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Could We See $300 Oil by 2020?
By JLP | October 17, 2006
Sandra Ward interviewed Charles Maxwell ($) of Weeden & Co. in this week’s Barron’s. Maxwell is an expert in the oil and gas industry. I found the interview both interesting and depressing. Take a look at this chart that was in the article and you’ll see what I mean when I say “depressing”:
Here’s how he arrived at those numbers:
In 1930 we found 10 billion new barrels of oil in the world and we used 1.5 billion. We reached a peak in 1964 when we found 48 billion barrels and used approximately 12 billion. In 1988, we found 23 billion barrels and used 23 billion barrels. That was the crossover when we started finding less than we were using. In 2005, we found about 5 billion to 6 billion and we used 30 billion. These numbers are just overwhelming.
If oil is currently at $60 per barrel (I’m rounding), it would have to appreciate at over 13.17% annually to reach $300 per barrel by 2020. Apply that same math to the price of gasoline, and we’re looking at $10 for ONE gallon of gas! Of course it is doubtful it would ever get that bad because I’m sure we’ll have different energy sources by then. At least I hope we do!
Topics: Miscellaneous | 12 Comments »
October 17th, 2006 at 6:19 pm
I’m guessing that those numbers are based on the fact that a lot of people are expecting the volume of oil to be not only limited, which it is, but in very short supply. I beleive that once it becomes clear to the oil companies that their revenue source is about to dry up they’ll start investing in new alternate sources of either income or technology; its pretty simple. I cannot see a multibillion dollar a year industry just not replacing their source of income.
October 17th, 2006 at 6:53 pm
I’m actually looking forward to higher oil prices. As one energy source gets too expensive, cheaper alternatives become available. Currently even at $60/barrel, oil is still much cheaper than anything else. Back in the late middle ages wood was the most commonly used energy source in England. However trees became more and more scare and thus wood became more and more expensive. At one point using labor intensive coal actually became cheaper. Coal soon surpassed trees and eventually help start the industrial revolution. Eventually Oil replaced coal as oil became cheaper, among other things. The only question now is what will replace oil? Or probably more accurately how many things will replace oil?
October 17th, 2006 at 9:24 pm
$300/barrel would probably be good news, as that would mean that we’d still have oil left at that point.
October 17th, 2006 at 11:01 pm
amazing, hope we have next-generation technology by then already.
October 18th, 2006 at 2:05 am
This would have been better to ask about a month ago. The big oil companies are sad that they can’t find any reasons to raise the price of oil and pad their pockets at this time. Does anyone else out there wander why we have been stuck paying higher gas and oil prices over the past year due to reasons beyond our control, yet the big oil companies posted record profits? Is the rate hikes due to demand, or due to greed?
October 18th, 2006 at 3:11 am
My standard line on bigthink gloom & doom: it has an awful historical track record, dating all the way back to Malthus.
October 18th, 2006 at 9:37 am
Are the numbers on the amount of oil found including Canada’s oil sands (1.7-2.5 trillion barrels of oil) or all the oil shale we have in the US (3.3 million tons) ???
October 18th, 2006 at 2:06 pm
The price might spike at $300 for a while, but I doubt it would stay there for long periods. Elasticity in demand, alternate fuels, improved technology, fuel switching, etc. will all serve to keep the prices reasonable.
Juston above asks why the price of oil has gone up and “why we have been stuck paying higher gas and oil prices over the past year due to reasons beyond our control, yet the big oil companies posted record profits? Is the rate hikes due to demand, or due to greed?”
Juston, it is because you, me, and millions of others are willing to pay that price. Sure, we get on Internet blogs and piss and moan about it, but we still buy. We don’t park our cars and take the bus instead, at least in large enough numbers to influence the market.
If your house appreciated half a million dollars over a decade or so and you went to sell it, would you sell it for the same price as you bought it for, or sell it for the appreciated price? Let me guess. You would sell it at a price someone is willing to pay, the appreciated price. But isn’t that greedy, making all that obscene profit at the expense of some homebuyer that is just looking for a place to house their family? Well many people think so when it applies to Exxon, but not when it means money in their own pocket.
October 18th, 2006 at 6:57 pm
$300 oil sounds expensive but you must take into the 5/25 principle into account. America has 5% of the world’s population but uses 25% of the world’s annual oil output. With stagnating output and soaring demand by China and India competing market forces are bound to increase the cost. It is easy to say there is a magic pill that will let us all run our cars on moldy banana peels but the real fact is that Americans are energy-ignorant and no easy solutions currently present themselves.
1. The price of energy (oil) is set by the fair market value of the commodities market. The oil companies cannot manipulate it. If this were not the case significant arbitrage opportunities would present themselves
2. Viable alternate energy sources must take into account EROEI (ENERGY Returned on Energy Invested). This value has to be greater than 1.0 or you are putting more energy in than you get out. Hence hydrogen, ethanol and oil shale are energy losers since you put more energy in than you get out. Right now the only sources that achieve this are Oil, Coal, Nuclear, Solar and Wind. Would you invest in a bank if it had a negative yield?
3. Hydrogen is an energy battery, not an original energy source. To get hydrogen you must crack the H molecules out of water using (you guessed it) energy (EROEI less than 1). Hence hydrogen is a net energy loser. Because of energy losses in transformation, the hydrogen will always contain less energy than was invested in it. (Using nuclear to make H could be a viable solution)
4. America becomes more energy-dependant on OPEC every year. You must ask yourself if you believe the concept of “PEAK OIL”. Read Richard Heinbergs book titled “The Party’s Over” if you want to understand of the energy challenge America and the world face as we move into the future.
October 18th, 2006 at 9:31 pm
When looking at energy alternatives, you have to consider factors like energy density, infrastructure, and rate of production. The energy-returned-on-energy-invested (EROEI) is critical to all forms of energy. Modern oil recovery is in the 30:1 range — the oil sands are no more than 4:1. The reality is there is no viable alternative to completely replace the demand for energy when oil starts to decline: biofuels, solar, wind, nuclear, coal, and natural gas all suffer from fundamental problems that will not be resolved cheaply or soon.
October 23rd, 2006 at 12:39 am
$300 oil is really not that bad. With an annual inflation rate of 3.5%, oil needs to be at $100 to be on par with inflation (starting $60 in 2005 for 15 years). But since US Fed is printing money by some 7.5% more every year, on par with US money supply increase, oil should be at $296.
Seriously, we are stealing from Saudi Arabia, and not the other way around, if we pay less than $300 for a barrel of oil in 2020. They just get some pieces of IOU, while we get actual oil!!
October 23rd, 2006 at 12:45 am
Oops, sorry, the number should be $177.5 (=$60 * (1.075)^15) instead of $300.