Wednesday, October 14, 2015

Confirming My Argument on Peak Oil

I have written extensively that "peak oil" is a myth. Not only can we not know how much oil there truly is in the Earth, but even if we did, there are many factors which effect what is an is not "recoverable" as well as change consumption. If oil prices rise, previously "unrecoverable" oil, that is oil not counted in reserves, is suddenly available and profitable. Similarly, as prices rise, consumption falls, and thus peak oil theory, which relies on a linear growth of consumption (or worse) is absurd. Finally, "peak oil" ignores completely the possibility of new technology which can often transform "dry" wells into productive ones once more, or make accessible previously unprofitable reserves. Or even find reserves previously unseen and unimagined.

Well, today I found an article that confirmed my arguments. Its subject is not peak oil, but rather why President Obama should not be taking credit for increases in domestic oil production, but nevertheless it does help prove my arguments. First, it points out that most drops in production on federal land -- often used to argue oil is running out -- are the result of red tape and uncertainty over federal policies. Second, it demonstrates my argument about reserves by mentioning the Bakken shale formation. Officially, and in "peak oil" estimates, it contains 151 million barrels, or did, until the official figure was revised upward to 4.3 billion barrels. Yet, many experts imagine it contains upwards of 20 billion barrels. It also mentions the newly discovered Wolfcamp Shale, and additional 50 billion barrels previously not included in any estimates of "total oil".

The article then mentions a much more important fact, that for a long time shale oil and other deposits were not considered recoverable, in other words, not included in available reserves, but now technology and changes in oil price have made them not oil accessible, but profitable. In short, suddenly the total available reserves have skyrocketed.

All of which reinforces the point I have made -- and Julian Simon made before me in a more general way -- there is no "day when X runs out", thanks to price increases, substitution, new production and surveying for new reserves, every natural resource will be around for a long time. And this is especially true for oil. The propaganda about "peak oil" is based on a number of absurd ideas. First, that our current known reserves (which almost always amount to 30 years at current consumption) are in any way related to the total amount in the globe. Second, that the US's reduced production since the 1970s is somehow the result of reduced availability and not of ill-considered price controls in the 1970s, along with subsequent environmental and other regulatory impediments. Third, that technology will not improve, that present methods of production are just about the peak of development. And finally, and most foolishly, that price plays no part in production, that shortages, resulting in rising prices, will neither reduce consumption nor spur technological innovation and searches for new sources or potential substitutes.

So, if you think I am wrong about those four issues, then please embrace peak oil theories, but if you believe known reserves tell us mostly how much reserve supply oil companies need to feel comfortable -- or are willing to invest in prospecting -- that the decline in domestic production was largely a political phenomenon, that technology is not stagnant and, most of all, that the price mechanism plays a dynamic role in all economic processes, including the oil industry, then please disregard peak oil scare mongering.

POSTSCRIPT

My earlier essays on peak oil can be found at "A Brief Thought on "Peak Oil"", "I Am Going to Say Something that Doesn't Make Sense", "The Consumption Curve", "Peak Oil Re-Run", "A Brief Comment on Oil", "Why I Doubt Peak Oil Predictions", "Rejecting "Peak Oil"", "Why Peak Oil is Laughable", "A Thought on Oil Reserves", "Greed and the Price of Oil", "Bad Economics Part 1".

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