peak oil is about price, not supply

Heading down to Washington to speak at the Association for Peak Oil-USA‘s Truth in Energy conference on Nov. 2, I sense a general malaise within the peak oil movement.

The pequists, as they have become known, appear to be on the defensive these days as they once again roll back their dating of the dreaded supply peak, confounded by the oil industry’s never ending ability to develop new extraction technologies and discover new sources of supply.
While conventional production may have peaked long ago in the lower 48 U.S. states as predicted by the father of the peak oil movement, geophysicist M. King Hubbert, new sources of supply have been found in Alaska and under the Gulf of Mexico. And now oil sand production from Alberta and oil from the Bakken shale deposits may soon replace conventional oil in the mix of North American fuel.

Our definition of oil has changed so much the U.S. Energy Information Administration doesn’t even refer to oil any more but rather to energy liquids. This includes all kinds of energy sources we would not have previously called oil such as natural gas liquids, liquefied refinery gases, and even corn-based ethanol.

But peak oil as it turns out isn’t about supply but rather demand. It is a concept rooted more in economics than geology. It doesn’t matter if there are billions of barrels of oil waiting to be tapped from oil sands or oil shales if the prices to extract them are beyond our economies’ capacity to pay.

The peak in our oil consumption will be determined by our ability to pay ever rising prices for the fuel, not by the ability of those same prices to drive new sources of supply.

The energy industry’s task is not simply to find new fuel sources but to find new supplies of oil our economies can afford to burn. While the energy industry has an impressive record on the first count, it has a much less impressive track record on the second.

It has taken successively higher prices to get that extra barrel of oil out of the ground. The price of Brent oil, the benchmark used for most of the oil traded on world markets today, has traded in triple digit range since the beginning of this year.

Maybe that is why the world economy seems to be teetering on the brink of another recession. But if our economies will no longer be growing, neither will oil production.

Some people might call that an oil peak. Others might say we are simply running out of the oil we can afford to burn.

Globe and Mail