Peak Oil Is Upon Us. Gulf Drilling Is Proof

Evidence of Peak Oil is all around us.

Have you heard of Peak OIl? Do you know what it is?

Peak Oil is the point in time when the maximum rate of global petroleum extraction is reached, after which the rate of production enters terminal decline.

According to numerous experts in the field, that time has arrived. Global oil supplies have peaked even as global demand continues to grow.

No less an authority than the Energy Information Administration (the statistical and analytical agency within the U.S. Department of Energy) says that Peak Oil is all but upon us.

At present, global usage is outstripping new discoveries. For every four barrels of oil we consume, we discover only one.

The desperate need to find new oil sources is driving BP and other oil companies to go to great extremes — such as extracting oil from deep beneath the sea.

In 1979, Shell Oil set a record by drilling in over a thousand feet of water in the Gulf of Mexico. By 2003, ChevronTexaco was drilling 10,000 feet down in ultradeep water. Think about that; that's nearly two-miles below the surface.

The reason oil companies are going to such extremes is that land-based oil is getting harder and harder to find. Nearly every major find of the past decade has been a deep water find. This, it seems, is where much of the remaining extractable oil is to be found.

Even as onshore oil production is declining around the world, the demand for petroleum is increasing around the globe. So, oil companies are drilling in deeper, and riskier, waters. By the end of this decade, up to 40 percent of our oil could be produced offshore.

According to Interior Department estimates, there could be as much as a three-year supply of recoverable oil in the Gulf, and more than two years’ worth of natural gas, at current rates of consumption. But those estimates are based on seismic data that is, in some cases, more than 30 years old.

The eastern Gulf of Mexico (where BP was drilling when disaster struck) is believed to contain as much as 3.5 billion barrels of oil. However, the U.S. alone uses 7.66 billion barrels per year. That amounts to just 5 1/2 months of oil at current usage.

Perhaps this give you an idea of the kind of pickle we're in. It's crunch time, as in "oil crunch." The Deep Water Horizon wasn't just in nearly a mile of water; it was also drilling three miles into the ocean floor. These are truly desperate moves.

Tad Patzek, a top petroleum engineer and professor at the University of Texas, calls drilling in deep waters an "extremely difficult, harsh environment" and says that the technology that works there "can only be compared in its complexity to technology that we use in space."

Does anybody doubt that if oil were discovered on the moon the oil companies would find a way to get there and bring it back?

Desperate times call for desperate measures. And the people who follow supply and demand issues are worried.

Dr Richard Ward, the Chief Executive Officer of insurance giant Lloyd's of London, is warning that the world is facing a “period of deep uncertainty” over the decline of fossil fuels – and may soon be coping with $200-a-barrel oil.

Dr. Ward recently issued a stark report in which he warns business managers to be ready for “dramatic changes” as oil, gas and coal supplies will soon be “less reliable and more expensive.”

The world “has entered a period of deep uncertainty in how we will source energy for power, heat and mobility, and how much we will pay for it,” Ward states.

The reason we should heed his warning is that insurance companies are in the business of assessing risk. They make large financial calculations based on likely outcomes.

The entire U.S. economy — in fact, the entire global economy — is completely reliant on oil. Without it, everything comes to a halt. And without new sources to feed a growing population and developing economies, there will no economic growth — only stagnation and then contraction.

The U.S. consumes 21 million of the 86 million barrels of oil used around the world each day. U.S. consumption is higher than any other nation and equals the combined consumption of the next five largest national consumers (China, Japan, Russia, India and Germany).

The ability to meet this tremendous demand has allowed the U.S. economy to expand vigorously, outpacing the rest of the world for a century.

But the availability of oil can change quickly.

In 1970, the U.S. was still the world’s oil largest producer, yet its crude production peaked at a level never since exceeded. What may be surprising to most people is that the U.S. is currently the world's third-biggest oil producer, following Saudi Arabia and Russia.

However, our seemingly unquenchable appetite for oil also makes us the world's largest oil importer by far. The U.S. imports almost two barrels of crude for every one it extracts.

In the U.S., we love the automobile and it is still our primary means of transportation. About two-thirds of our oil consumption is for transportation.

In every way, conservation will have to begin in earnest.

Oil, and the access to it, has allowed the U.S. to assume its preeminence in the world. The arrival of Peak Oil could eventually level that playing field, perhaps quite considerably.

Peak Oil is upon us.