The Australian Broadcasting Corporation’s national current affairs flagship, the 7.30 Report, ran an interesting piece on Peak Oil theory, which was surprisingly contrarian considering the ABC’s traditional biases (think BBC protégé). The most common manifestation of Peak Oil theory – a belief that at some point soon oil production will peak and then decline, causing spiralling oil prices and a world of chaos – has long been a favourite of environmentalists, leftists and the perpetually gloomy. However, of late Peak Oil’s slip is showing to such an extent that even an organisation like the ABC cannot deny it is distinctly iffy. I would go further; it’s demonstrably false. Mark Nolan, ExxonMobil Australia’s Chief Executive controversially stated earlier this week that
According to the US Geological Survey, the earth currently has more than three trillion barrels of conventional recoverable oil resources. So far, we have produced one trillion of that.
When an oil company representative talks like that, one tends to believe him – oil companies have a natural interest in maintaining a perception of scarcity to maintain upward pressure on the price of crude.
And he’s referring to known oil reserves. Thanks to woeful underinvestment in exploration by – and equally woeful management of – many of the world’s true oil majors, the state owned National Oil Companies (subscriber-only article, sorry), we may have knowledge of just the tip of the iceberg.
Considering the pace of development of alternative energy sources, the famous quote from former Saudi oil minister Sheikh Zaki Yamani that “the Stone Age did not end for lack of stone, and the Oil Age will end long before the world runs out of oil.” is looking more prophetic than ever. Peak Oil chaos? Stuff and nonsense.
I don’t entirely buy this “woeful underinvestment in exploration” line.
Surely, the only exploration worth investing in, is to cover the needs you know about, at a price you can predict?
Going any further – for instance, to investigate and quantify all findable reserves – would be a misapplication of resources.
“When an oil company representative talks like that, one tends to believe him – oil companies have a natural interest in maintaining a perception of scarcity to maintain upward pressure on the price of crude. ”
They also have a natural interest in discouraging the research and development of alternative energy sources.
And while I’m fundamentally agnostic about peak oil theories, there’s not a model I know that talks about running out of oil, but rather of affordable oil.
That is, the theory goes, there’ll be a time when a lot of oil costs a lot to extract, driving up its price and a lot of other prices in ways that could cause a lot of economic dislocation.
Maybe that’ll happen, maybe improved extraction technology and other sources can lessen the impact, but that’s the theory as I’m aware of it.
The price of Brent crude futures has fallen from $78 per barrel in August to around $63 now. That is one hell of a shift. Much of the height of the price was due to hedge funds and other speculators fretting about supply when things got nasty in Lebanon, etc. There has been also a lack of investment in refining capacity in countries such as the States, partly for environmental/NIMBY (not in my back yard) reasons. Katrina, Venezuela, problems in Nigeria, etc.
Ronald Bailey of Reason Magazine writes a lot about this from a sensible viewpoint. Worth checking out.
My geologist father told me when I was a little girl that the world was full of oil and that the seven sisters were circulating scarcity fables to control the market. Why he thought I would be interested is another matter but he was right. The world is full of oil and the cost of extraction in less likely places falls as each day passes and technology develops. Think Alberta tar sands.
Er, ignoring (for the moment) the entire economics question, OF COURSE at some point we’ll hit maximum oil extraction on earth. You can show that with mathematics. There is a finite amount of oil in the ground, so you can’t constantly increase the amount you remove without (at some point) running out.
However, this is totally unimportant. We passed peak whale blubber and peak beeswax candle production long ago without it causing any great economic collapse. Fossil oil prices will rise as it becomes more scarce, and this will drive people to find new energy sources, which will take over the market. We needed no government policies to move us from wood to coal or from coal to oil, and we need no central planning here either.
Possibilities include solar (which will probably be economically reasonable in about ten years given the rapid cost declines we’ve been experiencing — 30 years ago PV cost $600 a manufactured watt and is now down to $2.50 at SunPower and other high efficiency operations), nuclear (which is quite cheap already), “indirect” forms of solar like hydroelectric, wind power, biomass, etc.
In any case, the mere fact that the amount of oil in the ground is going down is not a cause for panic.
I want to emphasize, however, that just because we’re libertarians doesn’t mean we should be idiots and pretend that the supply of fossil fuel is not finite and that production will not peak at some point. It is finite, and it will peak, but it is not important that it is finite and will peak, since markets are fine at dealing with allocation of finite supply and sending signals to consumers.
Of course; that goes without saying. Hence why I emphasised that I was taking issue with
James,
As I commented here the other day, I am more than happy for the likes of aunty Beeb to bang on about Peak Oil: if it’s true, then carbon-induced global warming is not going to be an issue – they’ll have to make a choice…
PG
BTW, anyone seen the Al Gore film?
There’s also some reason to believe that oil might not be a finite resource after all, particularly because it rests on the assumption that oil is a fossil fuel.
The abiogenic theory for oil is an interesting one. No idea whether it accounts for the majority of oil in production today, nor whether it can provide cheap oil indefinitely, but certainly it’s still food for thought.
I think the big oil strike by Chevron in the Gulf of Mexico dealt a psychological blow to the market, The soon to be passed bill that opens up the Gulf along Florida to drilling has also sent a significant message to the oil markets.
For instance, Iran has been holding back production for months by pumping their oil into a large fleet of tankers. They were hoping the oil prices would go higher. Now they will be forced to dump that oil on the market. Prices are going to drop significantly before they bottom out.
— There is a finite amount of oil in the ground, so you can’t constantly increase the amount you remove without (at some point) running out.–
We are sitting on a furnace.
Oil wells off of Louisana and other parts of the US and at least 1 of the ‘stans keeps filling up over a period of 7-10 years.
—-
Well, what can they do when the Saudis say we have 140 years left???
Well given ASPO is predicting peak for next year and it takes a year or two to be able to recognize a peak we should only have to wait until 2010 in order to have some glimmer of which side is correct in this debate.
My feelings are that it is frankly irrelevant if it is a biogenic process or not because without the involvement of nonsense like magic nothing just “appears” and any process has a rate of production. If we are to believe it can be produced in such quantities that abiogenic supporters claim then we would find ourselves awash in the stuff rather than finding it increasingly difficult to find new viable fields as the old ones become increasingly un-economical to operate. I also harbor doubts about the ability of the market to respond adequately to this given the restraints that are placed on it, particularly in the energy sector, by governments around the world.
Of course most of these challenges will present themselves as opportunities to further advance and advocate a libertarian standpoint as the failings of the protectionist and interventional governments become increasingly apparent so I, for one, see Peak Oil as presenting a net gain rather than a loss.
Of course everyone switching back to coal and coal based derivatives would be wonderful ammunition to sling against the greenies. If they get so pissed off about 7% of our electricity coming from it how about 100% of all our energy? Some serious fun to be had there I feel.
I guess lefty will have to find another fake crisis to fetishize now.
I’ve seen the Al Gore movie. I will give you a summary.
-He shows widely known statistics
-He gets driven around while playing with his slideshow on his computer
-He shows statistics
-He gets flown around while playing with his slideshow on his computer
-He tells a story about his sister
-He does not propose many solutions (except to go back in time and elect him president, implicity)
-He lectures about reducing our CO2 “footprint”
-Shortly after he flies around in more jets (I guess no “footprints” can be made in the air?)
-Says some things that those who have been living under rocks would find interesting
-Sets himself up as a messianic figure
-Is carted around more, presumably
THE END.
Even considering much of what he said was “true” (scientific consensus), one should get their science elsewhere. Though seeing his silhouette against a satellite image of a hurricane (messianic imagery) is good for a laugh.
They also have a natural interest in discouraging the research and development of alternative energy sources.
Exxon has decided to remain a pure-play petrochemical firm, but Shell and BP have decided to diversify as “energy” companies. As a result, Shell and BP are among the largest manufacturers of photovoltaic panels. Shell also has other research (e.g. hydrogen). Do you think they are intentionally undermining the billion or so they have invested in that?
Why not? The vast majority of the world’s oil reserves are controlled by government owned entities, whose investment priorities are ultimately controlled by the political (rather than economic) market. Mal-investment in all its form is thus par for the course.
I don’t see how this is germane to the topic at hand.
Saudi oil is the cheapest in the world to extract. They have enormous reserves (known reserves, and the country’s largely unexplored) that could supply the world for a century or more. Considering the investment boom in alternative technologies that this current spate of high oil prices has provoked, I think it a certainty that oil’s replacement will arise long before we run out of easily extracted oil.
I believe the lack of refining capacity is a major bottleneck in the industry, yes.
I would be cautious in any expectation of consistency on the part of the greens. Take a look at the transcript of the piece I linked to. The Australian Conservation Foundation guy bangs on about a looming peak in oil supply. These types love this idea because they can use it to scare the bejeezus out of ordinary oil consumers, in the hope that these same consumers will provide demand for oil substitutes, creating a larger market for such products and precipitating a move away from oil. However, when the ExxonMobil executive makes expeditious mincemeat of these Peak Oil fears immediately after, the ACF guy shifts the goalposts and starts crapping on about how environmentally damaging oil is and what a nasty company ExxonMobil is. These types think nothing of simultaneously forwarding two contrary arguments regarding the importance of oil in our world. They are best ignored, but don’t expect them to stop forwarding their agenda any way they can.