Friday, 12 January 2018
Who remembers peak oil?
It hasn't gone away. No it does not get the sort of attention it once did. In part that is because of extreme headlines talking about running out of oil. Eventually we will but in the medium term it is a largely economically driven phenomenon. The other part of the reason it is not talked of much is it isn't newsworthy in the media - nothing to grab the attention the way that say the cryptocurrency movements have.
But you really should be paying attention. For all the work done displacing oil for power production in favour of renewables and the growing number of hybrid and electric vehicles, oil is still at the heart of modern western economies. It isn't only power of course - it also provides much of the input to plastics production. And yes we ought to be crushing that too.
The UK government's weak plans to phase out some plastics over 25 years indicates two very important things. First there really is a problem so immeduate even the UK goverment has to say something about it. Second this stuff is so embedded in the economy that they kick the problen down the road by giving such a huge timescale. It is the same logic many applied to greenhouse gas emissions and climate change - always thinking the problem can be ignored for a decade or two. Putting the increased, almost unbearable, risks and burden on the next generation.
Well peak oil is here and it is playing out. Interrupted briefly by the massive rise in shale gas extration in the USA, which kept prices down , the current price rise is now up to $70 per barrel. Some of that is production scale backs by OPEC, but in large part is it because US reserves have fallen.
And the reason reserves have fallen is demand. While financial reporters look enthusiastically at 3.5 percent global growth cheering on the stock market rises that go with it, no one is taking notice of the impacts. Food price inflation in the UK is almost 4 percent, and the impacts of oil prices have yet to work through agriculture. And wages are not keeping pace, nor are returns on savings.
Three other things to bear in mind. First, new oil finds last year were at their lowest in decades. That's one distinct sign that peak oil is here. Another is that at $70/barrel the shale producers are marginally profitable. But at that price the exteme reserves of the majors are still not economic to drill, though they will be making money from the existing fields and wells. The third is that it takes time and money to start new fields and wells. Companies don't make that investment unless they see a good prospect of a return ie high and possible rising prices in the future. If they don't invest , supply stagnates even declines.
That looks exactly like peak oil to me. Just like the past with wood then coal and whale oil. Each time we reached the peak the alternative was known. The alternative this time is the shale oil production. So yes to me it looks like we are playing out a peak oil scenario ..