by CKR
Peak oil is a big issue. Google gave me 4,450,000 hits for those words. Kevin Drum and Majikthise have commented on it. There are numerous blogs and websites devoted entirely to the topic (metadirectory here). My old friend JLK and I have argued over it in another venue, and he is posting on the subject. As you can see if you click some of the links, there’s a lot that can be said about peak oil. I’d like to give an overview here of why I think peak oil is overhyped. I'll be glad to focus on specific points in future posts.
Peak oil refers to the idea that, because the oil in the earth is finite, its use will follow a bell-shaped curve. For oil, that curve is called the Hubbert Curve, after King Hubbert, who was the first to argue this case in this way. Peak oil advocates say that we are now at or near that peak.
This curve (from ASPO, via Kevin Drum) is a Hubbert Curve broken down into various sources. Each source has its approximately bell-shaped distribution, and they add up into an overall distribution of that shape. As new sources are discovered and brought into production, they push the peak of the curve further into the future. The politically-induced valley in the 1970s made some people think that we were past the peak.
Oil use may follow a curve like Hubbert’s, but we can’t predict the height of the peak or when it will arrive. Although it’s tempting to look at oil prices and conclude that we must be close to the peak, it’s not that simple. We’ve had high oil prices before, people have concluded that we were at or near the peak, and they’ve been wrong.
We could predict the peak if we knew the sum total of oil resources. But we don’t. Estimates of oil reserves both depend on and feed into the price of oil. If the estimates are too high, prices go down. Equity prices also influence the reserve numbers that companies are willing to publish.
Oil interpenetrates porous rocks underground. It’s not in big caverns. Sometimes it is pressurized by heat and gas, giving the gushers seen in old motion pictures. Modern drilling technology prevents gushers, because that pressure is valuable in lifting the oil. Further, the rapid depressurization of a gusher can deposit solid minerals that plug up the well. If there’s no natural pressure, pumping works for a while, and then water or gases may be pumped into the reservoir to push the oil out. It’s more expensive to pump than to allow a well to flow, and it’s more expensive to pump water in than to lift the oil.
At one extreme, the Saudi wells are cheap and easy to pump, and at the other, Canadian tar sands have to be dug out and treated with boiling water to remove the oil.
We also don’t know where all the oil is. A friend just sent me an article from Offshore magazine, “India: the next North Sea.” The subtitle says that 80% of India’s basins remain unexplored. The area around the Caspian Sea is at the beginning of its development, and more reserves can be expected to be added there.
Finally, there are political issues. Iraq famously was to have paid for the war with its oil revenues, but regular production depends on modernization of its facilities and the ability to keep the pipelines flowing. Countries with nationally controlled oil industries, like Saudi Arabia, are politically motivated to regulate the flow of oil and estimates of reserves.
For all these reasons, we don’t know how much oil there is, and even if we did, its production wouldn’t follow a smooth curve.
Currently rising oil prices seem to have to do with limited refinery capacity in the US and specialized requirements for gasoline in places like California (news article), along with increased demand by China and India as their economies expand, and a “terror premium.” Oil pipelines offer a tempting return on investment for terrorists. A small explosives charge will rip open the pipeline and set the oil on fire. Speculators and oil companies, along with those who hedge by buying oil futures, like the airlines, will pay more for promises of oil in the future because of these uncertainties.
These factors are outside the assumptions of peak oil and change its predictions. Refinery capacity may be raising the price by using petroleum more slowly. Actual attacks on the pipelines also slow down use, while the terror premium raises the price. Increased demand by China and India will use petroleum more rapidly.
Markets adjust to scarcity. If we are indeed at the peak of the Hubbert curve, prices for oil will go up, more hybrid cars will be made, rational governments will encourage conservation, and substitute sources of energy will come on line. But we have had oil scares about every twenty years, the peak oilers have pulled out their curves, and prices have gone down.
I’ll agree with the peak oilers, though, that it would be prudent to act as if we were at the curve’s peak. We need to develop safer nuclear power (which would also decrease global warming) and increase conservation. Oil will run out sometime, or the developing economies in the world’s two most populous countries will pinch the supplies. We need oil for transportation fuels. We must do what we can to make it available for its most efficient uses.
Thanks to JCR for the magazine article.
Update: More discussion at Majikthise and Searching for the Truth.
