Peak oil nonsense

My housemate came back from the internet cafe in a rotten mood. He had been reading the news and it made him really upset. The cost of the wars in Iraq and Afghanistan are swelling to over 2 trillion dollars, and some people estimate that we reached “peak oil” reserves 3 years ago… OK, the wars are a disaster, and I don’t know what else to do but get mad about that, but peak oil? What a crock.

The idea behind peak oil is “OMG, there’s less oil available, we’re screwed!” That’s a summary of the stance, and I think it’s pretty accurate. It’s ridiculous on a couple different levels. We’ll never run out of oil. That’s right we will never run out of oil. There’s a couple of reasons for that. The concept of peak oil was first brought up in the early 1900s. It was observed that there was not enough oil for the then current needs to be met in 10 years time. Well, guess what, more reserves were found. In more recent times, peak oil was again a worry. There wasn’t enough oil to go around in the decades to come! Well then the shale sand up in Canada added another source of oil, and when the price of oil rose above $50 a barrel, Venezuela’s reserves went online. They went from a minor player in the petroleum market to having the largest reserves in the world within the space of 10 years.

So, as prices rise, more and more oil is found. That’s one reason not to worry too much about running out of oil. Another reason is that when “Peak oil” theories are thrown around, they are talking about the “light sweet crude” grade of oil. That is the stuff that has the least amount of junk in it and is the easiest to refine into various useful products. There is an enormous amount of “sour” reserves. That’s oil with more impurities in it. Last I heard, the reserves of these sour grades is almost unimaginable. At some point, it will be economical to use these grades with more refining instead of the light sweet crude.

OK, so reserves keep growing as prices go up. That’ll be fine for the foreseeable future. If additional refining is needed, and nothing interferes, the cost of that refining will be minimized through compitition. There is a finite amount of oil in the ground, and we do use it at a much faster rate than it is created, there’s no getting around that. That part of the peak oil theory is basicly correct, although I think that it’s blown way out of proportion. The part of peak oil that drives me crazy is the tacit belief that we’ll just stand around and watch the oil be used up until it’s all gone. The idea is that we’ll run out of oil and the entire world will grind to a halt. The people that worry about this really don’t understand how markets work. As the price gets higher and higher, new ways will be found to find oil, new ways to conserve oil will be found (thus conserving the existing supply), and substitutes will be found. There are already substitutes available in the form of electricity and alternative fuels. This is why we’ll never run out of oil. At some point it will be so expensive that no one will want to use it. There will be a transition to some other type or types of fuel and oil, like whale oil, will be a historical curiosity.

All of the peak oil gnashing of teeth is really fear of change and a general distrust of people and their ability to adapt and thrive. It’s a really unnecessary and, IMO, obnoxious abject pessimism. Things will change, people will figure out how to use something else. Environmentalists the world over should be cheering the rise in oil prices, it’s the quickest way to have alternative fuels become viable. Where’s Julian Simon when you need him?

tags technorati : economics peak oil julian simon alternative energy