What's the current capacity for global oil production?I can't speak to the veracity of peak oil -- that is, the idea that we're currently, or soon will be, producing oil at peak capacity, only to be followed by a gradual decline in oil production. What I do know is that at some time we'll run out of oil; as to when that is, I'll leave it to the experts.
We are producing about 87 million to 88 million barrels a day, and I would put global capacity at another five million barrels on top of that. So our capacity is about 92 million to 93 million barrels a day, and I see our capacity as reaching perhaps as much as 95 million barrels a day at the peak in about four or five years, probably around 2015. But I think production will go very modestly above that point, if at all, and, in effect, we will reach a plateau. It will be a little bumpy in 2015, 2016, 2017 and 2018. But by 2020, the first signs will become very evident that we can't go any higher than that in production. So we will begin to settle very slowly and gradually in a world in which we need more oil each year, but we can't get more.
How high will the price of oil go?
By 2020, I'm looking for about $300 a barrel, which is closer to $225 a barrel in today's dollars. So it reaches a production plateau around 2015 or 2016 and stays flattish on a bumpy plateau until about 2020, at which point output starts to recede slowly.
At what point do those price increases start to put too much pressure on the world economy?
Strangely enough, I don't think that it would bring the economy down. Rather, it is the suddenness of change that does that. That rise we saw three years ago, where in one year it went from $62 a barrel on average to $100, created a huge amount of economic damage. On a more gradual scale, and giving the effect of inflation its due, we will probably simply walk away from two-tenths or three-tenths or four-tenths of a percentage point of potential gross-domestic-product growth, which we will give up by being caught in this energy vise. But the world economy will advance, and it won't be brought down by this. However, it will touch off a huge effort to change the cars and the aircraft engines—and to use a greater amount of substitutes for oil, such as coal and natural gas. And, of course, this has a lot of positive aspects as well, because in the longer term, we would have to begin making these changes anyway. But it seems that we can't be asked to do that. We must be forced to do that, and price is the means by which that force is applied.
There are two things I find telling about the above cited excerpts. The first is the observations of an individual who has been in the energy business since 1957 -- this is someone who's opinion should more than count. When he says oil will increase, to $300/bbl that's important.
But more importantly, there is the issue of how markets work. When the price of one good increases to the point of economic pain (oil increasing to a certain level), we start to change our ways. Then we start to utilize other, cheaper alternatives and adapt our goods and services to that new model. As those increase in price, we adapt again.
He also notes that we have to be forced to adapt in most areas. Why that is, I don't know. But that does seem to be human nature in action.