Throughout the history of the oil industry, fear and concern about the imminent exhaustion of the world's oil resources has been a recurring theme. Today's "peak oil" theorists continue this tradition, constantly facing the need to revise their dire forecasts without ever examining why their earlier predictions were wrong.
OXFORD – Throughout the history of the oil industry, fear and concern about the imminent exhaustion of oil reserves has been a recurring theme. Such sentiments often spread and capture the public imagination at times of rapidly rising oil demand, sharp spikes in energy prices, and geo-political uncertainty. So today’s talk of oil scarcity, which began at the turn of the last century, should come as no surprise.
Believers in oil scarcity point to the sustained annual average increase of oil prices from 2002 to 2008, declining output in many areas of the world, and the absence (until recently off the coast of Brazil) of large-scale oil discoveries in the last few decades. All these factors lend credence to the view that oil production has peaked. In the face of relentless demand-side pressure, driven mainly by high-growth countries like China and India, some predict stratospheric energy prices, supply shortages, economic and social hardship, and even resource wars.
Given that oil is a non-renewable resource, in a sense the world is always running out of it. Unless global demand collapses, at some point in the future oil production will peak and eventually be exhausted. But this prediction is close to a tautology. For it to be useful, believers in scarce oil must be able to predict such things as the timing of the oil peak, the state of demand when oil production reaches it, and the pattern of decline.
But the track record of “peak oil” theorists on such matters has not been impressive: their predictions have steadily moved forward the date that global oil production will peak. Worse still, they have made no serious attempt to identify why their earlier predictions have had to be revised.
A major problem is that such predictions often confuse resources with reserves. Resources are the available volumes of hydrocarbon without reference to constraints as to their accessibility and/or cost. Resources impose an upper bound on what ultimately can be produced; thus, it is the relevant concept for determining the likely dates of peak production and ultimate exhaustion.
If the volume of oil resources were known with certainty, and if we could accurately predict the growth of oil consumption, calculating the imminence of exhaustion would be simple. But these are big “ifs” – especially given the high level of uncertainty regarding the ultimate volume of oil resources.
While peak oil theorists have strong views about that, they do not allow for all the current and future technological possibilities that might increase resources. Indeed, given the difficulty in estimating the total size of resources, many consider peak oil theories irrelevant.
Fortunately, the focus of the debate is on reserves and not resources. Reserves are defined as the quantities of petroleum that are expected to be commercially recoverable from known fields. The concept of reserves is technical and economic, not geological.
It is also a non-static concept, as estimates of reserves will generally be revised upwards or downwards as additional geologic or engineering data become available, as technology improves, and/or as economic conditions (such as oil prices and production costs) change. In fact, the bulk of recent growth in world reserves is due not to new discoveries, but mainly to reserve growth and improved recovery rates.
Moreover, despite what many believe, crude oil is far from being a homogenous product. There is a fossil carbon continuum ranging from easy, conventional oil, to deep and ultra-deep offshore oil, to extra-heavy crude oil. With technological progress and rising oil prices, most of these reserves will become conventional, helping to push back peak oil for years.
The failure to distinguish clearly between resources and reserves – and to recognize the importance of prices, costs, and technology in transforming resources into reserves – results in bad predictions about an imminent peak in oil production and misinformation that has had a negative impact on policymaking. Rather than focusing on the major short- and long-term challenges facing the oil industry, the debate about peak oil diverts attention to the wrong problems.
In the short term, there are concerns that oil production will peak soon, owing not to the unavailability of reserves, but to obstacles to investment – for example, access to reserves, sanctions, and policy uncertainty. Some who believe in the imminence of peak oil consider these barriers essentially irrelevant, arguing that their removal would merely delay the peak for a few years. But, in the long term, the challenge is how to make the transition to a new and sustainable energy path, and to evaluate the political, economic, social and climate costs associated with this transition. Unfortunately, that debate has not yet started.
The current tone surrounding the peak oil debate is reminiscent of that surrounding the global war on terror, with the phrase “you’re either with us or against us” recycled to polarize observers and analysts. But as in any other debate, once extreme positions dominate, the real problems are trivialized and marginalized.
OXFORD – Throughout the history of the oil industry, fear and concern about the imminent exhaustion of oil reserves has been a recurring theme. Such sentiments often spread and capture the public imagination at times of rapidly rising oil demand, sharp spikes in energy prices, and geo-political uncertainty. So today’s talk of oil scarcity, which began at the turn of the last century, should come as no surprise.
Believers in oil scarcity point to the sustained annual average increase of oil prices from 2002 to 2008, declining output in many areas of the world, and the absence (until recently off the coast of Brazil) of large-scale oil discoveries in the last few decades. All these factors lend credence to the view that oil production has peaked. In the face of relentless demand-side pressure, driven mainly by high-growth countries like China and India, some predict stratospheric energy prices, supply shortages, economic and social hardship, and even resource wars.
Given that oil is a non-renewable resource, in a sense the world is always running out of it. Unless global demand collapses, at some point in the future oil production will peak and eventually be exhausted. But this prediction is close to a tautology. For it to be useful, believers in scarce oil must be able to predict such things as the timing of the oil peak, the state of demand when oil production reaches it, and the pattern of decline.
But the track record of “peak oil” theorists on such matters has not been impressive: their predictions have steadily moved forward the date that global oil production will peak. Worse still, they have made no serious attempt to identify why their earlier predictions have had to be revised.
A major problem is that such predictions often confuse resources with reserves. Resources are the available volumes of hydrocarbon without reference to constraints as to their accessibility and/or cost. Resources impose an upper bound on what ultimately can be produced; thus, it is the relevant concept for determining the likely dates of peak production and ultimate exhaustion.
If the volume of oil resources were known with certainty, and if we could accurately predict the growth of oil consumption, calculating the imminence of exhaustion would be simple. But these are big “ifs” – especially given the high level of uncertainty regarding the ultimate volume of oil resources.
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While peak oil theorists have strong views about that, they do not allow for all the current and future technological possibilities that might increase resources. Indeed, given the difficulty in estimating the total size of resources, many consider peak oil theories irrelevant.
Fortunately, the focus of the debate is on reserves and not resources. Reserves are defined as the quantities of petroleum that are expected to be commercially recoverable from known fields. The concept of reserves is technical and economic, not geological.
It is also a non-static concept, as estimates of reserves will generally be revised upwards or downwards as additional geologic or engineering data become available, as technology improves, and/or as economic conditions (such as oil prices and production costs) change. In fact, the bulk of recent growth in world reserves is due not to new discoveries, but mainly to reserve growth and improved recovery rates.
Moreover, despite what many believe, crude oil is far from being a homogenous product. There is a fossil carbon continuum ranging from easy, conventional oil, to deep and ultra-deep offshore oil, to extra-heavy crude oil. With technological progress and rising oil prices, most of these reserves will become conventional, helping to push back peak oil for years.
The failure to distinguish clearly between resources and reserves – and to recognize the importance of prices, costs, and technology in transforming resources into reserves – results in bad predictions about an imminent peak in oil production and misinformation that has had a negative impact on policymaking. Rather than focusing on the major short- and long-term challenges facing the oil industry, the debate about peak oil diverts attention to the wrong problems.
In the short term, there are concerns that oil production will peak soon, owing not to the unavailability of reserves, but to obstacles to investment – for example, access to reserves, sanctions, and policy uncertainty. Some who believe in the imminence of peak oil consider these barriers essentially irrelevant, arguing that their removal would merely delay the peak for a few years. But, in the long term, the challenge is how to make the transition to a new and sustainable energy path, and to evaluate the political, economic, social and climate costs associated with this transition. Unfortunately, that debate has not yet started.
The current tone surrounding the peak oil debate is reminiscent of that surrounding the global war on terror, with the phrase “you’re either with us or against us” recycled to polarize observers and analysts. But as in any other debate, once extreme positions dominate, the real problems are trivialized and marginalized.