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(Alex Brandon/(AP Photo/Alex Brandon))
(Alex Brandon/(AP Photo/Alex Brandon))

Jeff Rubin

Oil disaster may prove tipping point for world oil production Add to ...

What are the consequences of another Three Mile Island?

Will the unfolding environmental catastrophe from the ruptured Deepwater Horizon well in the Gulf of Mexico become deep-water oil's equivalent to the Three Mile Island accident?

In terms of environmental degradation and economic cost, it's already become much more. The real legacy of Three Mile Island wasn't what happened back in 1979, though, but rather what happened, or more precisely didn't happen, over the course of the next 40 years in the United States. Literally overnight, the near-meltdown of the reactor core changed public acceptance of nuclear power plants. No company in the U.S. has built a new one since.

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Deepwater Horizon was not a producing well, nor will it likely ever be one. Hemorrhaging anywhere from 5,000 to 25,000 barrels of oil every day, the spill is already approaching the size of the discharge from the Exxon Valdez. What's worse, BP has no way to shut it off, short of drilling a relief well to divert the pressure, which will take three months. At 25,000 barrels a day, three months means a cumulative discharge of 2.25 million barrels of oil, or 94.5 million U.S. gallons (one barrel equals 42 U.S. gallons), or roughly eight Exxon Valdez spills. Even at 5,000 barrels a day, that's almost 20 million gallons of oil. And to top it all off, by the time a relief well can be drilled, we'll be smack in the middle of hurricane season.

The scene of hurricane-force winds raining oil on New Orleans and the rest of America's Gulf Coast will no doubt make for an apocalyptic image of the end of the age of oil. Unfortunately, our dependence on the stuff will survive this catastrophe, even if the fisheries in the Gulf of Mexico and the marsh ecosystems of the Mississippi Delta won't. But what might also not survive is deep-water drilling: No company's shareholders will be willing to accept the consequences that BP will soon have to face.

President Barack Obama has suspended his recent decision to open new offshore areas for oil development and has declared a moratorium on new drilling. You can imagine what the regulatory environment will be like after three months of the spill, just as you can imagine what those satellite photos of the Gulf of Mexico will look like.

But what you might not imagine are the implications for world oil supply. Conventional oil supply has not grown since 2005. Without a steady stream of oil from fields below the ocean floor, not only can't world oil production grow, it can't even stand still, since we rely on oil from new deep-water fields to replace the bulk of the four million barrels per day of global production we lose every year to depletion (out of a total of roughly 86 million barrels per day).

If the Deepwater Horizon disaster is the offshore energy industry's Three Mile Island, then not only has world oil production already peaked, but it will also very soon start to shrink.

So if you think oil prices are high today, you ain't seen nothing yet.

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