“The facts have changed, now we must change too,” declared George Monbiot, in a recent op-ed for the Guardian, headlined: “We were wrong on peak oil. There’s enough to fry us all”.
That the facts have changed is news to those of us who never believed that the world is running out of resources. To Monbiot and his fellow-alarmists, however, rising prices were a sign of impending doom. It proved that scarcity was on the rise, and therefore showed that the oil would soon dry up.
The error of the peak oil alarmists was not understanding that the cure for high prices is high prices. When prices rise, this may indeed signal scarcity, but if so, it also provides a financial incentive to throw investment, ingenuity and effort at the problem. Moreover, a high price for one commodity makes alternatives more competitive by comparison.
As I wrote two years ago: “The problem is, we’re not [running out of resources]. This can be reliably concluded from the fact that even if a particular resource were to become particularly scarce, the price mechanism unfailingly makes it worth our while to economise, or seek alternatives, or both.
“Resource replacement has happened before, and will happen again, but more often, the opposite happens: improved productivity and new finds simply combine to match growing demand.”
That is exactly what happened. Knowledge does not stand still, and supply challenges simply create economic incentives for progress. We didn’t stop using horses because we ran out of hay. We stopped because we invented motor cars.
What changed Monbiot’s mind was an analysis of global oil reserves by Leonardo Maugeri, published by the Harvard Kennedy School’s Belfer Centre for Science and International Affairs. Maugeri makes the case in the report’s opening sentence: “Contrary to what most people believe, oil supply capacity is growing worldwide at such an unprecedented level that it might outpace consumption. This could lead to a glut of overproduction and a steep dip in oil prices.”
According to Maugeri, capacity exists to increase the world’s 2011 production of 93 million barrels per day (mbd) by half. By 2020, he expects world oil production to be around 111 mbd and still rising.
The “peak oil” theory, first popularised in 1974 by the late Marion King Hubbert, a geologist working for Shell, has a lot to recommend it if you’re in the business of finding, extracting and selling petroleum products. His employers have a lot riding on the rate of new discoveries, how fast existing resources dry up, and what technology is required to sustain production levels at a given price point. He cautioned them that easy finds would become increasingly rare, and remaining reserves increasingly expensive to produce, leading to a bell-curve-shaped graph of production over time.
Hubbert himself projected an oil production peak, when new discoveries would begin to decrease globally, of around 1995. It didn’t happen.
However, the Hubbert theory, suitably simplified, became popular with environmentalists and left-wing anti-capitalists, who yelled that any day now we’d hit an oil production peak, after which prices would skyrocket, supply would dwindle, and we’d all sit around with stupid expressions wondering what happened to all the cars. And “running out of resources”, as they saw it, would serve the greedy lot of us right.
The late Matthew Simmons, an advisor to the US government, member of the National Petroleum Council and member of the Council on Foreign Relations, called the oil peak in 2005. In a beautiful piece of rhyming history, he accepted a $5,000 bet with journalist John Tierney that the average daily price of oil in 2010 would be $200. Tierney thoughtfully got Rita Simon, the widow of the economist Julian Simon, in on the bet. If Simmons had lived out 2010, he would have lost $10,000 for exactly the same reasons Paul Ehrlich lost his infamous bet about resource depletion with Rita’s late husband.
A 2005 report conducted for the US Department of Energy by Robert Hirsch also said peak oil would happen and would do so abruptly. Most of its experts predicted a peak before 2010. Among them were the aforementioned gambler, Matthew Simmons; the late Ali Samsam Bakhtiari of the National Iranian Oil Company and advisor to the Oil Depletion Analysis Centre (ODAC); Chris Skrebowski, a founding member of the Association for the Study of Peak Oil and Gas (ASPO), a colleague of Bakhtiari’s on ODAC, advisor to the UK government, and director of Peak Oil Consulting; Kenneth Deffeyes, a colleague of Hubbert’s at Shell and professor emeritus at Princeton; David Goodstein, a physics professor at the California Institute of Technology; and Colin Campbell, another founder of ASPO and drafter of the Rimini Protocol, which involved draconian production controls, import stablisation and consumption limits.
The Hirsch Report came with a disclaimer: “Neither the United States Government nor any agency thereof, nor any of their employees, makes any warranty, express or implied, or assumes any legal liability or responsibility for the accuracy, completeness, or usefulness of any information …”
That was as prescient as the report got. As far as its actual peak oil predictions went, most supposed experts picked dates prior to 2012, and so far, all of them have been proven wrong.
The famed Texas oilman, T Boone Pickens, testified before Congress in 2008, saying, “I do believe you have peaked out at 85 million barrels a day globally.”
He, too, was wrong.
In 2005, Douglas Reynolds, professor of oil and energy economics at the University of Alaska at Fairbanks, predicted peak gas in 2007, after which American reserves would begin to decline. Ironically, he picked the very year in which the great North American shale gas boom began. The technical developments that permitted shale gas exploitation – namely horizontal drilling and hydraulic fracturing – were not new, and a professor in the field ought to have known about them.
So great was this boom that the biggest concern for non-US oil refineries is low oil prices.
Unchastened, Reynolds earlier this year predicted oil prices to spike over $200 within five to ten years. You would be forgiven for not running out to fill jerrycans to hoard.
According to the Maugeri Report, not a single oil-producing country is expected to produce less in 2020 than 2011, other than Norway, the UK, Mexico and Iran. Those exceptions, which are expected to produce marginally less than today, make up the sum total of evidence for disastrous peak oil predictions.
“Oil is not in short supply,” Maugeri concludes. “From a purely physical point of view, there are huge volumes of conventional and unconventional oils still to be developed, with no ‘peak-oil’ in sight. The real problems concerning future oil production are above the surface, not beneath it, and relate to political decisions and geopolitical instability. ”
And that’s not even counting the vast unconventional oil resources that are not yet technically or economically recoverable, but may well become so as abruptly as shale gas exploded onto the scene. Those that are already being exploited – in shales and tight sands, much like unconventional natural gas – are economically viable at between $50 and $65 a barrel, which is well below today’s price. This, says Maugeri, makes them “sufficiently resilient to a significant downturn of oil prices.”
But none of that is good news to Monbiot. He admits he was wrong, but quickly pivots to point out that this doesn’t make the truth any less scary: “So this is where we are. The automatic correction – resource depletion destroying the machine that was driving it – that many environmentalists foresaw is not going to happen. The problem we face is not that there is too little oil, but that there is too much.”
Fancy that. For decades environmental activists and government bureaucrats told us to bow to expert consensus, or face impending industrial collapse. Now we discover that we’re swimming in enough oil to roast the planet. Either way, we’re doomed.
Sound familiar? To justify his claim that the non-disaster of peak oil is now a global warming disaster, Monbiot appeals to a consensus of a different kind.
But that consensus is also on shaky ground. The UN’s Intergovernmental Panel on Climate Change (IPCC), despite several scandals that cast grave doubt on the honesty of its members, bitterly clings to its guns. So does the climate science inner circle, despite leaked emails that show them to be more concerned with telling a consistent public relations story and silencing sceptics than with cleaning up their own messy data and figuring out the rather large swathes of climate science they cannot yet explain.
I’ll likely have more to say on the most recent spate of climate change alarmism in a future column, but it isn’t very convincing either.
In any case, it seems that betting against the “consensus” of left-wing academics, regulatory-state bureaucrats and anti-capitalist activists can be a rather profitable sideline.
First nuclear power, and now peak oil. At the rate Monbiot is changing his mind, we’ll all soon agree that the disaster of the peak oil non-disaster is not much of a disaster after all. DM
In other news...
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*Proteas, you know we love you. We’d just love you more if you won occasionally...
Despite receiving a knighthood from the Queen, Bill Gates cannot use the title "Sir" due to his being American.