Answers to a A 'Peak Oil' sceptic

abarrelfullabarrelfull wrote on 22 Apr 2011 06:13

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I found this article, by a self confessed 'Peak Oil' sceptic, and thought it worth a critique.

I myself am a sceptic, but I do think there are issues to worry about, so lets look at the arguments

1. There remains considerable scope for further oil discoveries. For example, the Arctic is effectively unexplored and is opening up, and there remain unexplored areas elsewhere, especially in deep water and onshore. Furthermore, the technology-driven successes in exploiting shale gas in the US should now be repeatable in shale oil.

This is no doubt true. However, look at the never ending saga of opening up new areas in Alaska, or offshore USA, to see that it is no panacea. Talking of the Arctic, the BP Rosneft deal (should it go ahead) is a good example here, but could take a very long time to first oil.

2. Putting new discoveries to one side, globally only circa 10% of existing oil discovered volumes have been brought onto production so there remains a considerable resource to be exploited.

This is a matter of economics, at today's prices, far more of the marginal resources are exploitable. Here time is the constraint. To take heavy oil as an example, upgraders need to be built.

3. Considering fields that are already in production, average global recovery factors are relatively low. Some industry experts place the number as low as 22%, others in the low 30’s. In either case, there is a considerable prize to be won by the use of improved recovery and enhanced recovery techniques.

This has to be the lowest hanging fruit, and technology is being sold by oil services companies to all and sundry. Yet even here, keeping foreigners out, can lead to under use of existing opportunities.

4. Some would argue that ‘Peak Oil’ will occur for economic reasons, specifically because the price of oil will rise so high that it will become too expensive to use. This will of course happen if the supply-demand balance remains tight and the cost of exploiting oil resources also rises.

This is where I am in greatest disagreement with the peak oil crowd. Above a certain level, oil prices just create recessions, which bring the price down again. Now we may end up with higher prices each time, but that effectively just leads to a long term gradual rise in prices, which helps to create the incentives needed to solve many of the problems.

Overall I tend to agree with Daniel Yergin, who says that peak oil is a political issue. It is politics that creates a barrier to solutions. Many Americans in particular fail to understand this. They believe that the free market and technology can solve the problem. Theoretically this is true, but in many countries the free market is not allowed to work.

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