Peak Oil: Not That Complicated

An observation worth noting … and pondering, from Richard Heinberg:

The Peak of Peak-Oil Denial
Costs of production are rising inexorably—and fairly rapidly—as a result of replacement of conventional crude with oil produced from horizontal drilling and hydro-fracturing, ultra deepwater drilling, and tar sands. … Today, most new projects look uneconomic if oil prices are anything shy of $85. Ironically, pundits often depict this shift as a miraculous new development that promises oil aplenty till kingdom come.
During the past few months, op-eds and talking heads have announced the death of ‘the peak oil theory’ even as actual world crude production rates remain stagnant and oil prices soar. The fallacy in this thinking arises from a confusion of reserves with production rates. With oil prices so high, staggering quantities of low-grade hydrocarbons become theoretically profitable to produce. It is assumed, therefore, that the scarcity problem has been solved. If we extract enough of these low-grade resources, that will bring oil prices down! But of course, if the oil price goes down then these unconventional sources become uneconomic once again and effectively cease to be countable as reserves.

That was written back in March, and not much has changed. Recent posts of mine have discussed this over-exuberant cheerleading and the reasons why the news about our “vast abundance” is not actually all that good in the long-term. Facts tend to change the dynamics of feel-good stories when those messages aren’t accompanied by … all the facts! What a concept….

The fact that oil prices are still high (recent drops notwithstanding) is usually positioned as good news by those in the industry and the gushing media personnel who are determined to tell a happy tale no matter what the truth. As Richard suggested in the quote above, high prices make it economically feasible for oil producers to invest in “advanced” technologies such as the not-so-new fracking efforts.

These good-news articles, however, never mention that high prices are not nearly such good news for consumers. So when we respond by cutting back, thus dropping prices in the market [Supply and Demand 101], the high prices that made drilling and exploration and production (and all the other aspects needed to get the fossil fuels from there to us and our automobiles) such a good deal for the oil industry are no longer such a good deal.

And just like us lowly consumers, when prices rise for goods, raw materials, etc., etc. needed by business and industry to do what they do, they stop doing as much of what they had been doing. And the other basic component of Supply and Demand 101 in this little story is that if the great god Oil Industry wants to keep its doors open, prices have to come down so we buy what they sell.

They can’t have it both ways: if high prices are good for them, low prices cannot also be good for them. And when they are in the low prices phase of this cycle, invest and production slows down or stops. And when that happens, guess what? There’s less for us to use until those prices kick into gear once more, and on and on it goes.

One problem rarely mentioned is that the investments and efforts needed to extract the already more-expensive unconventional sources don’t turn themselves back on at the flick of a switch. However ready the industry may be to rush back in and resume drilling and fracking and extracting, it takes some time, and more expense, which of course means….

And have I mentioned we’re dealing with finite resources to begin with, and/or that these vast and abundant reserves praised to the high heavens aren’t exactly located a couple of inches below some loose topsoil, all bundled up in neat little pods of oil pools? Think the facts about extracting these unconventional tight oil/tar sands reserves suggest some additional time, money, and effort might be required? None of that is free, either.

Is this is our best long-term strategy?

Peak Oil Matters