Well thats the essence of the problem.

In a sense whats happened with reserve additions is as technology has progressed the reserve estimates of existing reserves have grown. This decision to expand the reserves was in many cases bolstered by improvements in extraction technology and in discovery technology. We could see the oil better and extract it faster.

http://www.aapg.org/explorer/2000/10oct/gulf_future.cfm

"When you look at recent reserve additions - from 1991-1998 - we've actually added more reserves on average in older fields than the average size of new field discoveries," he said. "And I think it will come as a great surprise to people that that's where the big additions on the shelf are coming from."

And it gets better.

The growing importance of reserve additions in older fields is aptly demonstrated during both the 1983-90 and the 1991-98 time periods, when the average reserve additions per field from older fields was 27 percent larger than the average size of new field discoveries.

This margin increases to 75 percent if the large proportion of older fields with negative revisions is ignored.

Both the average size and the number of new field discoveries declined significantly between 1991 and 1998, compared to the previous seven years. The decline in the average size of new discoveries was nearly universal across all areas, with the exception of the East Louisiana area where the average size of new discoveries actually doubled.

According to Nehring, there were 103 national class giant fields (100 million BOE and more) on the GOM OCS at the end of 1998. However, the concentration of recent reserve growth in older fields was not primarily a case of the big fields getting bigger.

"Recent large reserve additions in older fields were disproportionately concentrated in previously small and medium-size fields, advancing them to larger size categories," Nehring said. "In the late 1990s, an interesting sidelight of this phenomenon has been the revitalization of previously abandoned small fields through substantial new pool discoveries."

He offers insight into the lack of dominance of giant fields in recent reserve additions.

"Those fields were discovered in the 1950s and 1960s for the most part and recognized early-on as major fields," he said. "So they were treated as core assets by their operators, undergoing several cycles of re-evaluation and renewed exploration, which left relatively few reserves to be added."

So the big ones where well known and well developed by the early discoverers yet some how we can do all these reserve additions even though obviously they had no problem exhaustively extracting the reserves in the 1950's and 1960's from fields that where profitable at the time.

The shock I'm claiming happened is laid out in detail in this link. Hopefully it should be obvious that despite the claims these are crumbs every now and then you get a big crumb sure but treating this situation equal to oil occuring in large fields in the 1960's is not correct its not the same and I'd not surprised to see a lot of it won't be extracted or moved to unrecoverable.

And again you can't underestimate the revolution in discovery.

http://www.enermaxinc.com/3d-seismic-imaging/

"Seismic techniques and satellite imaging, which are facilitating the discovery of promising new natural gas reservoirs, have nearly doubled the success rate of new field wildcat wells in the United States during the past decade."

A 50% increase is success rate is not small its not correct to ignore the impact of 3D Seismic on the oil and gas industry it was a revolution not evolution.

Now simply consider if we had not developed 3D technology or even horizontal drilling I'd argue even without them we would have eventually developed most of these resources anyway. It would have taken longer and required a lot more wildcat drilling. But if technology has for some reason been frozen at 1970's levels all that would have happened is a lot of the resources would have been developed later in time.

But drilling a hole in the ground is highly effective at finding resources. Its a powerful technique slow and expensive but it worked very well.

If the technological advances of the last few decades did not result in any real significant increase in reserves but instead accelerated the rate at which we extracted the remaining oil in a basin vs what we would have done if technology had not advanced then all we did was force the extraction profile to become highly asymmetric in most of the worlds basins. We have reached the point that we are going to find out what really happened.

My opinion is obviously that the geologists in the period from 1950-1970 despite their lack of technology actually got the right answer because wildcat wells including the dry holes where much better at delineating real resources than people realize.

We have just now in the last couple of years finally hit the point that we are about to find out if this argument is right or wrong. If correct then the process has already started and we should be seeing oil production already starting to decline rapidly.

Given the proposed steepness of the decline rates your not talking about significant changes in overall production measured in months not years. Your talking about losing say about 200kbd - 700kbd of production on a monthly basis.

Technically we don't even really have to argue this since given the numbers I'm proposing it obvious what would happen. Once this starts you would get a rapid spike in oil prices maybe high enough to collapse the economy.

Depending on the details of the situation and the rate of collapse you might get a very brief period where production temporarily exceeds demand but it would have to be a massive unprecedented collapse and fast. Economic activity would have to drop dramatically over a matter of months. It could happen but the probability is low.

Regardless you certainly expect some sort of economic transition as this is effectively the same as a fast above ground oil embargo. Its going to leave one hell of a mark.

Next of course this does not matter assuming that all that happens is a initial economic contraction not outright collapse literally months later you have lost enough supply that you hit the supply demand problem again.

If I was going to predict what would happen when this event hit then I'd expect what would happen is prices would rise fast the economy would then contract and prices would probably flatten or slow their rise substantially. I'd not predict a fast collapse in the economy no real reason to its improbable. Possible but improbable.

Thens I'd predict that economic contraction can't keep pace with falling oil production and the economy would then probably contract sharply. Now I'd expect the chances of a fast contraction to be higher.

After this then it really just depends on the details but your back to rising prices and ever more resilient demand. However now I'd argue that prices would then rise until substantial demand destruction finally slowed the increase. This last time around in my opinion it goes until the system is forced to seek alternatives to oil. Simple conservation no longer works.

I actually feel like my model is a better fit i.e I really feel like we saw a slow contraction that finally was overtaken by depletion and forced into fast collapse mode.

So both the recent economic events and my estimates points to my assertions having already happened they would no longer be predictions. The only predictive part is that we would expect that the production rate is falling so fast that you return to and expensive oil regime rapidly. In my opinion less than a year. Given what actually happened was a fast collapses in both prices and demand it makes sense to think that the market might respond slowly to the situation i.e expectations of a continued rapid fall in production that impacted the new lower demand level would be low. But it does not really matter if the market initially does not really believe the situation as the months roll on and prices increase yet the real oil supply continues to fall the market can and will adjust.

Certainly it would be nice to get a quantitative model with a bit better numbers but its really not required and one can argue that the system is changing fast enough that any sort of generic model would probably not be all that useful you can effectively watch the events unfold in real time.

Or the model is wrong and the contribution of oil to the recent financial bubble was secondary they where not a unified bubble i.e the financial bubble was caused by the oil situation and the oil situation caused the financial bubble to form to offset falling real oil supplies. This was just a simple recession albeit intense one and oil should stabilize at some reasonable price. Supply for the new lower level of demand is ample.
The price might be a bit higher in dollar terms but this is only from simple monetary inflation. Plenty of spare capacity is present so any pressure on prices should bring more oil online. A price spike could form but its several years in the future if at all. We have a very good chance that efficiency gains could easily result in a balanced system with prices remaining on average fairly low.

If I'm right then we are dealing with a situation that changes on a monthly basis if I'm wrong then the divergence of possible outcomes becomes clear in a few months.

The market of course will decide when and how it wants to address either situation its its own master but my scenario changes fast enough that if its correct the market will be forced to move it will have no choice. For all intents and purposes its facing an oil embargo like effect this will show up fairly quickly no matter what the public information is it cannot be hidden.