Peak Oil News: Were We Wrong To Fret About Peak Oil?

Wednesday, September 17, 2008

Were We Wrong To Fret About Peak Oil?

Environment and Energy

By Bradford Plumer

Remember when $200-per-barrel oil looked inevitable? Or, at the very least, a $100-per-barrel plateau looked certain? Plenty of oil analysts thought that was just over the horizon (yes, I was also guilty of this). But now crude futures are hovering down around $90, despite the succession of brutal hurricanes in the Gulf of Mexico—mainly due to fears that the crisis on Wall Street will knock more wind out of the U.S. economy and further dampen demand. So does that mean all the frantic concern about "peak oil" and all the apocalyptic blather about the end of mass air travel and so on and so forth was all totally baseless and wrong?

Well, I'm not sure about that. Production figures and forecasts still suggest that oil production really may peak in the next few years—and, at best, won't be able to keep pace with growing demand in the developing world. But it's worth trying to clarify what peak oil would actually entail. Here's Richard Heinberg of the Post Carbon Institute: "Sometime around 2010 (give or take two or three years), growing decline rates in oil production from existing oilfields will overwhelm new production streams coming online. The price of oil will rise dramatically. However, when it does it will cripple the trucking industry, the airline industry, tourism, agriculture—essentially, the whole economy. A serious recession will ensue, which will reduce demand for oil (among other things). Oil’s price will temporarily drop in response. Then, as declines in oil production worsen, the price will resume its upward march—but again in a sawtooth or whipsaw fashion."

In other words, whether global production is peaking or just failing to keep up with demand, we may be in not so much for an inexorable march upward in the price of oil and a permanent $150-per-barrel plateau, but rather lots and lots of volatility—which would prove just as damaging in the long run. (What good is cheap oil if we have to suffer through a recession to get it?) Now, if Heinberg's right, then it's a good time to start reducing our vulnerability to oil shocks, which in the long term means getting off the black gooey stuff for good. In the short term, that means—among other things—lowering the energy intensity of the economy by improving efficiency (especially in the transport sector), which would minimize the damage inflicted by rapid price fluctuations. The fact that prices have rocketed back down rather quickly is no reason to get complacent. On the other hand, if we're in a world of wildly volatile—rather than permanently high—oil prices, that also makes it much harder for alternative energy sources to get a foothold in the market without smarter policies from on high.


At 4:27 PM, October 25, 2008, Blogger optionsblogger said...

Here is the good news about about oil. When prices spiked this summer, the cartel’s leaders attributed the jump to speculation, and Saudi Arabia, the world’s biggest oil producer and OPEC’s most powerful member, opened the taps and increased production to a record of 10 million barrels a day. The Saudis have since pared their output to around 9.5 million barrels a day, according to analysts.

As the lowest-cost producer, Saudi Arabia can afford to let prices fall for a while without hurting its budget. Most analysts estimate that the Saudis could live with oil at $55 to $65 a barrel. But other producers need higher prices. Nigeria’s oil minister said his country would be more comfortable with $80, Qatar has set a range of $70 to $90, and Iran’s representative said that prices below $90 a barrel would hurt.

For Iran and Venezuela, the drop in prices is particularly painful, because both have been spending freely on the assumption that prices would stay high. A continued drop in oil prices, and a tough domestic economy, could jeopardize the position of Iran’s president, Mahmoud Ahmadinejad, who was elected on a populist platform and who faces re-election next year. Alexander Shlepakov


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