Close that italics tag.

It's confusing if you don't understand the oil industry.

It's still a matter of cost. People don't realize how bloody cheap it is to produce Saudi crude, how much can be pumped out and how easy it is to get.

Crude in the Middle East costs about $1 per barrel to get out of the ground and into a tanker (ignoring royalties, lease payments and so on). Production costs in North America run at least 5-10 times that right from the get go, plus North American wells simply don't flow at the volume of Saudi wells. The average well in Texas produces 6 barrels a day. The average Alaskan well, 300. Alberta runs about 20. The average Saudi well produces 6000 (yes, six thousand) barrels a day.

So, you have to look at it from an economic perspective. Yes, at current prices more potential production from North America becomes possible *but* there's still this monstrous proven reserve of incredibly cheap fast-flowing oil out there sufficient to meet current demand. Political instabilities in the region make that a somewhat risky source right now but it's not yet considered unobtainable.

Simple analogy: imagine a grocery superstore. Normally, because it can buy in bulk and through the economy of scale, and because of the special storage needs of the marvelous product petrofruit, it can sell petrofruit at $5 a box. A small Mom and Pop grocery store, because they don't handle as much petrofruit or take advantage of bulk storage, have to sell it at $10 a box in order to make a profit.

The superstore gets in some kind of problem that interrupts the petrofruit supply (say a labour dispute in the produce section). For whatever reason, the price of petrofruit rises to $10 a box at the superstore. At that price, the small grocery store can sell petrofruit at a profit. But if you're an owner of a small grocery store, do you invest money in the storage facilties (petrofruit requires special handling) to sell petrofruit if you know that, should the superstore get over the problem, they'll be dropping the price back down to the level that they can make a profit at but you can't? Of course not. Now, if the demand of petrofruit grew to more than the superstore could supply so you knew that they couldn't keep up, and therefore demand would make the increased price permanent, then there's room for you to get in on the action. But the situation isn't that bad yet.

If companies have not started drilling on these local leases, it indicates one of two things:
1) The drilling/pumping/transport costs are still above $42/barrel or
2) These companies are not convinced that prices will remain at this price.

I'm going to go with the latter. Summer (peak use season) is coming to an end. Who knows what's going to happen in Iraq. There's still that alleged promise by the Saudis to do what they can to lower prices for the election (if they can pump, their costs are below $10/barrel). The situation in Russia involving back-taxes is unclear. Finally, if the world does go into a slowdown (and I'm thinking of China right now), demand could fall fast. So, though, my next car is going to be a Prius, I'm not ready to invest in an oil field.

Want to get depressed look at this

Is the world's oil running out fast?

From the article

"Oil is far too cheap at the moment," says Mr Simmons.

"The figure I'd use is around $182 a barrel. We need to price oil realistically to control its demand. That is because global production is peaking."

Large new oil fields are ever more difficult to find
"If we price oil correctly," Mr Simmons says, "it could give us time to find bridge fuels, fuels to fill the gap between an oil economy and a renewable economy. But I don't see that happening."

The adherents of the peak oil theory warn the decline of world oil output will force oil prices higher for good, and that the knock on effects could be catastrophic.

"In my opinion, unfortunately, there will be no linear change," says Iran's Ali Bakhtiari. "There will only be sudden explosive change."

No conspiracy theory is needed to explain
lack of drilling on US territory. It is
really simple: after 100 years of drilling
on US territory there is very little
prospect of finding interesting amounts
of new reserves. The current effort is
deep-water drilling in the Gulf of Mexico.
Petroleum production on US territory has been
falling for more than 30 years, and there
is no prospect of reversing that trend.

More generally, plate tectonics theory
enables petroleum geologists to predict which
formations are candidates, and most of the
best candidates have already been drilled,
worldwide. So, there are few prospects for
increasing worldwide production.

The question which remains is: when will
worldwide production begin to decrease?

Adding to the peak oil/depletion meme:

I suspect what's happening in the United States regarding oil is not so much about economics as it is about physics. Regardless of what the dollar price of a barrel of oil is, the energy cost of pumping that oil has to be less than the energy derived from the oil. Stated another way, if it takes more energy to pump the oil out of the ground than the oil provides it isn't worth doing. It would be better to simply use that energy (let's say it's electricity driving the pumps) directly for some end purpose (powering kitchens, turning lathe's in a factory, etc.)

Many old wells in the United States might have reached the point where the energy derived from the oil is less than the energy needed to bring it to the surface. It's not that these wells are completely worthless. It's just that the oil derived from them is no longer a primary source of energy.

The date when the world runs out of oil is still far away. However, this date is irrelevant. There are two much more important dates for industrial history:

1 - the day world oil production peaks. From this day forward, we the citizens of the world will need to use less oil each year than we did the previous year. Oil production peaked in the continental United States in 1970. We gave up on finding an alternative and have simply imported the oil needed from the rest of the world. World oil production might have peaked this year (if it has we should see a rise in price to at least the 1979 level - $80 a barrel - if not higher). The best evidence that world oil production has peaked or is about to is the absence of new refinery construction by the oil companies. It is their way of saying that they do not expect to need to be able to process any more than the current 80 million barrels of oil a day any time in the future.

2 - the other important date is the date the oil wells of the world require more energy to run than they can produce. From that date forward, oil is no longer useful as a primary energy source. I'm not sure when this date will arrive in the Middle East. But in the United States, considering the high price of oil and the lack of any increase in oil production here, perhaps many/most wells have reached that date already. The state government of Texas is spending a bunch of money capping old wells (apparently thousands) left abandoned by bankrupt oil companies.

To emphasis the importance of this issue, consider my commute this morning (please excuse some of the math/figures – I don't have all day). I got in my imported car (oil powered the ship that carried it to CA), started the 30 mpg engine (powered by gasoline derived from oil), backed into my driveway (covered with asphalt, an oil derivative), got onto a four lane boulevard (also paved with asphalt which was poured and leveled by machines (powered by diesel derived from oil). I watched a 777 take off from an airport (powered by kerosene derived from oil), accelerating to a speed of 640 mph and carrying 400 passengers. It's going from California to Tokyo and will get there in 11 hours.

Try to imagine the above commute, using half as much oil. I got on my domestic motorcycle (carried by diesel powered train across the great planes to California). Started the 60 mpg engine, and carefully duck footed the bike down my gravel driveway. I merged into the motorcycle, scooter, bicycle and the occasional car traffic on a two lane road. I watched a prop-jet powered commercial plane lift off from an airport, accelerating to a speed of 375 mph and carrying 250 passengers. It's going to New York and will get their in 8 hours.

Now try to imagine the commute without oil (and assuming we have yet to discover a source of energy we don't already know about today). I left my apartment and walked down the concrete(? requires a lot of energy to make a pound of concrete) sidewalk to the electric light rail station. I waited for a train. I watched the bicyclists (some electrically assisted) go by on trails covered in fine gravel. I saw Bill Gates Ethanol powered prop plane lift off from a grassy field. It was carrying Bill, Melinda, and a pilot. They were going back to Washington. I didn't really care how long it took them.

For some positive perspective on what the future might hold, I recommend reading http://www.evworld.com/, Home Power magazine, and for the more distant future - Infinite Energy magazine. Life will go on. But if you're itching to jet around the world, I recommend doing it soon.

We just got to figure out how to drill deeper. That's all. There's no "peak." It's a lie for the benefit of those selling the oil -- the companies, the producing nations and organizations, etc. There's no shortage of hydrocarbons. We just have to get some new techniques going to dig deep.