Wall Street is getting nervous. As oil prices continue to creep up and as more evidence accumulates that the age of ever-growing energy production and economic growth is coming to an end, a specter is haunting the great investment banks and brokerage houses of New York. For five years now Wall Street and its chorus in the financial media have ignored or denied that global oil production has reached a plateau after 150 years of steady growth. Those who did admit to a problem were quick to assert that the markets would find substitutes first in the form of endless quantities of coal waiting to be exploited and more recently 100 years’ worth of shale gas would come seamlessly to the rescue.

The nervousness of course is that once global energy production starts to decline, capitalism as we have known it for the last few centuries will no longer be the same. While some new form of an economic system will evolve, the transition is likely to be long and painful. Many, if not most, jobs in the financial industry will simply melt away. Hence, for many, putting off the fateful day when we have to admit the inevitable is much preferred solution.

The events of 2008 when oil shot up briefly to $147 a barrel and the global economy trembled for months are still fresh in many minds. The western world’s banking system and Detroit had to be bailed out by the increasingly insolvent U.S. and European governments. Had not oil prices quickly reversed as demand for oil products faltered and oil plunged to $32 a barrel, we would have been living in a different world right now.

As we enter 2011, the denials that significant change is coming continue. Oil prices continue to rise, but until recently they have been met with the idea oil that could go up a bit more, but certainly not enough to damage the economic recovery. Oil may get to over $100 a barrel shortly it certainly will not go much further. In the last few weeks, however, a few as yet faint voices in the media have been adding a sentence or two to the effect that all might not be as well as hoped.

So where are we? A few weeks ago the most ominous news of year came out of Beijing when it was announced in muted voice that from here on out China’s coal production would probably not be growing much further. Chinese coal, of course, is among the miracles of our time. Starting at around 100 million tons per year when Mao Zedong took over the country, by the turn of the century annual production had increased to 1 billion tons. Then production really took off with output climbing to circa 3.2 billion tons a decade later. With oil production faltering and production of much of the world’s industrial output shifting to China, it was this steady increase in coal production that fueled China’s and therefore much of the world’s economic growth for the last decade.

Now, with this final surge in the world’s production of fossil fuels coming to an end the outlook for the global economy changes dramatically. Beijing, which is wedded to achieving an annual GDP growth of 8-10 percent, is already stepping up its imports of coal and is vigorously pursuing means of locking up as much foreign fossil fuel resources as the foreigners are willing to sell. If Beijing is unsuccessful in increasing its coal imports to the extent needed in the next few years, then it is likely to turn to increasing imports of oil and LNG.

As we enter 2011, the denials that significant change is coming continue.

The IEA says that during 2010 global demand for oil grew by 2.5 million barrels a day (b/d) and reports that during the 3rd quarter the annual rate of demand increased to a “giddy” 3.3 million b/d. As rates of growth in consumption this fast obviously cannot go on much longer in the face of very slow to flat increases in production, the IEA is saying that the increase in demand in 2011 will slow to an average of 1.3 million b/d.

Just to support the 3rd quarters increase in demand, global stockpiles have been dropping by 1.3 million b/d. Thus far Saudi Arabia, which is the only country claiming substantial surplus production capacity, has shown little inclination to increase production.

Trends for the next few months do not suggest that a major drop in demand is yet in sight. The northern hemisphere from Chicago through Europe to Japan is gripped by some unusually cold weather which will guarantee higher oil and coal consumption. China is still beset by widespread coal shortages and the accompanying power outages which guarantees demand for imported coal and oil to run auxiliary power generators will stay high.

Some are already saying that the IEA’s forecast of a 1.3 million b/d increase for next year is much too low. The big unknown for the coming years is the size and availability of OPEC’s spare capacity. If much of the 5 or 6 million b/d of productive capacity that OPEC claims to have in reserve does not really exist or cannot be opened in a timely manner, then much higher oil prices seem likely by spring. This, of course, will reduce demand again and we are off on another cycle of falling demand, more economic damage, and eventually lower prices. No matter what happens, 2011 is shaping up to be an interesting year – it could just be a pivotal one.

Tom Whipple is a retired government analyst and has been following the peak oil issue for several years.