grqb's Journal: Saudi Oil Close To Peak - So What?

The cost of oil has risen by about 50% in the last year. This time in 2004 the cost per barrel of oil was about $35, now it's about $53. The reason why oil prices have spiked is because of many things: winter requires a lot of energy to heat homes, summer requires even more energy to cool homes, a good part of it is speculation that emerging countries like China and India will require more and more oil along with North America's dependence on the sweet stuff. In general, for economies to grow, they require more energy each year which means more oil. Peak oil is what happens when oil can't be extracted at a faster rate and so the demand for oil continues to grow but the supply of oil flattens out. Respected analysts such as those at John S. Herold Inc, the first analysts to call BS on Enron, have gone so far as to predict when each of the big oil companies will peak, which they think will all happen by 2009 (Total S.A by 2007, Exxon Mobil, ConocoPhillips, BP, Royal Dutch/Shell and Eni S.p.A by 2008, ChevronTexaco by 2009). A recent report by David Coxe, an analyst working for the Bank of Montreal, said that the worlds largest oil field, Gharwar in Saudi Arabia, has started to decline, or peak. Other analysts such as Matt Simmons and Colin Campbell, the head of the Association for the study of Peak Oil (Aspo) all agree.

Of course Saudi rejects all notion that their oil fields will ever run out of oil, but promises by them to increase production last year failed to materialise and the recent 500,000 barrels per day increase was not Saudi Light crude as expected, instead the new oil was heavy, sulphurous oil that only a few refineries can use and is common when oil fields start to decline.

So, what does peak oil mean for all of us? According to James Howard Kunstler in Rolling Stone Magazine, it'll mean that we'll all have to move out of suburbia, grow our own food and accept that life will never be the way we once knew it. He also says that alternative energies won't help the US ween off of oil because they're not developing fast enough. This notion that alternative energies are underdeveloped was reiterated by a French bank, Ixis-CIB, who recently warned that oil could hit $380 per barrel by 2015. The analysts argue that this is possible because alternatives are not developed yet and the world will rely on oil no matter what the cost. The analysts also said existing new oilfield projects would not be enough to satisfy unprecedented growth in demand from developing economies, particularly China.

To help curve the dependence on oil, the International Energy Agency has also advised that all oil consuming nations remove subsidies that they give to oil. Theses subsidies distort the oil market and removing them will promote the development of alternative energies since they would appear to be cheaper.