Why Peak Oil Is a Crock

Posted by Andrew Gordon

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The good news about the oil supply? Peak oil is a crock. There’s plenty of oil. It’s just harder to get to it now than it was 20 years ago.

The oil is deep underground or below miles of sea or mixed with sand or in places where the underground pressure to bring it up has fizzled out.

The question isn’t whether the technology exists to get hundreds of billions of barrels out of the ground. The technology is there. But in many cases, deploying it is an expensive proposition.

How to light a fire under the oil companies? The answer doesn’t lie in government subsidies and grants. That’s the last thing the oil sector needs. Let the marketplace motivate them.

Oil companies talk about raising production all the time. Talk is cheap, and so are the oil companies when it comes to investing in their E&P (exploration and production) operations.

But let supply run low and prices run high. With fat profit margins to fall back on, new technologies will be unleashed.

In short, oil companies need to find more oil — and they will. If they don’t, they won’t be able to leverage rising oil prices. And besides, a future without oil ain’t in the cards…

Basic Energy Fact #1: Oil is the lifeblood of modern society — has been for quite a while. In fact, the rise of oil and the modern economy has gone hand-in-hand. One would not exist without the other.

Basic Energy Fact #2: Energy consumption will rise 35 percent by 2030, according to a number of energy research firms and oil companies. And which energy resource will be number one in 2030? The same one that is number one now: oil.

Basic Energy Fact #3: Renewables like wind, power, hydro, and thermal will increase their piece of the pie. But don’t expect miracles. I love solar and wind. But I don’t expect energy production from them to contribute more than 10 percent of the total energy pie by 2030. Right now, they have a 5 percent slice.

What’s happening right now is part of the boom-and-bust cycles endemic to the energy sector. In down times, underinvestment prevails, nicely setting up the boom part of the cycle.

Underinvestment will give way to rising prices, leading companies to invest more in E&P. Eventually, supply will catch up to demand and prices will fall. A bust is turning into a boom right in front of our eyes.

The big integrated oil companies will benefit nicely. Take your pick. ExxonMobil, British Petroleum, Chevron, and Conoco-Philips all make nice long-term picks.


IDE’s Dr. Rusty McDougal edits the Resource Windfall Speculator)