So I’ve taken a job as an electrician doing industrial construction, and this being Alberta, it means I’m in the oil sands. We’ve all seen oil drop by more than 50% of its value from its peak, and this has had everyone here looking over their shoulders for possible alternate employment, especially as Suncor stock has dipped to a third of its peak value.
So we had a VP of the contractor I’m working for fly in and reassure everybody, that $60 oil does not mean the end of their jobs. Suncor, like every other oil sands developer, is taking a long view (20+ years) of the situation. Without giving specifics, this veep made it very clear that the oil industry does not expect oil to remain at $60 for a long time, and implied was the idea that $60 oil is somehow cheap, the new baseline, like $20 oil was a decade ago.
I mean is there any doubt that the current drop in prices is almost completely divorced from supply issues? Even the almight Economist, which tries hard to convince that the drop in prices is a natural and proper response to market forces, fails to convince me.
The real question is whether 140$ oil was also a “true” price to begin with unadulterated by traders, and the answer is clearly that no, it was not.
World population isn’t shrinking, and America’s economic importance to the world economy just took a dramatic and shocking ding. When the world recovers from this recession, the prediction is that emerging markets will take the bull by the horns, so to speak. While Europe and the US are cash starved, India, Russia, and China are flush with foreign dollars due to their export economies.
Like the peak-oil doomsayers, no one can really predict by how much oil production will decline worldwide vs. new drilling discoveries. But if it was like just this last time, even a small decline in supply will mean an atmospheric climb in prices again.
It’s obvious that in the long view, oil prices are going up for a while. It’s just as obvious that this will spur research into alternatives. Exactly how this plays out is unknowable, but it’s a good bet that 10 years from now oil will be selling for a lot more than $60 a barrel.
Of course, if we have a replay of the great depression, all bets are off. But I am hopeful that we will avoid that.
What’s happening is we’re having one market overreaction followed by another. The truth remains that the price on the nearly-unregulated futures market is only indirectly affected by supply and demand for actual barrels of oil. At the same time, realize that barrels of oil are being delivered today that were purchased on a 10-year futures market for even less – $40 or so.
Peak Oil, too, was always nonsense, because it’s based on a combination of premises that sounded good, but most of them were false as any with the dimmest grasp of geology could’ve told you. It’s there with “Loose Change,” another one of those cockamamie ideas that sound great to people who don’t know very much about the subject. People have said that we’re 20 years away from running out of oil for much longer than that. We might run out of oil at some point, but being right twice a day doesn’t mean you’re not a broken clock. :)
Oil is a source of stored energy that is easy and cheap to acquire, transport and use. As it gets more expensive, it justifies new methods of recovering known deposits that are far from exhausted. It also justifies eliminating waste in the design of vehicles that use it – right now, the bulk of your fuel consumption is spent simply pushing air out of the way of your car; more-aerodynamic design can easily double a vehicle’s MPG. Add hybridization, which converts energy lost during braking, and lighter vehicles (fewer SUV’s, more station wagons), and what you see is that we’re not likely to switch to any alternatives any time soon.
More money will be spent researching alternative fuels, sure. But the reason this research is necessary is because alternative energy sources have major flaws that prevent them from working as well as oil does. If you convert your food to energy, then food prices go up. If you convert solar power to energy, you have to deal with the sun going away half the day. Same problem with wind – what do you do when the wind slows down? Hydrogen is incredibly volatile, and costs a lot to convert to a portable format. Electric is nice for a while, but the electricity has to be generated reliably some how! Nuclear is tough to contain, expensive to acquire and produces waste that is not easily absorbed by the environment.
So my conclusion is that oil is going to continue to be the best, cheapest source of stored energy for the next century.
Oil is a finite resource. Barring catastrophe, one day we will have used half of the remaining oil in the ground. Okay, production might not follow a perfectly symmetrical bell curve but logic dictates that eventually production will drop off as the field becomes more depleted. Peak Oil just describes the way Oil production will rise and fall. Where’s the nonsense in that?
Peak Oil isn’t just a description of how oil production rises and falls, it’s also part of a standard hysteria that’s been occurring as far back as 1911, with people breathlessly predicting that we’ll run out of oil in a decade. That’s the part that’s bogus.
But even if you limit Peak Oil to just talking about Hubbert’s Peak, you’re not going to get unqualified agreement, such as the chair of UT’s dept. of Petroleum Engineering from the link above:
Emphasis is in the article. And from the director of UT’s chair of Economic Geology (and the State Geologist):
Tinker’s main criticism of peak oil analysis is the premise that oil production follows a bell curve. He says the front side does resemble the front side of a bell curve, but the back side, because of the constant discovery of new technology, is much less predictable. Tinker calls it “Hubbert’s Bumpy Mesa” and says that Hubbert readily admitted that unknowable future technology would play a major role. The shape of the backside of the curve is all important, because the less steep it is, the more time it buys us to make the transition.
But the most interesting part of Tinker’s analysis is that peak production isn’t the peak that matters, but rather usage, which we passed a quarter century ago:
The peak that really mattered happened in 1981, when oil usage (not production) reached its highest as a share of all energy sources in the United States, just below 50 percent. Since then it has trended down as a percentage of the whole and will continue to.
It must be nice to redefine what well-defined terms like Peak Oil mean. I’m saying “math” also means “sex with mathematicians”, why not?
I guess we don’t have to worry about US oil usage increasing from 1977 to 2000, as apparently only the relative usage percentage compared to other finite resources that can also peak matters, somehow. Interesting that the 1975 oil consumption is the same as the 2000 consumption, though; that’s prices for you.
In Rimbo’s defense, I often hear the term in the context of people making the loony bin “oil will run out in 10 years” arguments. It’s really only in the last year or so that I’ve personally seen the concept leave the domain of the loony debates and started to really get talked about by intelligent people discussing real issues without any sort of chicken little alarmist stance.
Rimbo, this may come as a shock, but I don’t really look at crackpot sites. Kunstler appears to go retarded whenever he talks about this, for one. I never hear crazy people talking about peak oil, but then, I don’t listen to crazy people.
I do hear economists, urban planners, environmentalists, talking about it as a mitigation problem to be solved, so I’m not sure who or what you’re arguing with.
The reason people talk about peak oil like it’s the end of the world is that it could be. Basically, depending on how gentle the trending down is after the peak, and how the economy is, and how tractable new energy technology is, things could be OK, a bit rough, or absolutely terrible. Personally, I think the tech exists to soften the transition, but the question is of public behaviour, economic strength and political will. I think that we absolutely could be stupid enough to exacerbate the peak oil situation into a major catastrophe if we try.
While your concept of Peak Oil may be perfectly reasonable, and while Hubbert’s Peak is generally accepted, the whole point the Peak is an issue, the whole reason people bring it up as a point of discussion is the belief that this is something that’s going to happen SOON and we have to DO SOMETHING DRASTIC or we’re all DOOMED. If just one of those were to be removed from the discussion (Soon, Doing Something Drastic and Doomed) then Peak Oil would be nothing more than an entertaining concept for academics to debate.
The whole point is to get people into crisis mode about energy.
I have hope that this little scare we all just went through with oil prices will force us to look more at conservation, alternative energy sources and smarten up our political relationships.
I also have hope that during the next economic expansion we’ll spend less money at Starbucks and on fast food and feed little African babies and build more hospitals while saving for the inevitable future downturn.