Peak Oil Enthusiasts too Enthusiastic

Peak Oil theory can be summed up as follows: The geologist Marion Hubbert predicted oil field production follows a bell curve. He correctly predicted the peak of US oil production in the 1970's. Believers then extrapolate this model to world oil production, claiming world production will peak very soon and then will follow a symmetrical production decline. Furthermore, because of supply decreases, oil prices escalate, countries fight wars over the remaining oil, and economic collapse/disaster ensues. See Life After the Oil Crash

There are numerous problems with this theory. First of all, oil reserves have increased from around a hundred billion barrels in 1950 to over 1 trillion barrels of oil in 2000, and the latest figures estimate we have 1.3 trillion barrels of economically recoverable oil. A 2000 USGS report indicates that 3 billion barrels may ultimately be recoverable. Despite less-than-trustworthy reserve numbers from OPEC governments, these trends in reserves are still very important. Higher prices have encouraged new discoveries—there is no reason to assume that world oil production will peak and quickly drop off—rather, it seems likely that production will plateau to some degree, mitigating the massive supply-demand gaps predicted by the enthusiasts. The plateau shape arises because new sources are brought into production and old fields are helped by newer technology, allowing a steadier production level rather than a precipitous dropoff.

Most importantly, Peak Oil believers do not quite understand the benefits of prices. Higher prices drive down demand as they already have this year and encourage more production and exploration, but also bring previously unprofitable alternatives to market and promote invention of others. But even if we assume that there are massive price spikes, and that there really is no oil substitute available, their theory still falls apart. If we listen to the Peak Oil enthusiasts, economic collapse occurs because everyone must cut back consumption because so much of our economy runs on oil. People must change their lifestyle—stop driving, stop flying, stop importing food from far away, etc. This is simply wrong. When the price rises, as it will, I do not cut back equally on all of my oil-consuming activities. I cut back totally on those I care least about, just as everyone else will. The overall economy, then, absorbs a decrease in oil supply with a far less than proportional reduction in economic activity because everyone cuts back on those activities that are least important to them. This is a very important point, and because we have such diverse lifestyles, with many substitutes, predicting collapse based on shortages in one input to the economy does not follow our past experience nor predict the future well with sound economic reasoning.

Doomsday predictions are not new. During a discussion with the Peak Oil enthusiasts, I likened their predictions of collapse to other doomsday predictions like those of Thomas Malthus 200 years ago, mentioning the fact that he was way off. Their response to me was "Right, but he didn't predict the discovery of oil." Exactly. Just like you aren't predicting the next discovery. And as oil prices rise, inventors are going to look much harder for the next discovery, once again showing how absurd static doomsday predictions are.

This time, they say, is different—We will not discover any new oil fields like Saudi Arabia's, newly discovered oil is sour and heavy, etc. There may be truth to these statements. No one disputes that oil extraction is more expensive now, but these arguments do not signal the end of oil. Of course, I could be wrong, and Peak Oil believers may be right, but speculation and wishful thinking are not solid evidence on which to base a theory, especially when history and economics say otherwise.