Politics are certainly preventing the oil supply from expanding as much as it could expand (in the Middle East and in Russia) but I am not convinced it is the chief explanation as Rafael think it is. If we take a look at the graph of global oil production it is apparent that it increases almost every year. http://en.wikipedia.org/wiki/Image:Crude_NGPL_IEAtotal_1960-2004.png In yr 2006 the production reached 84,58 million b/d. Only at two times in this 40 year history of oil production did it decrease, namely, in the 1st and the 2nd oil crisis where production was deliberately decreased by OPEC in order to boost oil prices. Now take a look at the historical graph of oil prices http://en.wikipedia.org/wiki/Image:Oil_Prices_1861_2006.jpg. This graph shows that the oil price increased during the first and the second oil crisis and that it has increased in similar magnitude from 1999 to the present. At all other times the oil price is decreasing or flat. The truly new issue to note about the oil price increase from 1999 to 2006 is that it happens in spite of increased oil supply. This has never happened before. The reason that the price increases from about $20 to $65 in this period is that the demand increases faster than the supply increases. The world economy now appears to grow at almost 5% pro anno and oil production cannot expand equally fast. At 4 to 5% economic growth the world economy will double by 2027. This is almost certain to happen but I have little faith in believing that oil production will double also from its present level to about 170 million barrels per day in 2027. Instead, a wild guess is that oil will continue to rise by about $10 per barrel every year from now until it reaches about $120 per barrel in 2012. At $120 per barrel cellulose ethanol can be competitively produced even with today’s immature production technology for this feedstock. Consequently it will be able to ramp up global production to levels that prevent further increases in crude oil. There is plenty of cellulose available for this production. For instance, the biomass on the planet is estimated at 1877 billion tons which is reproduced every 11 years. http://en.wikipedia.org/wiki/Biomass For comparison the annual crude oil production in 2006 was about 5 billion tons. I also hope that lithium batteries will make it possible to get around without liquid fuel but at the current price of about $1600 per kWh for the relevant ones (A123 or Altair) these batteries can’t even compete with $120 a barrel.

Rafael you are right that politics is a mayor problem that limits production of crude oil in Russia and the Middle East (but that is hardly a new issue). My point is that politics is not the most important issue but rather the rapid growth in demand from a booming world economy.

"At 4 to 5% economic growth the world economy will double by 2027. This is almost certain to happen... "

I think that may be a bit optimistic. There are bound to be some kind of economic disruptions in between. Even if all else remain flat, the rising cost of energy as a result of demands from growth will most likely cause certain global and economic sectors to suffer.

I think we have not felt any significant effects from rising fuel costs because that expense used to be a small part of our budgets. We have all adopted and adjusted our habits and in most part, we are able to absorb the increased expense and still enjoy the status quo. But once the percentage spent on energy passes a the threshold, I think a economic contraction would likely happen.

When will this happen? I don't know, but I just can't imagine that the world can support a continuous up trend in energy prices and still be able to keep steady growth globally.

Charles S:

World economy grew by 3.14X between 1950 and 1975, by 2.18X between 1975 and 2000 and will certainly grow by at least 2.0X betweem 2000 and 2025. New 'green' economy factors, + increased growth rate in China, India, South America etc may help it grow at the rate of 2.5X (for the current quarter century).

Will future eonomic growth = energy consumption growth? Most probably so.

Will future economic growth = Oil consumption growth? No, because alternative energies will progressively replace OIL.

Henrik appears to believe that humans can harvest on the order of 170 billion tons of biomass per year from existing sources on an indefinite basis.  Do I have to point out that such an assumption is dangerously naïve?

If we peak at 100 million barrels a day of worldwide production and the worldwide demand over the next 20 years becomes 150 million barrels a day, then prices will go up and shortages will become more common. I think that this pattern of future events is probable. If this becomes a realistic outlook of future conditions, then coordination, planning and execution become essential. This may be stating the obvious, but all I have heard so far is talk and I have seen very little action on the part of world leaders.

Henrik -

you are quite right to point out that we are currently in the unusual situation of decent economic growth rates not just in virtually all OECD countries but very rapid growth in China, Eastern Europe, India, Brazil, Turkey and many other places. As Charles S. points out, it would be atypical for this to continue indefinitely. Someone somewhere is going to suffer an economic downturn and that may prove contagious.

My point was simply that the currently high price of oil is a function of the slow growth in supply capacity relative to structural growth in demand. With little excess capacity to fall back on, traders are placing a high premium on the political risks. Fears of a physical supply crunch appear to be unfounded.

Don't forget US politics. Oil and gas drilling are prohibited or prohibitive in much of the US. For example, the Arctic national wildlife refuge (14 billion barrels?), off the coast, and some places in the Rockies.

There are so many "experts" is the area of peak oil, one of them has to be right.

I am a little curious of how we are treating the planet. Is the planet shrinking with all this oil reserve being sucked out of the ground and replaced by water. There are very little oil well gushers any more. The oil in turn converted into gases entering the atmosphere must being heading out into space. So, we are experiencing loses here of the earths products. Will we bear dire consequences for this later. Is the oil in the ground acting as an insulation in keeping the earth heat sealed inside. Hard to tell. I know the water we used to bring up out of wells 700 - 1000 feet deep in Saudi Arabia was about 40 degrees C temp. Is the inner earth going to cool quicker because it is dissipating heat out into the outer crust, seas, etc. Why are Governments wasting time in not collectively looking into new technology for operating machinery, transport, etc, and working towards habitating other planets and the problems that overpopulation of this one will create in years to come. There are many issues, but we need to be thinking beyond our time on the planet and for the following generations also. All this stupidity and fighting needs to stop and serious cooperation begin among all..

Ender: Oil sands production prices haven't really changed (except down). When they first started in the oil sands they could only make a profit at 30$/bbl. Last I checked they can make money at 15$/bbl. The expenses you are hearing about are the costs of starting new operations. That is a result of everyone and their dog all trying to get into the the tar sands at the same time. You should see what's happened to prices in Fort MacMurray.

Ender you have a point in saying that increasing crude oil prices increases the cost of producing ethanol using the present technology. However, you are grossly exaggerating when saying “With 120/barrel oil this will double or triple the cost of ethanol as gathering and transporting the feedstock will be 3 or 4 times more expensive as will all other costs associated with producing ethanol.” Firstly, you are exaggerating because doubling of crude oil from $60 to $120 can at most increase transportation cost by 100%. In fact, the cost of diesel and gasoline will only increase by some 80% when doubling the crude oil price because the fabrication of these fuels are associated with other costs that stay the same regardless of the price of crude oil. 80% is far less than the 300% to 400% that you suggest for transportation costs. Secondly, you are grossly wrong when saying that transportation cost is a dominant cost in the fabrication of ethanol. In fact, the US department of agriculture made an analysis saying that, I quote “Every 1 Btu of petroleum fuel used to produce ethanol generates 13.2 Btus, thereby greatly enhancing U.S. energy security.” In other words, the cost of transportation full for ethanol production is very low. In fact, the reason that the corn farmers and ethanol factories use fossil diesel is more due to the fact that this is the traditional fuel of choice. You will see in a few years (2-4 years) the majority of these farmers and ethanol facilities will be running on bio diesel made as a by-product from corn ethanol and other sources.

The major cost involved in ethanol production is the cost of 1) feedstock, 2) production energy, 3) capital costs, 4) industrial enzymes, 5) labour, and yes 6) transportation energy. Of these 6 factors the first 2 are the most important.

1) Corn or sugar used as a feedstock will increase in price as we have seen already with corn going from about $2,1 a bushel to $3,7 a bushel. The US corn ethanol production will triple in as little as 4 to 5 years from now and that will drive corn prices further up. However, I doubt you will see corn above $6 a bushel even with crude oil at $120. The increasing price of sugar and corn will make cellulose very attractive as a feedstock because it will be comparatively inexpensive and it is so plentiful that dramatically increased demand will have little impact on the long term price of cellulose. Globally it should not be a problem to harvest about 15 billion tons of cellulose a year. One ton of corn produces 400 kg of ethanol. If this conversion rate can be maintained for cellulose 15 billion tons of cellulose could yield 6 billion tons of ethanol enough to replace all crude oil produced in 2006. Such a cellulose harvest is realistic on a global scale because I repeat that the planet contains more than 1000 billion tons of biomass that regenerates in about every 11 years.

2) The production energy (not transportation energy) in today’s corn ethanol fabrication is due to use of electricity and natural gas mostly for heating purposes. Today a few ethanol producers have begun to use electricity generated by wind turbines. This will change dramatically and in 10 to 15 years all ethanol producers will use wind turbine electricity because it will be the least costly form of electricity available. Many are still unaware that the global wind power industry have managed to reduce the cost of wind power from 37,5 c /kWh in 1986 to 7,5 c/ kWh in 2006 at the average wind location. This trend is very likely to continue the next two decades so that the cost of wind power drops to c 1,5 / kWh in 2026 for the average wind location. This will be accomplished through further increases in turbine size and through mass production. In 10 years from now only hydro electricity will still be able to compete with electricity produced from wind mills.

The future of transportation looks pretty bright with plenty of alternatives to using fossil fuels and the increasing price of crude oil has triggered this metamorphosis. Indeed, the prophecy by Sheik Ahmed Zaki Yamani that "The Stone Age didn’t end for lack of stone, and the oil age will end long before the world runs out of oil." finally seems to come through.

This is weird. For an important energy source like Oil, different groups are giving different pictures.

This chart puts Kuwait at 9th place with half their stated reserves. Is that official.

Some independent group like EIA should step in. But they too were talking about oil consumption hitting 115 million barrels / day by 2020 timeline without stating where it will come.

With all these vagaries, the price at the pump is the BEST JUDGE.