Have We Reached Peak Oil?
As the price of oil hits another high, the question on everyone’s lips is, “Have the days of cheap oil passed us by?” If the Peak Oil theory is correct, we could see major upheavals in transportation and industry in our own lifetimes. I don’t pretend to have the answers, and neither does John Tierney, but he and a partner put up $5,000 against Matthew Simmons:
Mr. Simmons said he favored a simpler wager, based on his expectation that the price of oil, now about $65 per barrel, would more than triple during the next five years. He said he’d bet that the price in 2010, when adjusted for inflation so it’s stated in 2005 dollars, would be at least $200 per barrel.
Who is Mr. Simmons? He’s the head of a Houston investment bank specializing in energy, he’s a notorious pessimist, and he also has a book to sell. In other words, a grain of salt or two is in order.
I’m not too worried about oil, yet…but I’m starting to be. I keep looking over my shoulder and seeing this industrializing China in the rear view mirror…
UPDATE 08/25/05: More thoughts and links aplenty from Viking Pundit…
UPDATE 2 08/25/05: More ‘peak oil’ thoughts from Winds of Change, including the news that the futures market is pricing oil at $39 a barrel in 2010…
Don’t worry too much about China — they are growing faster than we are, but they are still much smaller. We will both be very old before their economy is the size of ours, even if their growth rate never slows down.
‘Peak Oil’ theory requires you to believe that (a) known alternative sources of oil that we don’t use now because they are (or used to be, before the current rise in oil prices) slightly more expensive would not be exploited, for some unknown reason; (b) alternative technologies that are presently used sparingly or not at all because they are slightly more expensive at present oil prices would also not be exploited, for some unknown reason; (c) the shortfall in energy would come suddenly enough that (a) and (b) couldn’t be ramped in slowly; and (d) the four months of reserves we have sitting around for just such an emergency wouldn’t give us enough time to transition in (a) and (b).
Short of the Saudis, Iranians and Venezuelans all suddenly deciding to blow up their oil fields instead of selling oil, it’s hard to see how this scenario could possibly come about.
Clint, I tend to agree with you…I’m just a bit nervous that the price continues to climb…if oil comes down to $50 a barrel before year’s end, I’ll rest a little easier…
Julian Simon’s smackdown of Paul Ehrlich didn’t put a dent in his reputation, at least among the smelly hippy set. Simmons will lose and still rake in huge consultant fees.
At this point, I’m not worried that we’ve hit the world’s Hubbert peak, but I am concerned that we may be closing in on it for some of the major fields we’re exploiting right now. Many of the fields in the Middle East are having a harder and harder time extracting the pure oil that works best. In a sense, they seem to be working around the edges of the deposits and thus bringing up more sand, dirt, stone, etc, which of course then requires more refining costs. The major key is finding another major field to tie us over until alternative sources are ready.
It must have been a year ago, but Greenspan spoke to investors on just this subject some time ago. Historically, we didn’t run out of wood when we clear-cut vast forests as our major fuel source. Then we didn’t (and still haven’t) run out of coal, far from it actually. Innovation will come and in twenty years we’ll all laugh about this. The spickets aren’t going to run dry tomorrow.
Well, I must say, you guys have bucked me up some here…it’s true that good ol’ ingenuity and adaptation have bailed us out time and time again; why should that change now?…
Keith-
We absolutely are closing in on the peak of the oil sources we’re currenly exploiting —- but that’s been true continuously since at least the start of the last century. Arguably, it was true back to the end of the Civil War when we were closing in on the peak of what we could extract from the Pacific Ocean’s sperm whale population.
The only way alarmists like Simmons can tell even vaguely plausible stories of resource disaster is to make totally implausible assumptions about the timeline.
In the 1870′s there could have been an oil disaster if a new virus had appeared among the sperm whale population and devastated their population overnight. But it wouldn’t have been something for Nantucketers to sit up nights worrying about.