The $130 price for a barrel of oil is quite sufficient to encourage a maximum effort to expand production and to expand replacement sources. A jump to $300 per barrel is unnecessary or that but will likely happen briefly if we have a surprise. By that I mean an unexpected drop of two million barrels per day. Such an event may not happen this year or even next year, and if we can get past that, other patches can kick in.
Right now a lot of folks are actually sitting down and doing the supply analysis and all you see are glum faces. The fact is that this crisis will not be magically fixed by turning on a well somewhere. That option has evaporated and with pending declines everywhere, supply has to be found by emergency replacement from non oil sources.
Even with the advent of THAI oil production and a number of important new fields, the industry can only hope to keep pace with the developing decline. To put it more succinctly, we are on the verge of losing roughly around 10,000,000 barrels per day of production over the next several years and I am likely still sugar coating the story. I think that we can bring on around this much new production with the aforementioned resources, after which the THAI technology could well be able to keep pace with further declines for some time.
The good news for us is that most of this will be focused in North America, permitting us the luxury of sort of controlling our destiny. So although we are going through an uncomfortable readjustment, the transition will be long and drawn out
The new emergency reserve supply is coming from the conversion of the transportation fleet over to LNG engines. This will easily release 15,000,000 barrels of oil per day globally and can be done almost overnight. In fact California is well on way to doing this and has begun to force the infrastructure. It is good to see that at least one group of politicians are not in denial. The point that I am making is that the USA can release millions of barrels of daily oil back into the market in probably less than two years by the simple expedient of a slight engine modification and a few tanks and tankers. The recent rise of diesel prices will force the truckers to make the switch as fast as they can.
I should mention that globally there are massive supplies of LNG for the asking. This is a direct result of a market that has been limited to pipeline distribution to meet the low end market of home heating. Transportation fuel readily can justify the economics of hauling it around in cryogenic tanks. I observe that LNG produces a steady supply of boil-off gas that needs to be shoved into a local pipeline if it is not immediately burned. We can live with all that with a lot of common sense applied.
The other big fix that is been suggested is the simple expedient of making all new automobile engines able to switch on demand to ethanol. That industry is still shy of a few solutions, but establishing capability is the first step to driving demand and supply. I have little doubt that ethanol supplies will begin to climb. I will be posting tomorrow on a discovery that I have recently made for a huge new ethanol feedstock that is likely capable of replacing all our gasoline.