For the last year, Deutsche Bank's Paul Sankey, one of the best long-range energy minds on Wall Street, has been distributing a series of provocative, deeply researched, and forward-looking notes to clients under titles like "The Peak Oil Market" and "The End of the Oil Age." Last week, Sankey produced a sixth note called "2011 and Beyond -- A Reality Check." Among the takeaways: As of 2010, the new electric car age is coming upon us faster than expected -- far beyond this year's conspicuous arrival of the General Motors Volt and Nissan Leaf, and the race among the world's industrial nations to dominate this technology. Converging even more rapidly, says Sankey, are far higher oil and gasoline prices, starting in 2012. Such shifts could have enormous geopolitical ramifications -- as a consequence, some countries will become poorer, and some richer, with corresponding impacts on their global influence.

Starting with the second forecast from this 59-page report, 2010 has seen a comparatively gentle respite in an otherwise unprecedented, decade-long period of turbulence in oil markets. According to Sankey, this calm is about to break.  Sankey's forecast is based on the salient factor of "spare capacity." (If you are already familiar with the term, skip to the next paragraph. If you aren't, read on.) This refers to how much oil the world's petrostates can produce above and beyond current demand. So for instance, Saudi Arabia pumps about 8 million barrels of oil a day, but has dug enough wells in enough new fields to produce 50 percent more than that -- or 12 million barrels a day -- if it needs to. That excess Saudi productive capacity of 4 million barrels a day, plus about 1 million barrels a day of extra productive capability elsewhere, adds up to a global surplus of about 5 million barrels a day of spare oil production capacity -- the available volume above and beyond the 87 million barrels of oil a day consumed around the world.

Price-setters -- meaning oil traders -- see a lot of spare capacity as a cause for calm. They remain serene in the face of bad weather, pirate attacks, or pipeline explosions -- the sort of events that, in the 2006-2008 period (when there was much smaller spare capacity) sent them into paroxysms of panic, and accordingly sent oil and gasoline prices through the ceiling. This was because no one could say whence oil would come to fulfill demand. Since the world now has a cushion, we have the relative tranquility of 2010.

But Sankey effectively says that it's been a false calm. Reality is about to strike, he says, based on the following math: Global spare capacity is actually not 5 million barrels a day, but 4 million barrels a day when one takes into account what countries really produce, versus what they report. From there, Sankey projects that global demand will rise by 2.5 million barrels a day next year, and an equal volume in 2012. Looking at the future through this lens, you can see how we will rapidly work through our spare capacity buffer, and arrive right back on the knife's edge.

Interestingly, however, Sankey sees a ray of light in this coming crisis. He classifies the consequent years-long oil price spike (peaking at $125 a barrel in 2015) as the very reason that we are at the end of the oil age. He says that heavy petroleum consumers will finally absorb the message that they must at last wean themselves off of oil, and predicts that they will begin dieting -- permanently. Because of this new consciousness, in Sankey's model global demand will peak at about 96 million barrels a day in 2020, before commencing a long, slow decline.

John Hofmeister, the former president of Shell USA, agrees that a price spike is coming in 2012 that will drive gasoline to $5 a gallon at the pump:

(O&G has recently argued the other side of the pricing question -- we've discussed the possibility that prices remain relatively low going forward, and John Tierney at the New York Times has suggested the same scenario. But that does not contradict Sankey's compelling leading message of demand destruction -- we could still arrive at lower global oil consumption from 2020 forward, with all that that implies in terms of reduced economic and geopolitical leverage for oil-rich nations.)

In Sankey's view, this demand destruction will come almost wholly in the United States. The reason is that Chinese demand is inexorable -- its economy is so hot that Chinese demand can be tempered only so much -- and Europe is already rationing through the use of high government taxes on gasoline. That leaves the United States as the sole remaining source of trimmable high demand. Sankey acknowledges that heavyweight prognosticators at ExxonMobil and the International Energy Agency differ when it comes to global demand; both see global demand rising to about 105 or 110 million barrels a day by 2030 (versus Sankey's projection of around 90 million barrels a day that year). The reason for this divergence is Sankey's view of the impact of higher prices. He gambles much more heavily than the others on an American efficiency binge, which includes a sharp turn toward hybrid and electric cars. When one adds in the coming dramatic global shift to natural gas, one easily understands Sankey's logic.

Which brings us smoothly to the electric car age. Sankey blends a forecast from Deutsche Bank's automobile analysts into his note: We are in the midst of a plunge in the price of the most expensive single component of a hybrid or electric car -- the lithium-ion car battery, Deutsche Bank says. DB's auto team forecasts that the price of a lithium-ion car battery pack will fall from the current $16,250 to $11,250 in 2012 -- and $6,250 in 2020. If this trajectory holds, it means that in a decade, car batteries will reach the magic threshold sought by all battery-makers: a cost of $250 per kilowatt hour (the 2009 cost was $650 per kilowatt hour). (See page 20 of Sankey's attached report for an interesting chart.)

The reason $250 is the magic threshold is that, at that cost per kilowatt hour, hybrids and electric cars will more or less stand on their own without a subsidy; the buyer's payback period, when accounting for fuel savings, will fall to about three years, the point at which the DB team believes consumers will start to look at these vehicles on an equivalent basis with gasoline-driven models, and not as a lifestyle choice. Once that happens, car sales will spiral upward until, in both China and the United States, some 70 percent of new car sales will be either hybrid or electric models by 2030, DB forecasts.

That shift helps explain Deutsche Bank's projected long decline in oil demand. It also explains why China, Japan, Indonesia, Germany, South Africa and South Korea, the United States -- basically any reasonable economy you can imagine -- are part of the global race to win a piece of the advanced battery and electric car market. All see the strong economic boost that will accrue to those who succeed, a robustness that could shift the balance of geopolitical power.