It was a doomsday prediction which, like a lot of doomsday predictions, never quite came true.

It was known as “peak oil.” 

In 1956, an American geophysicist named M. King Hubbert submitted a research paper to the American Petroleum Institute that projected that oil production in the US would peak around 1970. From that point on, as we exhausted the in-ground supply, the US would be able to extract less and less crude to meet its energy needs.

By the early 70s, it looked like Hubbert might have been on the money. In 1970 US oil production peaked at just over 10 million barrels per day and then started to decline for the next 35 years. 

It was a scary thought given that our entire economy is based on fossil fuels. A permanent decline in oil production would have led to soaring prices for the resource. And the prices of everything associated with it (which is pretty much everything) would soar as well. $30 a gallon gas anyone?

But in the end, it was technology to the rescue. 

By late in the 20th century, advances in extraction techniques as well as new discoveries have put the whole peak oil question on hold (at least for now). 

It’s a hard idea to come to terms with. Completely depleting one of our earth’s resources. 

But while many of the earth’s resources are abundant, they are also finite. And because they are, there is the potential to run out. (Without waiting a billion or so years for the earth’s crust to produce more.)

One metal in particular has begun facing shortages both above and below ground. And that could mean a significant opportunity for mining investors.

 

A “Peak” Scenario for Another Metal?

Silver is often considered a “second banana” metal to gold. Olympic winners get the gold medal. Runners up get silver.

But this common (mis)perception belies the potential value of silver given its supply and demand factors.

Here are are some best estimate numbers from the US Geological Survey (USGS):

• • As of 2023, 1,740,000 metric tons of silver have been extracted from the ground throughout history.
  • In terms of remaining underground reserves, the agency estimates about 610,000 metric tons are still available for extraction.
  • Given that the annual global silver production is approximately 25,600 metric tons, there’s about 24 years of silver left in the earth.

You might say we’ve already passed “peak silver.”

But that’s not the end of the story. 

While the lion’s share of demand for gold is for investment and jewelry purposes, silver has an enormous industrial demand. Some numbers from The Silver Institute:

• • In 2023, industrial demand for silver reached more that 12,600 metric tons.
  • Also in 2023, silver demand for jewelry and silverware exceeded 7,300 metric tons.
  • In 2023, overall silver demand exceeded supply resulting in a structural market deficit of over 5,200 metric tons.

And it has been growing for years.

This deficit in above ground silver is the result of a number of factors starting with the challenges faced by the mining industry itself. 

According to the book Chemistry of the Elements (Greenwood and Earnshaw) the average concentration of silver in the earth’s crust is 0.08 parts per million making it a pretty scarce element. 

And that scarcity shows up in the fact that nearly all silver is mined as a byproduct of other ore deposits. 

And given that byproduct status, the actual mining of silver isn’t always economically viable. 

In addition to the mining challenges, the growing deficit has another cause — a lack of recycling. Again from the USGS:

• • In 2023 1,100 metric tons of silver was recycled from new and old scrap. That number represented roughly only 16% of annual consumption.

Items like silverware and jewelry are rarely recycled (compared to gold jewelry) thanks to the low perceived value of silver. 

And silver is hardly ever reclaimed from industrial use applications. All of which means that some amount (and it’s very difficult to estimate, so we’re not going to try) of above ground silver is permanently lost every year. 

While the threat of “peak oil” and the skyrocketing prices that it portended, never came to pass, the silver market is facing a very real challenge to its supply.

One that could very well impact the future price of the white metal.

And one that mining investors should take note of…