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An Oil Plateau

We are running out of oil, so the story goes. A finite resource with limited supply and massive consumption — at some point the last drop will be used up, right? Wrong. The theory of peak oil is based on the assumption that global oil demand will continue to increase and as a result supply will eventually dwindle to nothing.  Both assumptions are myopic.

It is true that demand for oil has followed an increasing trend as developed and emerging countries increase use for production and personal vehicles. But at the same time efficiency has increased enabling us to get more power from less fuel.

On the supply side, proved oil reserves continue to grow. Yes, though a finite resource, the quantity that is economically viable to remove is increasing. Proved reserves are the known oil pools that are practical to access with current technology and price. As technology advances, so does the amount of oil that is economical to remove. While consumption in the decade between 1998 and 2008 was near 322 billion barrels, the available reserves grew by 480 billion barrels.

If supply does not keep up with demand, indeed, the price at the pump will rise. As it does, alternative energies become more appealing. They become more cost competitive and will be even more so with technological advances. The future will bring a transformation from the current-day oil economy to increased use of alternative energy sources. Daniel Yergin calls this the oil plateau in his recent persuasive article.

We did not depart the Stone Age by running out of stones. Nor will we run out of oil. It is markets that will determine the end of oil use. The last pools will be too expensive, relative to the alternatives, to extract. It is markets that will harness the next energy source that will lead us into the next era.

Originally posted at Environmental Trends.

Comments

  1. Your first two sentences completely misrepresent the view of the peak-oil movement. Thus you have built a straw-man that is easily blown down. You correctly assert that “If supply does not keep up with demand, indeed, the price at the pump will rise.” This is exactly the concern of the peak-oil movement, not that oil will run out, but rather that should the “supply not keep up with demand” that the shock will be disruptive to society and the economy. I presume that you mean to argue that market forces will bring about a smooth transition to a new reality if and when the supply of oil no longer meets demand. If so, then you should make that argument. Unfortunately, you have not done so here. Rather you have argued against the notion that we will run out of oil, which is a concern that no thoughtful person is worried about.