CAPITOL IDEAS: Has Oil Peaked? Maybe Not
Belthell, Torn
caPITol Ideas Has Oil Peaked? Maybe Not by Tom bethell W hen i was in englanD this summer my brother asked me if I knew anything about “peak oil.” I wasn’t too sure, to be honest....
...Thereafter it swiftly dropped and as I write it is $33 below that peak...
...Hence, the peak had just arrived...
...Socialism, alas, is alive and well where oil is concerned...
...John Tierney, then a columnist for the New York Times, was one who read that prediction...
...The availability ofthatcontroversialthingcalledrecoverablereserves depends on the price...
...Saudi production was cut by about 25 percent for long enough to demonstrate that no one else had the spare capacity to make up the difference...
...oil production would go into decline 15 years later...
...Anyway, Kenneth Deffeyes, Hubbert’s former assistant and an emeritus geology professor at Princeton, then predicted that world production would peak at the end of 2005...
...T ierney must have been nervous this summer...
...Tom bethell is a senior editor of The American Spectator and a media fellow at the Hoover Institution...
...Wrong...
...Estimates vary...
...He was also an advocate of nuclear power...
...The leading advocate of peak oil today is Matthew Simmons, the president of Simmons & Co...
...But that is not to say that production has peaked...
...In my view, the great error of the peakists is their failure to understand the price mechanism...
...Simon won the bet...
...that is, when half of that oil has already been extracted...
...Meanwhile, let’s wait and see what the oil price is in 2010...
...by 3.9 percent over the first six months of this year compared to last, but they fail to see it as eliciting more production...
...Those “crises” were caused by U.S...
...No one really knows how much oil is down there...
...Try Googling this: “Image: Oil Prices 1861–2007...
...Nonetheless, U.S...
...It does look as though we now face a permanent and perhaps substantial oil price increase...
...Notice, by the way, that the 15-year period when Hubbard’s peak came true was one of continuous, inflation-adjusted oil-price declines...
...He phoned Simmons and bet him that in 2010 the price of oil would not be as high as $200 per barrel (in 2005 dollars...
...lawmakers, not by world prices...
...That was not what some had hoped, but it was 25 times larger than the estimate given for the Bakken field in 1995...
...A n olD frienD, william tucker, who is often reliable on energy issues, recently contrasted the optimistic view, summarized by Steve Forbes as the belief that the oil price is “a bubble” (George Soros has said the same thing), with the pessimistic Hubbert’s Peak idea...
...The Saudis are secretive and oilmen who have made a big find have little incentive to tell you the details...
...So here goes...
...caPITol Ideas Has Oil Peaked...
...Developing oil at ever-greater depths takes time and capital and is at the mercy of the world oil price...
...T he key point is that the world oil price did not take off in an unmistakable way until a few years ago, and only recently have oilmen been confident enough to undertake expensive exploration without fearing they will be left high and dry if the oil price sinks back down again...
...He was elected to the National Academy of Sciences and became a professor at Stanford and Berkeley...
...Big difference, and obviously there’s a lot of uncertainty...
...So much do I admire Tucker’s work that he almost made a Hubbertian of me...
...Instead, they had to wait in line...
...rotary rig count, provided by Baker Hughes, Inc., in Houston...
...48 THe aMeRIcan sPecTaToR ocTobeR 2008 A key figure in the peak oil theory, almost its originator, was M. King Hubbert (1903-89), a Shell Oil geologist who predicted in 1956 that U.S...
...That turned out to be true...
...It begins when producers are unable to continue increasing their output to meet rising demand...
...50 THe aMeRIcan sPecTaToR ocTobeR 2008...
...I am assuming that they will also continue to block new nuclear power plants, as they have done for 35 years...
...With peak oil a reality, and nuclear stymied, we will be destined to live in their solar-paneled, wind-powered utopia of bike paths and mass transit...
...Hubbert’s Peak” occurred in 1970...
...Peak Oil is the theory that the production of oil, worldwide, has reached a plateau and is now heading downward...
...Tucker had just written Terrestrial Energy, a book about nuclear power which I highly recommend...
...By 1990 the value of the metals had declined by more than half...
...As they always do, free market prices equalize supply and demand...
...Price regulations on oil continued until President Reagan ended them on entering the Oval Office in January 1981...
...It was followed almost immediately by the U.S...
...In a March article for the Wall Street Journal he wrote: What are the global resources in place...
...Fortunately, $4 at the pump has focused some minds...
...The oil price will be averaged over the whole of 2010 to minimize any sudden price swings...
...But approximately six to eight trillion barrels each for conventional and unconventional oil resources (shale oil, tar sands, extra heavy oil) represent probable figures—inclusive of ToM beTHell future discoveries...
...International in Houston, specializing in the energy industry...
...Julian Simon’s widow shared the bet with Tierney...
...Today, there are no price controls, no shortages, and no crises...
...The suburbs and SUVs will become obsolete, and air travel will be unaffordable for the lower orders...
...Maybe huge reservoirs exist at much greater depths...
...And he “wasn’t talking about low triple digits,” he stressed...
...I met both Tucker and Forbes at a conference in upstate New York earlier this summer...
...The count peaked at 4530 in 1981 (when price controls were lifted) and had fallen to a low of 488 by 1999...
...But he also surprised me by siding with the pessimists on the oil issue...
...By law, gas stations were not allowed to charge what motorists were happy to pay...
...He too wrote a book, Twilight in the Desert: The Coming Saudi Oil Shock and the World Economy...
...It is an article of faith among peakists that when you know the total producible quantity of oil worldwide, then the peak occurs “at the halfway point...
...My guess is that Tierney will win, but political matters unconnected with oil reservoirs make things hazardous...
...So it’s bound to run out sooner or later, as we are often reminded...
...Hubbert’s method was then applied to worldwide oil production—a questionable extrapolation...
...By this August 15 there were 1990 rigs at work...
...The one concession I will make to the peakists is to agree that the “era of cheap oil” probably really is over...
...They long for it...
...After this “peak” has been reached, Maass continued, “no matter how many wells are drilled in a country, production begins to decline...
...folly of price controls...
...His book Beyond Oil was published at about the same time...
...As Peter Maass put it in a much-cited article in the New York Times Magazine, “peaking is a term used in oil geology to define the critical point at which reservoirs can no longer produce increasing amounts of oil...
...But that is a guess and one that seems to have been outdated by new technology...
...Another number worth watching is the U.S...
...Two years ago Exxon Mobil drilled almost five miles beneath the Gulf of Mexico, without hitting oil...
...He was simply taking the advice of a friend, the late Julian Simon, who had told him it was worth betting that the price of any natural resource would not go Oil traded at a record high of $147 a barrel on July 11...
...I used the word pessimistic, but for the Peakniks the idea that oil production is on a downhill path is not gloomy at all...
...Then: The eventual and painful shift to different sources of energy—the start of the post-oil age— does not begin when the last drop of oil is sucked from under the Arabian desert...
...That bump up and down was brought about by the Arab oil embargo, which lasted for six months beginning in October 1973...
...up over time...
...Some years back there was a big oil find in North Dakota and Montana...
...In 2005 Deffeyes said that total quantity was (close enough) two trillion barrels...
...If oil really has peaked, its price will rise so high that many of the social changes they have worked for all their lives will become realities...
...It’s called the Bakken Formation...
...Geological Survey said that four billion barrels could be recovered...
...ocTobeR 2008 THe aMeRIcan sPecTaToR 49 caPITol Ideas They see a rising oil price as an indicator that the “era of oil is over,” or as reducing demand, as it has in the U.S...
...That is the tendency of all state monopolies...
...Half of that had by then already been produced...
...Tierney knew little about oil production...
...Here’s a different estimate by Nansen G. Saleri, CEO of Quantum Reservoir Impact and formerly the head of reservoir management for Saudi Aramco...
...Nationalization is an ever-growing trend in the most promising oil regions, such as Russia, Algeria, Angola, Nigeria, and Venezuela...
...Why should production increase when prices decrease...
...Mexico’s oil production has steadily declined because the government treats its loss-making state oil monopoly Pemex primarily as an employment agency rather than an oil producer...
...They don’t think on the supply side...
...As a matter of context, the globe has consumed only one out of a grand total of 12 to 16 trillion barrels underground...
...The effect of these controls was to discourage production at the moment when it was most needed, and true shortages ensued—periods when demand exceeded supply...
...One article I read online says that current oil prices are “well above those that caused the 1973 and 1979 energy crises...
...Then it dropped to $33 below that peak...
...Crunch time comes long before the last drop...
...A Goldman Sachs analyst said that the alleged geological peak is really a geopolitical peak...
...Famously, Julian Simon had bet Stanford’s doom-saying ecologist Paul Ehrlich that the price of certain metals, worth $1,000 in 1980, would not have gone up 10 years later...
...In the new bet, Tierney and Simmons are each wagering $5,000, which will be put into a pot and paid to the winner on January 1, 2011...
...crude production was 2.1 percent higher this July than last...
...He is inclined to accept the theory, and even gave me a book to study, The Last Oil Shock (2007), by a journalist called David Strahan...
...I read some of it and told my brother I would write an article about it...
...Described in the Maass article as a “cardcarrying member of the global oil nomenclatura,” Simmons predicted that the oil price, then $65 a barrel, would hit triple digits...
...Earlier this year the U.S...
...In fact, peak oil theory implicitly denies that price affects supply...
...Maybe Not by Tom bethell W hen i was in englanD this summer my brother asked me if I knew anything about “peak oil...
...It’s dawning on more and more people, even in Congress, that allowing the counter-productive drones called environmentalists to have so much influence over policy is a lunacy that must be curtailed...
...In the U.S., the Greens have done their best to make “peak oil” a reality, by stopping offshore and Alaskan drilling whenever possible...
...The issue is not widely understood...
...Oil traded at its record high of $147 a barrel on July 11...
...Oil is the (supposedly) fossilized residue of animal and vegetable life and a “finite resource...
...I wonder, though, if oil isn’t abiotic, as Thomas Gold thought...
...Politics, national and international, will surely be decisive...
...What this dramatic chart shows is that the real price of oil fell almost continuously until about 2001, except for a period from the early 1970s to the mid1980s...
...They want that to happen, but we in turn should be suspicious of predictions that are better thought of as hopes...
...Now, in view of the much higher price, another company is continuing to drill even deeper in the same location...
...They say it happens when reservoirs are about half-empty...
...Concern that war will erupt over Iran’s nuclear ambitions is another worry...
Vol. 41 • October 2008 • No. 8
