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Strategies & Market Trends : 2026 TeoTwawKi ... 2032 Darkest Interregnum
GLD 393.24+1.1%Dec 11 4:00 PM EST
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To: Elroy Jetson who wrote (1445)10/23/2005 12:51:02 PM
From: el_gaviero  Read Replies (1) of 218474
 
I wonder if you are not more confident about oil production than warranted. Your traditional economic argument that supply is a function of price ignores:

1. The declining discovery rate of conventional oil, data for which is reliable.
2. The nature of oil distribution in the crust of the earth – i.e., the existence of a few huge oil provinces, more large provinces, many medium ones, and innumerable small ones. Ten thousand pigmy fields are not the same as one giant, even if the number of barrels in each is the same.
3. Most important of all, your argument ignores a basic fact of life. The marginal cost curve of oil extraction is rising (or soon will be). We don’t know how far from the end of the road we are but with respect to marginal costs we do know this: there IS an end of the road. It is that place where energy needed to secure one BTU rises to equal one BTU. My guess is that tar sands, and all the other stuff out there that people are beginning to exploit, have lousy ratios of energy input to output. With rising marginal costs, keep in mind what this means: each additional barrel of oil has in effect LESS oil than the previous. Even if the number of barrels goes up, the net energy of those barrels is going down.

The fact of the matter is that we do not know the true state of the world. Does mankind still have access to a sizable chunk of hydrocarbon energy or not? We just don't know.

By temperament I am on the side of limits, but intellectually I know that the matter has not yet been resolved one way or another.
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