Peak Oil

Vaclav Smil @ TCS takes on the peak oil myth.

Peak oil theory is the theory that the production of recoverable oil deposits will hit a high point at some point, then production will rapidly diminish with consequent diasaster to civilization. Obviously, the environmental lobby loves the idea. Personally, I've been researching global oil produciton for a while now to see if there is any evidence of declining production for a couple of years now, and haven't seen anything yet. But of course, evidence to the contrary just makes the true believers postpone the date of the supposed apocalypse.

"Well, the numbers for 2006 are in. And they show that even after OPEC once again cut its production (by 1.2 million barrels a day effective November 1, 2006) in order to arrest yet another rapid fall in prices, the global oil supply for the entire year rose once again, by about 0.85 million barrels a day. That is about 42 million metric tons a year, or more than the annual output of Oman or nearly twice the annual extraction in Azerbaijan, a major oil power on the Caspian Sea. But once we take into account the need to replace worldwide reserve depletion (currently amounting to more than one million barrels a day) this means that some 2 million barrels of new oil found their way on the global market, an equivalent of adding a bit more than UK's entire North Sea production or Iraq's annual extraction."

Proponents of the theory point to the work of their patron saint, geophysicist Dr. M. King Hubbert, who we are told predicted the high point of US oil production from the lower 48 states at around 1970, but Smil examines his work pretty closely and finds a few issues with it. for example, actual US peak production was over a half a billion barrels over the prediction peak, in 1970. He also expected the decline in production to a symmetrical curve of the increases, and his expected US production of 1.2 billion barrels in 2000 was actually 2.8 billion barrels.

To make a long story short, that amazing marketplace indicator, the price level, has raised and lowered oil prices, adjusting both global supply and global demand far from Hubbert's projected levels. Of course, as the price level for oil rises, demand goes down, and both technological innovation and further exploration take place, allowing for the profitable exploitation of alternate supplies (like oil shale), more difficult to reach areas (like deep water wells in the Gulf of Mexico), as well as the possibility of opening formerly unprofitable old wells.