Here is our predicament that is likely to be buried hidden in every facet of the next national budget.

The energy watch group (EWG) have presented their sums on fossil fuel reserves and production, added them up, for each nation and region,  and concluded that the global peak of fossil fuel production is very likely by 2020.  Production of easier to get oil reached a peak in 2005.  Gas and Coal production is likely to peak by 2020. But economies get hurt much earlier as oil prices continue to rise.

URL:  http://www.energywatchgroup.org/fileadmin/global/pdf/EWG-update2013_long_18_03_2013.pdf

The graph  below shows production rate each year in Giga-barrels of oil equivalent, historically from 1930 - 2012, and predicted to 2050.
Total oil and gas production according to Colin Campbell 2013.

For oil, existing wells have an optimal rate of production, and that if exceeded, long term total yield is reduced. The total output of individual wells, and oil fields, is predicted from their initial rates of yield and geological data.  The average quality of raw oil has become sludgier, requiring more intensive refining. The average input energy cost of obtaining the finished oil product has increased. The EROI (Energy Return On energy Invested) after extraction and refining has fallen.

Oil production rate for conventional, cheap oil has peaked in 2004-2005, and is declining. The easiest, most profitable, economic resources have been taken first, and many of these resources are declining in production rate. In new fields, greater energy input is required, in order to obtain the resultant supply of energy.

What matters for the economics of oil energy dependent nations is the supply price, and this continues to rise. Demand for oil continues to rise. This cannot be met by declining  conventional oil supplies. Oil price has risen, enabling the exploitation of much more expensive sources. Heavy, tight oil, and deep-water oil fields, get to prop up supply for several years, before they too will not keep up with the decline of conventional oil.

The importance of oil, and its non-substitutability for many purposes, is well recognized by just about everyone.   Its declining supply is recognized as a severe constraint on continued global economic growth.  

For instance, look at the report produced by the New Economics Foundation (NEF)

"The economics of oil dependence:  A glass ceiling to recovery" -
URL: http://dnwssx4l7gl7s.cloudfront.net/nefoundation/default/page/-/files/Glass_ceiling_webReady_.pdf

The NEF report is made with a UK government and audience in mind.

NEF makes the point that the costs of new production wells for oil  over the past 10 years have risen between 10 and 20 per cent each year. Oil itself has a compound annual cost increase of 16 percent each year.

NEF says that despite some optimistic reports about a new oil boom, these are flawed because of over generous estimates of:

•  Potential production capacity in fields like Saudi Arabia and Iraq.
•  Reports of level and duration of flow from new unconventional sources.
•  Costs of new production capacity.

URL: http://dnwssx4l7gl7s.cloudfront.net/nefoundation/default/page/-/files/Glass_ceiling_webReady_.pdf

Global production of oil is flat, having reached a maximum of about 90 million barrels a day (Conventional oil 72-76 million bbd),  Suppliers have been unable to increase the output of existing fields, or add significant new fields to raise total output.  Rising populations and consumption in oil producing countries also means that less is available for global markets.

NEF presents data on the incremental cost of oil supply. That is the money used to buy additional oil, at the highest price.  Total oil budget takes away funds available for other national purchase needs. NEF defines the "Economic Peak Oil" as the point at which the cost of incremental supply exceeds the price economies can pay without significantly disrupting economic activity at a given point in time.

NEF identifies 2014 / 2015 as a likely beginning of an economic peak oil crunch period.

Their reasoning is that 95% of global transport uses oil. Gasoline, diesel,  jet kerosene, and ship bunker fuel account for up to 80% of all oil usage. Transport fuels link all elements of the economy. If every linkage costs more due to sustained high oil prices, all costs will increase, and economies slow and inflation rises.

NEF identifies the only option likely to soften the impact of high oil prices, as being a transition to a low-carbon economy.  It notes that this will require political leadership and policy certainty to create a long-term, sufficient and consistent incentive structure for renewable energy.

NEF states that should any major UK economic sector lack official contingency planning

for economic peak oil, the government should explain why, and with what confidence such plans are absent.

What will happen in Australia?

Rising energy costs bring down economies. Australia is a high fuel consuming and fuel dependent nation, because of internal distances and dispersal of population, and large distances to global markets. Australia is set up for economic collapse, as it is unprepared for a continued increase in transport fuel price. Already its state and federal governments have budget crises, and have been making cuts in spending on health, welfare and education systems, even during the course of an export resources boom. 

Likely decline of private transport usage

The prospect of continued pressure on transport fuel has not deterred Australian state governments from commissioning multi-billion dollar city toll-way projects, and expansionary plans for suburban sprawl.  In the USA, despite decades of growth of suburban car-dependent living, its prolonged economic decline has resulted in decreased private motor vehicle usage, decreased total employment, and decline of the condition of road and bridges infrastructure, due to decreased maintenance. Roads are paved with an oil product. This is part of a picture of an economy in decline as transport energy becomes more expensive. 

EROI of global energy resources

This the title of a publication by Lambert, Hall, Balogn, Poisson, Gupta. It spells out the implications of our rising energy costs in getting additional energy. The energy return on energy invested (EROI) of a society, is the key index that indicates economic health.

URL: http://www.roboticscaucus.org/ENERGYPOLICYCMTEMTGS/Nov2012AGENDA/documents/DFID_Report1_2012_11_04-2.pdf

The fluctuations in the availability of cheap high-quality energy (oil) are far better at predicting and explaining booms and busts than what kind of political or economic system a country has. Also seehttp://energyskeptic.com/2013/2012-global-eroi/ for a summary.

To the point: