So when world petroleum production dipped
slightly in 2006 and again in 2007, this predictably brought the usual Peak-Oil
disciples out of the woodwork. The global oil peak -- first
predicted for the mid-1990s, and many times since -- was finally upon us, they
said. From this moment on, production would steadily fall, culminating in the
end of life as we know it.
But once again, their crystal ball has
failed. Petroleum production for the first quarter of 2008 rose to 74.5M
bbl/day -- 1.2M higher than the 2007 average. Those figures don't take
into account Saudi Arabia's recent pledge to pump another half-million barrels
a day, a promise they've already met by the first 300,000.
Even better, a landmark
study of 800 major oilfields recently performed by Cambridge Energy
Research Associates (CERA) found that the rate of decline averaged only 4.5% --
about half of what was previously thought. That, coupled with new field
development, means the world is on track to be pumping more than 100 million
barrels/day by 2017, according to CERA.
How does Peak Oil get things so wrong? First,
it ignores technological improvements in oil discovery and production. As
science advances, the URR (ultimately recoverable reserves) of existing fields
rise in pace. Thanks to advances in water and CO2 injection, many oilfields
predicted to have been dry a half-century ago are still pumping strong today.
But more importantly, Peak Oil puts the
economic cart before the horse, with the notion that supply is independent of
both price and demand. So much for Economy 101. Higher demand means higher
prices... and higher prices increase supply. There are trillions of barrels in
the ground that can't profitably be pumped at $50/bbl. But at $140, the story
is different. Existing fields are worked harder, unprofitable fields get opened
up, and exploration picks up pace.
Several large new fields have been discovered
in the past decade alone, such as Brazil's Tupi and Kazakhstan's Kashagan --
the latter not much smaller than Saudi Arabia's Gwahar, the largest field in
the world. In fact, since 1965, we've found five new barrels of oil for
every three we've burned. And vast North American deposits of tar sands
and oil shale -- too expensive to process even a decade ago -- are now
beginning to look like a bargain.
Most of the world hasn't even been fully
explored for oil, including vast stretches of land in Russia, the Arctic
and Antarctica, and nearly all the deep sea itself. Some of these
undiscovered fields are in places we can't pump oil -- not with today's
technology. By 2050, though, wells atop the thickest Antarctic ice, or through
five miles of ocean floor will be trivial to implement.
Higher prices have another effect -- they
enable alternatives. At a cost of somewhere around $150/bbl, coal can be
directly transformed into oil -- and the US has the largest coal reserves in
the world, enough for hundreds of years.. At even higher prices, oil can be
synthesized out of nothing but CO2 and water...if one has an abundant supply of
Throughout history, many other resources have
hit production peaks. But the point missed by Peak Oil acolytes is that past
declines -- on everything from whale oil to natural rubber -- were the result
of falling demand. Prices rose until alternatives became cheaper, which reduced
demand...and so production fell.
So yes, oil will one day peak. But it won't
be in our lifetimes, or our even our grandchildren’s. And when it happens, it
won't be an earth-shattering catastrophe, but rather a smooth and natural
progression to better, cheaper alternatives.