The web is abuzz over an upbeat report recently published in the New York Times that suggests concerns about Peak Oil are premature:
While recent years have featured speculation about a coming peak and subsequent decline in oil production, people in the industry say there is still plenty of oil in the ground, especially beneath the ocean floor, even if finding and extracting it is becoming harder. They say that prices and the pace of technological improvement remain the principal factors governing oil production capacity.
Among the responses I have seen online, perhaps the most compelling is a post on The Oil Drum by Richard Heinberg that punctures the main assertion of the article:
The ten billion barrels of new discoveries reported so far do initially sound encouraging: if the second half of 2009 is as productive, that means a total of 20 billion barrels of new oil will eventually be available to consumers as a result of discoveries this year. But how much oil does the world use annually? In recent years, that amount has hovered within the range of 29-31 billion barrels. Therefore (assuming continued good results throughout 2009), in its most successful recent year of exploration efforts, the oil industry will have found only two-thirds of the amount it extracted from previously discovered oilfields.
Heinberg adds that the heroic discoveries this year occurred in response to the equally heroic oil prices up to mid-2008. The oil that this wave of exploration has discovered is expensive - below an oil price somewhere around $70 per barrel, the oil discovered this year will actually lose money for any companies that produce it.
Worse, it requires oil prices that are higher still to trigger the expensive exploration activities that discover it in the first place.
This represents a conundrum: the industry is only able to discover significant new sources of oil in response to a price point that drives the global economy into chaos - and even then, it can only manage to find two-thirds of what the world will consume over the same period.
These are the horns of the global oil industry's dilemma: it seems we can have either oil prices that are low enough to allow the global economy to function, or oil prices that are high enough to spur new exploration and development (albeit not necessarily enough to replace annual drawdown), but not both.
Peak oil, as its supporters have argued for years, is not about the oil running out: it's about the point at which the world cannot continue to increase the rate of oil production without punishing price spikes that derail economic growth.
All of the available evidence, including that produced by peak oil deniers, supports the conclusion that we have arrived at that point. We will see further evidence of this once the global economy recovers, demand picks up, and oil prices once again start lurching upwards.
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