Peak Oil
Concerns and worry about Peak Oil are overstated and irrelevant. Many articles and books have been written on the topic and many lectures given. Dire predictions have been made and many people have concluded that because of peaking of crude oil production, the future of the human race is bleak.
Peak Oil theory seems so intuitive. There is a finite amount of oil contained within the crust of the earth. As the human population increases and the global middle class expands, we have used, and continue to use, more and more crude oil. The amount of crude oil remaining, therefore, dwindles with each passing day. Therefore, it is inevitable that crude oil production will peak and then begin to decline. As production declines, bad things will happen. The price of crude oil will certainly rise dramatically, and geopolitical conflict will develop over access to the remaining pool of crude oil. The good life that we live now will come to an end.
As intuitive as this logic is, it has a large problem. It is flawed.
Why? Because we live in a market economy and because technology keeps advancing.
Crude oil is but one form of energy available to the human race. As the price of crude oil rises, exploration companies are incented to find more supply. Shale oil reserves are developed. Also, substitutes to crude oil become more viable. Natural gas displaces fuel oil and also begins to be used more and more as a transportation fuel. Renewable energy sources become more economical. Energy markets adjust. Alternatives are found.
Peak Oil theory focuses on the perceived inevitability of dwindling supplies of crude oil. What the theory ignores is the possibility of declining demand for crude oil. There are more and more indications that the demand for crude oil is slowing and will begin to decline. The energy intensity of our economy is declining as efficiency and productivity improvements permeate our homes and industry. The world population is becoming more urban, lessening the need for gasoline as a transportation fuel. Cars and trucks are more energy efficient.
With crude oil supplies increasing and the demand for crude oil slowing, and likely to continue to slow more, demand for crude oil will peak long before dwindling supplies of crude oil become a concern.
In the words of Sheikh Zaki Yamani, the former Saudi Arabian oil minister, “The Stone Age came to an end, not because we had a lack of stones, and the oil age will come to an end not because we have a lack of oil.”[1]
[1] Fagan, Mary, “Sheikh Yamani predicts price crash as age of oil ends,” The Telegraph, June 25, 2000,http://www.telegraph.co.uk/news/uknews/1344832/Sheikh-Yamani-predicts-price-crash-as-age-of-oil-ends.html.
Evelyn Teel contributed to this article.
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