Seven Billion

Jim Brown
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Somewhere in the world on Monday the seven billionth person will be born. It took 150 years to grow from one billion people in 1850 to six billion in 1999. It only took 12 years to go from six to seven billion.

When I was born in 1947 there were 2.45 billion people on the planet. In my 64 years of life that number has nearly tripled. Our current rate of growth is roughly one billion every twelve years. Unless there is a world war, global pandemic or large asteroid impact we will add another billion people between now and 2023.

The BBC has an interesting website that calculates your number based on your birth date, country of birth, etc. It is worth visiting.

What is your number link

My Number Chart

Around the world there are 15,347 births and 6,418 deaths every day. The fastest growing country is Qatar at +514 people per day. Moldovia is shrinking the fastest at -106 per day.

The developing nations are seeing rapid improvements in health care and sanitation and that lowers the death rate dramatically. Ninety seven of every 100 new people on the planet are born in developing economies. In richer, developed nations the availability of birth control and a desire for smaller families keep birth rates subdued. The cost of raising children is also higher in developed nations and financial concerns also limit family growth.

In the USA, with a population of 311 million, there are only 484 births and 288 deaths per day for a net organic growth of +196 people per day. However, there are +113 new immigrants arriving every day.

China with a population of 1.34 billion has +1,980 births and -1,095 deaths. They lose -43 people every day immigrants leaving for other countries. China's annual net population growth rate is only +0.5%.

India has a population of 1.23 billion. There are 3,113 births and 1,114 deaths and they lose -68 people a day from immigration to other countries. India's net annual growth rate is +1.4%.

The highest life expectancy is in Japan at 82.7 years. The lowest life expectancy is the Central African Republic at 45.9 years. The average life expectancy today in the USA is 75.4 years for a male and 80.5 years for a female.

In the 20 minutes it took me to research this data the global population rose by 4,775.

Most analysts believe the true carrying capacity of the planet is less than five billion people. We are artificially inflating the carrying capacity by using large amounts of oil for transportation, fertilizer, insecticide, plastics and products of all types.

When our oil demand exceeds the available supply every one of those categories above will begin to decline. Unfortunately the two billion people born over the last 25 years will just begin reaching the point in their life where they will consume the most resources. That is the period between their 20-40s. Just because the world will be entering a forced rationing phase for oil and products does not mean those two billion people will suddenly decide to grab a cardboard box and live under a bridge. They will continue to consume more and demand more as each year's graduating class puts millions more into the work force.

Those two billion people are just beginning to mature and are looking for spouses and considering starting a family with hopes of producing consuming kids of their own. Little do they know now as they work their way through college or attend high school football games that there will not be any cheap transportation as they start their adult life.

It will take 25 years from 2011 for those two billion people to all mature into their adult lives at roughly 100 million a year. Unfortunately in that 25 years another two billion people will be born unless something dramatic happens to slow the birth rates.

The world is on a collision course with a destiny that 99.99% of today's population has not even considered. In America everyone just assumes they will get a job, find a wife, buy a house, own two cars and have 2.5 kids and a pet. They will commute to work 45 minutes each day, drive to the lake, seashore or mountains a couple times a month and fly to visit relatives on Thanksgiving and Christmas.

They are completely unaware that the one billion people born between 1980-1995 are going to be competing with them for the gasoline in their car, the food on their table and the progressively smaller apartments they will be cramming themselves into once fuel prices explode out of sight. Every year that passes has another 100,000,000 people entering their 20s and stepping onto the treadmill of life on their way to their version of success.

100,000,000 new drivers, new consumers, new voters and people who will demand the lifestyle of their parents. Unfortunately 99% of them are going to be very disappointed to find out the yellow brick road to happiness no longer supports automobiles.

We are moving ever so slowly to the point where gasoline prices are going to rise again. Even with nearly every exporting country producing at their maximum rate the amount of excess capacity is declining. Schlumberger said in their earnings report a "tight cushion of excess capacity would continue to provide a robust market" for their services. They should know because they supply services to nearly every producing oil field on the planet.

We hear about the large production gains in the Bakken in North Dakota. Production has risen from 20,000 bpd 10 years ago to 400,000 bpd today. Analysts believe production could reach one million barrels per day by 2020. Three cheers all around, life is good. Unfortunately global demand rises by an average of 1.4 million barrels every year, not every ten years. If it takes until 2020 to boost the Bakken to 1.0 mbpd in that same period global demand will have risen by 12.6 mbpd. Those billions of people maturing into their consuming years is creating demand faster than the Bakken or even 10 Bakkens can replace it.

What you don't hear about in the mainstream press is the 4.5 million barrels of production the world loses each year due to depletion. That is a fact that is rarely reported but just like the click of second off the clock the world is losing precious barrels of production every minute of every day.

I have been writing about peak oil for several years and hardly a week goes by that someone doesn't say "where is it?" The peak is always coming but it never seems to arrive. Fortunately, the great recession pushed it out about three years. The two years of weak demand allowed producers to catch up but now that the recession is over they are racing again just to stay ahead of the demand.

"Prove it." Everyone always wants proof peak oil is coming. We currently consume over 88 mbpd and demand estimates for 2012 are over 90 mbpd by year end. Demand continues to accelerate but production remains flat. Nearly every major oil company has reported earnings and nearly every one reported lower production than the same period in 2010 despite spending tens of billions exploring and producing oil.

These companies spend so much money it is scary. Exxon spends $35 billion a year on exploration and capital expenditures. They spend $1 billion a day on salaries and other expenses. Unfortunately they are being forced to branch out into exploration for natural gas as a future fuel because the opportunities for finding oil continue to decline.

If somebody gave you $35 billion a year to explore for oil you would think you could find plenty. Unfortunately the production numbers don't lie. These companies are finding it tougher every day to find a new barrel of oil. Chevron is spending $35 billion in Australia over the next five years to produce natural gas. They would spend that for oil if they only knew where to look.

You can continue to complain the peak oil story is a hoax invented by the oil companies to raise the price of oil but that is not true. Most oil company CEOs won't even admit to peak oil because they don't want to cause a panic. Some do like the CEO of Shell but he is ignored.

Strike the words peak oil out of your vocabulary. Let's assume there is no peak oil in our future. If that is the case then all we need to worry about is finding enough new oil to cover future demand. It sounds simple if you eliminate the political and geological constraints. However, this is the real world. This is not a made for TV movie. Those constraints still exist.

Answer this question. Why are oil prices over $100? U.S. WTI is $93 but that is because of a lack of pipelines inside the U.S. to get the midwest oil to the refineries. Brent crude is $110 and that is the world standard on which all waterborne crude grades are based. Even in the Gulf of Mexico the Louisiana Light Sweet (LLS) is $110 or higher.

So, the question remains, why is oil over $100? It is not because of speculators. That is a load of bull coined by politicians to deflect from their lack of a solution to high oil prices. Speculators have never been able to sway the price of oil by more than a couple dollars and only for short periods of time. There are more than 400,000 WTI futures contract traded every day. That is more than $38 billion dollars in volume every day and that is just in WTI. If you add in the other grades and varieties it is closer to $75 billion every day. Even Goldman Sachs could not push that price needle more than a couple dollars for more than a couple days. More than $10 billion in oil is consumed every day. $75 billion traded and $10 billion consumed every day. Not even Exxon could move that needle.

Crude oil is over $100 for only one reason and that is a lack of excess capacity. If there was 5.0 mbpd of excess capacity the price of oil would be $65. Excess capacity allows producers to bid the price lower in order to entire customers like Valero to buy their oil instead of oil from another country. The minimal amount of current excess capacity means every producer has multiple buyers waiting. They don't have to discount. They can get the going price of the day without even trying.

The law of supply and demand is alive and well. Excess supply of anything, including oil, will lower the price. Limited supplies will force the prices higher.

Which way are prices going today? The long term trend is up because supply and demand are rapidly moving towards convergence. When they converge again we will see another price spike like we saw in 2008 and the result will be another global recession.

WTI Chart - Yearly

Readers to this newsletter are better educated than 99.9% of the rest of the world on what the future will bring. Depending on how much excess capacity Saudi Arabia really has will determine the future of prices. If their capacity is less than they claim we could see sharply higher prices by the end of 2012. If they really have 2.5 mbpd in reserve then 2014 will be the crisis date.

I urge everyone to spend more time this week thinking about the potential future than you spend on eating lunch on Monday. If you do that and honestly consider the alternatives I think your family will be better off with the result. You don't have to rush out and buy an electric car or buy a 500 gallon gasoline storage tank for your garage.

Just ask yourself one question. How would $6 gasoline change your life?

Jim Brown

The OilSlick Newsletter is based on the expectations for global oil production of light sweet crude to peak and begin to decline in the 2012-2013 timeframe. I am calling this "Peak Sweet™" instead of Peak Oil. This is the point where global production of conventional light sweet crude supplies can no longer be supplemented by enough oil sands production, deepwater oil production, biofuels and natural gas liquids to offset the decline in existing fields. The roughly 6% annual decline of existing production due to depletion is larger than the rate of new discoveries and new production being added each year. The Peak Sweet™ countdown clock is ticking and time is growing short. Peak Oil will arrive shortly thereafter. Are you prepared?