More economists thinking about Peak Oil

I’m sure I haven’t yet come to grips with the views expressed by commenters on my last post about economics and peak oil, but here is another paper on economics, Hubbert’s Peak, and peak oil.  In short the authors  model resource extraction scenarios in the manner that economists sometimes do, and conclude that the timing of the peak production will be determined by “above the ground” factors such as cost of production, oil prices and political constraints on access to resources rather than “below the ground” geological factors.

Note that the economist views I’ve cited from time to time – from CERA/Yergin to James Smith and now Pierre-Noël Giraud at CERNA and colleagues from EDF-R&D in France – are not denying that petroleum is an exhaustible resource nor that production will peak.  But, and speaking just for myself now, I am denying that the date of the peak is particularly significant and that sometime shortly after the peak we will face any kind of significant social strife, economic collapse, or other major drama. I’m stuck in a “business as usual” pose, because I expect business as usual.

More specifically, I expect over time petroleum will become expensive relative to other energy sources, and we will substitute away from petroleum and toward alternatives as that happens.  Of course it is already true in niches – there is a reason we don’t have kerosene lamps in our homes anymore and remote flashing roadside signs are solar powered – and the niches will grow as alternatives begin to make more sense.  Eventually, petroleum will become the niche fuel in an energy economy mostly running on other sources.  I don’t expect the social trauma associated with this transition to be any more wrenching than the shift from wood to coal or coal to oil.

If you think I am wrong, I’m willing to be educated.  But note that it will take quite of bit of educating to get me to drop economist habits of thought, so the simpler way to convert me to another way of thinking about peak oil is to point to an analysis with a reasonable economic foundation. I encourage commenters to direct me to their favorite such analysis.

NOTE: Here is the authors’ abstract for the paper, “Hubbert’s Oil Peak Revisited by a Simulation Model“:

As conventional oil reserves are declining, the debate on the oil production peak has become a burning issue. An increasing number of papers refer to Hubbert’s peak oil theory to forecast the date of the production peak, both at regional and world levels. However, in our views, this theory lacks microeconomic foundations. Notably, it does not assume that exploration and production decisions in the oil industry depend on market prices. In an attempt to overcome these shortcomings, we have built an adaptative model, accounting for the behavior of one agent, standing for the competitive exploration-production industry, subjected to incomplete but improving information on the remaining reserves.

Our work yields challenging results on the reasons for an Hubbert type peak oil, lying mainly “above the ground”, both at regional and world levels, and on the shape of the production and marginal cost trajectories.

Energy Collective