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Page added on May 11, 2014
‘Peak Oil’ Burned as Exxon, Chevron, Shell See $100 a Barrel
They don’t come any smarter than Rep. Roscoe Bartlett, a former Member of Congress from Maryland.
With a Ph.D. in Physiology, Dr. Bartlett had a number of high tech patents that had made him a very wealthy man. He was also a successful farmer, professor, and real estate developer. As his Legislative Director, I quickly came to admire and respect greatly his character and intelligence.
But I never could understand why a man of science with such faith in the brilliance of the free market like Roscoe Bartlett was a believer in “Peak Oil,” the theory that global fossil fuel production was on an inexorable decline.
He was hardly the only proponent. In May 2008, when oil was over $140 a barrel, Goldman Sachs (GS_) published a report that claimed, “The possibility of $150-$200 per barrel seems increasingly likely over the next six-24 months, though predicting the ultimate peak in oil prices as well as the remaining duration of the upcycle remains a major uncertainty.”
Oil is now around $100 a barrel with record levels of production.
Based on pure economic demand, it should be around $60-70 a barrel, admitted Rex Tillerson, the CEO of ExxonMobil (XOM_), in 2011. At that time, oil was in the same range of about $100 a barrel. Without speculators, obviously the price of oil would be much lower.
But that was not supposed to happen, according to the Peak Oil School. All the easy oil that could be found had been. From that point on the world would just have to live with high oil prices that were supposed to be around 100% more than at present.
In one word, Peak Oil got drilled by “fracking.”
Fracking has been around only as long as computers, as it was licensed exclusively to Halliburton (HAL_) in 1949. And, like computers, advances in technology allowed for fracking to accelerate in usage in the early 2000s. Fracking has advanced to the point where North America is now the largest energy producing region in the world.
The free market was every bit as important as fracking in proving the Peak Oil School to be wrong.
Speculators, swayed by the Goldman report and related materials, drove up the price of oil. As Tillerson stated, it’s about 50% more than it should be based on fundamental economic demand. By the beauty of the free market, that results in the economic principle of “substitution.” With oil priced so high, alternatives such as natural gas, wind power, solar energy and others were substituted.
Big Oil firms such as BP (BP_), Chevron (CVX_), ExxonMobil, and Royal Dutch Shell (RDS.B_) led the way in substituting for oil.
12 Comments on "‘Peak Oil’ Burned as Exxon, Chevron, Shell See $100 a Barrel"
penury on Sun, 11th May 2014 1:19 pm
It never ceases to amaze me that there are still educated people who have faith in infinite sources of anything on a finite planet. For moi the current “cost” of anything is not truly a measure of future availability.
eugene on Sun, 11th May 2014 1:30 pm
I’m always amused by people writing things they obviously know little about. First of all, “free” markets don’t exist and never have. Nice concept but pure fantasy. Second this guy makes me think of a heavy drug user who has a night or two of lighter usage and thinks the problem is solved. The blip, and it is a blip, of fracking is obvious and even oil folks know that. Third, this guy knows zip about economics. If it takes 120 a barrel to produce oil, like it does now, “free” market be damned, the price will get there. Some time ago, we lost the connection between demand and price of oil. But many will hang onto their ideas until the bitter end. Done it many times myself.
SilentRunning on Sun, 11th May 2014 1:31 pm
I’ll believe that fracking disproves Peak Oil theory when fracking proponents can demonstrate fracking wells that never deplete and produce an ever escalating amount of oil per well head.
Instead, fracked wells show shockingly fast depletion, like 90% reduction in output in less than 2 years.\\
Far from disproving Peak Oil, the existence of fracking shows the level of desperation and denial in the oil producers. Fracking *is further evidence* of the validity of Peak Oil. There is no way that oil companies would even bother to consider fracking if traditional wells were not in advanced decline.
Boat on Sun, 11th May 2014 1:36 pm
With oil priced so high, alternatives such as natural gas, wind power, solar energy and others were substituted.
“Others” include biofuels, cafe standards, CHP utilization, pollution regulations and subsidies and demand destruction.
GregT on Sun, 11th May 2014 1:36 pm
Apparently not all barrels of oil are created equal. We are routinely seeing gas prices at the pump exceeding the record highs reached in 2008. That doesn’t appear to be stopping people from filling up though, and more full sized pick-ups are on the road than ever before.
Dave Thompson on Sun, 11th May 2014 2:41 pm
This article was written with the intent of telling people of the industrialized world, what we all want to hear and believe. Things are looking good and we can expect the current set of living arrangements to continue,as if post WWII economic expansion were still in effect.
Kenz300 on Sun, 11th May 2014 3:02 pm
Quote — “As Tillerson stated, it’s about 50% more than it should be based on fundamental economic demand. By the beauty of the free market, that results in the economic principle of “substitution.” With oil priced so high, alternatives such as natural gas, wind power, solar energy and others were substituted. — ”
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As the price of fossil fuels continue to rise there will be more substitution with safer, cleaner and cheaper alternatives.
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How Big Oil Clings to Billions in Government Giveaways
http://peakoil.com/publicpolicy/how-big-oil-clings-to-billions-in-government-giveaways
Makati1 on Sun, 11th May 2014 3:19 pm
Kenz, there are no cheaper alternatives. Every alternative/renewable is dependent on oil to exist. All of them.
Boat on Sun, 11th May 2014 4:44 pm
Kenz,
I checked the link and the comments. The one thing that wasn’t mentioned was many of the subsidies for coal and oil were used to produce efficiency and eliminate waste that harms the planet.
Over the last few days I have been reading about the CHP using nat gas tech and it’s impact on price and emissions.
Coal from 30-33% efficiency with a lot fewer emissions is a good thing.
Combined heat and power are replacing these old plants. 45% efficiency for coal. Refineries can get up to 60-90% efficiency with CHP. One refinery was losing over a billion a year because they used fuel oil to heat with without CHP. They are being idled.
If you want refinery jobs and refineries to remain competitive it takes intensive investment capital. The good news about these government give aways to oil guys is their plants run much cleaner than the tech they replaced.
Plantagenet on Sun, 11th May 2014 7:19 pm
The whole idea that the price of oil should be much higher or much lower is ridiculous. The nutjob socialists in Venezuela can set the price of gas at ten cents a gallon by government decree if they want to, but for most of the rest of the world oil prices are going to be set by supply and demand.
Keith McC on Sun, 11th May 2014 8:59 pm
“the beauty of the free market” lets speculators inflate the price double for years?
Northwest Resident on Sun, 11th May 2014 9:47 pm
“But I never could understand why a man of science with such faith in the brilliance of the free market like Roscoe Bartlett was a believer in “Peak Oil.”
Yeah, what’s up with all the super educated and highly intelligent people spouting off about peak oil? They couldn’t be as smart as everybody thought, right? Otherwise, they’d all believe in oil gluts, shale play technological wonders and a world powered by natural gas, with plenty of American exports of NG to all needy countries.