What Happened to Peak Oil?
About a decade ago, the peak oil concept was very popular. The argument went that oil was a finite resource and that the peak output level and decline was shortly to arrive as demand exceeded supply. A number of people even expanded on this basically accusing the Saudis of ‘lying’ about their reserves and painting a very dim picture of future supply/demand. At the time, I argued and wrote that this peak oil theory was simply nonsense as it neglected two very important things – economics and human ingenuity.
On the former point, the peak of oil recovery will show a relationship to the price of oil and on the second, we humans have a habit of being opportunistic and inventive so that I expected new recovery methods and new plays to be found offsetting and delaying any potential peak for an unlimited amount of time into the future. I was even laughed at for my views. For example in his book The Entropy of Capitalism, Robert Biel writes the following…”It is amusing to observe a leading defender of energy hedging strongly affirm the existence of an energy crisis while denying the reality of peak oil (Vasey, 2005) his vested interest is….” I have to say, I find it rather amusing to read the rambling thoughts of an anti-free marketeer attempting to cover a topic he doesn’t understand and his assumption that an industry analyst has a vested interest….
However, I was right. Peak oil was nonsense that wouldn’t hold up when set against economics and human ingenuity. There is going to be a peak but when that occurs is anyone’s guess. It simply isn’t going to occur in the near future.
Today, the argument for peak oil is rarely heard of course but there are many shrill voices looking to drive up the price of crude oil as I recently wrote. Again, I simply cannot see this occurring without some fundamental change in the fundamentals and I made my own arguments in my recent blog. Today, I stumbled across a really well thought out and well written Forbes article however that I would encourage you to read. The U.S.-OPEC Oil War Takes Another Turn by James Conca makes some very interesting points about both economics and human ingenuity as it relates to US production and concludes with the following statement – “Maybe this Oil War is not over, but the U.S. seems to be holding the bigger stick.”
Amen to that!
By the way, I made a very comprehensive argument against peak oil in the book – Energy & Environmental Hedge Funds – Fusaro & Vasey, 2006 if anyone is interested in reading them.
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