Peak oil doomsayers ignore human ingenuity

Oil is running out and it won’t be affordable for much longer, advocates of “peak oil” theory argue. But with new technology revolutionising the way energy is generated, are fears of an unaffordable energy crunch now being overplayed?

The theory behind peak oil was described by American Marion King Hubbert, a former geophysicist with Shell (LSE: RDSB.L – news) , in the 1970s. It is too simplistic to describe it as a theory that claims oil is running out. In fact, peak oil is all about the depletion of oil fields.

The theory claims that production of oil rises then falls into terminal decline after hitting a level of maximum production. The theory can be used to describe individual oilfields, production in a specific country or, indeed, the world. The US hit peak oil production in the 1970s.

Many peak oil disciples use the theory to paint pictures of doomsday scenarios. As oil production falls and it gets scarcer the cost will rise and rise with disastrous consequences for the global economy and everyone’s wealth. There will be a time where energy will get so expensive that all but the very richest will not be able to travel as the cost becomes prohibitive. We will be less mobile and localised with food sourcing and manufacturing. A globalised world will end, advocates argue.

However, theories of a looming resource crunch have stalked popular imaginations for centuries – and technology has always rolled back any looming apocalypse.

In the seminal 1798 pamphlet entitled An Essay on the Principle of Population, Reverend Thomas Malthus argued that population growth would have to stop as the world would no longer feed its fast-growing population.

However, this Malthusian catastrophe has not happened because of the technology developed and applied in the “green revolution”.

The 20th Century (KSE: 002420.KS – news) green revolution saw a series of developments that boosted intensive farming techniques, irrigation and the use of high-yielding crops.

So, it was a technology-led process the stopped Malthusians in their tracks or kicked the can further into the future. But technology and human ingenuity have always been one step ahead.

A similar process is happening in energy.

There has been a revolution in power production over the last decade, one that has been driven by engineering and science.

The proliferation of hydraulic fracturing, or fracking, means that the US will be the world’s second largest gas producer by 2035, with its output dwarfed only by Russia, according to the International Energy Agency. The US currently has record low gas prices because the new technology has created a glut of natural gas.

It’s not just new technologies in gas production that are taking up the slack from oil, but new developments in wind, solar and tidal generation are also providing alternatives. Once again, new technology is providing the solution we need, albeit at a slow pace.

However, oil prices have continued to rise and, with Brent crude prices staying above $100 a barrel since January 2011 (bar a few days around October when it dipped to $95). But this is more to do with supply issues from the Middle East and worries about a conflict with Iran.

The price is also supported by the money-printing activities of central banks as they increase liquidity in the system.

Because oil is a finite resource, peak oil theory has to be true. New oil is difficult to find, being located in the frozen arctic regions or deep under the oceans, which guarantees the price will remain elevated.

However, as with the green revolution and agriculture, so an energy revolution is already underway with shale gas – a technology that was virtually unheard of a decade ago in the vanguard.

Vast amounts of money are being spent on developing next-generation biofuels, hydrogen cells and even thorium molten salt reactors, which are nuclear reactors that produce less radioactive material than those that use uranium as a fuel.

So, in the end, it is likely that human ingenuity will prevail.

= Aluminium ‘deep in structural surplus’ =

After climbing by 20pc from its December low, aluminium has since lost half its gains, and is back to underperforming the base metal sector at around $2,144 a tonne.

The problems the aluminium industry faces are well-known chronic overcapacity, high costs involved given its heavy energy usage and have prompted a flurry of smelter closures and cutbacks in recent months. Yet one of the surprising factors in play is that people do want to buy the metal that is being produced.

“Observers might be forgiven for assuming from aluminium’s long-term price performance that demand has been relatively weak,” says Stephen Briggs, a metals strategist at BNP Paribas (Other OTC: BNPQF.PK – news) . “Nothing could be further from the truth.”

Aluminium, used in sectors such as food packaging and the automotive industry, has been by far the fastest-growing base metal market in the past decade, with its average annual growth of nearly 6.5pc “way ahead” of the world economy, according to Briggs.

Despite worries about slowing growth in China, he still expects world aluminium demand to grow at least 8pc next year.

But although smelters can sell all they produce, the problem is that many are doing so at a loss.

Briggs warns: “Aluminium is deep in structural surplus and unless producers show more restraint, a return to physical surplus is likely in 2013.” – Emma Rowley

= Going against the grain =

Grain prices got a boost on Friday as the US government signalled that crop supplies are tight. Corn (Paris: XD0023663632 – news) , wheat and soybean prices climbed, after stock numbers from the US Department of Agriculture (USDA) showed US inventories are low, particularly for corn.

The outlook was however bearish for corn, with US farmers this year intending to plant the most acres of corn since 1937, which would weigh on prices. But it was still bullish for soybeans and wheat, stoking worries about food inflation.

Yahoo