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Gold/Mining/Energy : Peak Oil - Not If but When
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From: veritas50112/23/2009 10:48:09 PM
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An important dynamic of fields or countries that produce oil is that once they past their peak in oil production, most of the remaining oil reserves are produced in the first few years after the peak in production. (Thanks to a geologist on The Oil Drum for pointing this out).

To use a simplified example, suppose there is a country that reaches its peak in oil production at the beginning of Year 1 and declines until the end of Year 5 when it ceases to produce oil. If the country produces Y barrels of oil in Year 1, then its production profile will look something like this:

Year 1: Y barrels produced
Year 2: 1/2 Y barrels produced
Year 3: 1/4 Y barrels produced
Year 4: 1/8 Y barrels produced
Year 5: 1/16 Y barrels produced - production terminates.

We can see from this simple example that most of the oil is produced in the first 2 years (Y + 1/2 Y = 1.5 Y) with the remaining 3 years producing only 7/16 Y (1/4 Y + 1/8 Y + 1/16 Y).

Consequently, oil prices over time will accelerate in appreciation.
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