Home / Budgeting / Very High Gasoline Prices Ahead
Print Friendly and PDF

Very High Gasoline Prices Ahead

Written by Gary North on April 9, 2012

There is a naive hope that new oil supplies in Canada and the USA will enable the world to keep up with rising demand for oil from Asia. It won’t happen.

Gregor Macdonald is one of the world’s leading experts in oil supplies. He reminds us of reality: oil development takes decades, not years.

For the seventh year since 2005, global oil production in 2011 failed to surpass 74 mbpd (million barrels per day) on an annual basis. But while the West is set to dote upon its retirement class for many years to come, the five billion people in the developing world are ready to undertake the next leg of their industrial growth. They are already using oil at the margin as their populations urbanize. But as the developing world comes on board as new users of petroleum, they still need growing resources of other energy to fund the new growth which now lies ahead of them.

This unchangeable fact sets the world on an inexorable path: a competitive race for BTU.

You and I are running in this race. It’s going to get a lot more expensive to stay in this race. This will affect your monthly budget and mine.

The happy-face optimists assured us a decade ago that production would match demand at low prices.

For example, when ExxonMobil declared in early 2004 that they could bury the market in oil should prices ever move above $40 a barrel, they believed that forecast very strongly.

The company was wrong. But its message was widely believed.

You can see such perspectives in books that appeared 4-5 years ago, such as The Myth of the Oil Crisis, which correctly identified the vast oil resources still to be extracted, but missed the slow rate at which these resources would be developed. Indeed, if there is a single concept that trips up experts and laymen alike, it is the changing rate at which many natural resources have started to come to market in the past decade.

And because of this, we’ve seen a number of forecasts for significantly higher oil production coming from the media and the financial sector during the past few years.

Citigroup, the big bank, is giddy with optimism today.

Ed Morse leads an energy research team at Citigroup and is well known for accurately calling oil’s price in 2008. But Citigroup’s recent call for a potential doubling of North America’s liquid petroleum production over the next ten years seems little more than a dream-wish.

Once again, we turn to the Wall Street Journal, which has now shown a definite habit for providing free space to those who call for North American energy abundance and independence. Speaking of Canada, the United States, and Mexico, Mr. Morse writes:

….theoretically total oil production from the three countries could rise by 11.2 million barrels per day by 2020, or to 26.6 million barrels per day from around 15.4 million per day at the end of 2011.

What Mr. Morse fails to mention in his op-ed is that the rate at which Canada, US, and Mexico would have to produce this new oil to meet his prediction would require new oil development and production at a rate of growth seen in the boom-days decades ago, a rate that is simply no longer possible.

Yes, the United States doubled its production of crude oil in 30 years between 1940 and 1970. Yes, from 1970 to 2000, Mexico nearly quadrupled its production of oil. Yes, Canada doubled production from 1980 to 2010. But let’s consider the time span of those periods: They were all 30-year timeframes, not 10-year timeframes.

The decline in production has begun.

More important is that for the US and Mexico, the peak of oil production is now in the past. The US peaked in the early 1970’s, and Mexico peaked in the last decade as its singular giant, Cantarell, entered decline. Only Canada has been able to inch up production, but there, too, lies an overlooked barrier: Again, the rate at which Alberta Tar Sands oil is developed and then produced is much slower than conventional oil.

Mr. Morse and the team at Citigroup have made the same mistake that was more prevalent a decade ago. They have mistaken the size of the resource base for the actual flows that are now economically, and geologically, possible.

We are going to pay through the nose and through the hose at the gasoline pump. Plan ahead.

For graphs that illustrate this, click the link.

Continue Reading on gregor.us

Print Friendly and PDF

Posting Policy:
We have no tolerance for comments containing violence, racism, vulgarity, profanity, all caps, or discourteous behavior. Thank you for partnering with us to maintain a courteous and useful public environment where we can engage in reasonable discourse. Read more.

5 thoughts on “Very High Gasoline Prices Ahead

  1. in case some of you don't remember in 1972 we had the oil embargo and all the govt. had to do was approve the alaska pipeline and prices dropped almost immediately

  2. The difference now is that in 2012 we are in a fullblown fascist economy, where big government and business are in partnership to squeeze the people for every essential service (gas, water, electricity) at "market" prices. In 2000 Georgia deregulated the price of natural gas in the most highly populated counties in the state. It was sold as a boon to consumers that would introduce "competition that will drive prices down". Instead, everyone's heating bill has soared at least 400% since it was implemented.

    And the goal of the climate change cultists is to introduce a carbon tax on every man, woman and child on earth (in essence, tax us for breathing). It became clear to me when I learned that Al Gore's advisor in setting up the carbon tax brokerage firms that will trade carbon tax "credits", and make a lot of people very rich, was Ken Lay of Enron.

  3. Victor Barney says:

    Here's the shocker: According to the Bible that everybody carries around with them and is found in most motels and hotels, Islam is NOT going to destroy u.s. As England already has proven to be the real "Israel" by the seed of Joseph(Gen. 48:16) by possessing the biggest and greatest civil empire in history, we his brother, had nothing left to do with place the "RIGHT" ANTI-CHRIST" (MARXIST) over u.s. of Revelation, chapter 11. Did you also know that Revelations chapter 16 & 17 make it perfectly clear that our SAVIOR totally destroys Islam upoin his return, NOT US! Just saying… p.s. Did I mention that the two-witnesses that witness against u.s. only leave 144,000 from the 12 tribes of Israel, minus Dan(Irish) alive in these latter days? Again, just saying…

  4. Pete Baird says:

    these people that say that we cant drill enough oil wells to take care of our needs are full of bull crap. had we been drilling and exploring for the last ten years like we should have been and building new refineries and pipe lines like we should have been we wouldnt be in the mess we are in today. i blame the whole mess squarely on the democrats and especially obama. and on the dumb a**'es that voted for him..

  5. The RobertScottBell Show