experience a dramatic decline, as seen here. Initially, wells begin producing at a very high rate. Less pressure is needed to pump the crude out of the ground.
But as the oil well ages, the pressure decreases rapidly and the production rate plummets.
Granted, technological advancements have lengthened the life of oil wells. Various techniques have been implemented, such as injecting water to sustain pressure.
But the oil content decreases as more water is used.
U.S. oil production is feeling the effects of the Hubbert Curve. Production peaked in the 1970s and has been in serious decline ever since.
I can hear the skeptics scoffing at the idea. They tout the latest production techniques or flaunt the newest discoveries.
I scoff right back . . . then show them the numbers.
Take a look at the U.S. oil field production over time:
Two things come to mind as I look at this data. First off, U.S. oil fields peaked in 1970 at 9,637 MMbbls/d. Secondly (and perhaps more importantly), we produced practically the same amount of oil in 2005 as we did in 1947!
In other words, our oil production has regressed almost sixty years!
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Not even close.
The Future Crisis
In the 1940s, the U.S. accounted for over half the world's oil production. Today, it's down to about 8%.
In 2005, we imported over 13 million barrels of oil every day to meet our 20-million-barrel-a-day addiction.
What can the U.S. do in order to raise production? The natural course of action is to increase the number of oil wells, right?
Try again.
Here's a look at the number of oil wells over the last sixty years:
Doesn't paint a promising picture for U.S. oil production, does it?
The question now is where we'll go from here. Bush has already realized that our oil dependence is way out of control. But when he released his plan to drastically reduce oil imports from the Middle East, he didn't exactly tell us the next step.
Renewable energy offers an attractive way to meet future demand. The problem I find, however, is that these technologies are nowhere near to meeting our demand for another decade or two . . . or even longer.
We certainly can't look to Mexico for help. Their massive Cantarell field has just gone into depletion. The announcement will have Mexico scrambling to avoid its own catastrophe.
I think the U.S. is going to look north to our Canadian neighbors. This Thursday, I'll show you one way investors are going to make a killing on Canada's vast resources.
So stay tuned.
Until next time,
Keith Kohl
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