Perceptions of Peak Oil
I've devoted a fair amount of space over the last year and a half to the idea that global oil production may be approaching a geological limit and will then begin to decline. While I still believe that other factors, such as industry consolidation and geopolitics, loom as more imminent threats to our ability to keep expanding oil production, it's clear that the "peak oil" story has continued to percolate into the public's awareness over this period. It has migrated from the pages of Scientific American, to the Wall Street Journal and New York Times, finally reaching CNN's Headline News Channel the other day. There is an entire "Peak Oil Webring" of blogs and other websites devoted to the topic. This is now an idea that can't be ignored or dismissed out of hand.

Just as I regard public perception of climate change--rather than the underlying science--as the key factor influencing the steps that the US will take concerning global warming, I'm beginning to think that the key aspect of "peak oil" is not whether the geological theories of King Hubbert and his adherents can accurately predict a peak in global oil production, but how many people believe this is so, and what it prompts them to do about it. In essence, "peak oil" is a meme, and the proliferation of that meme--whether it's correct or not--can alter the way we look at the future of oil.

An extended period of high and volatile oil prices, with producers straining to meet demand, is tailor-made for validating belief in "peak oil". Only after the fact can we truly determine whether these events were the early signposts of a permanent peak in oil production, or simply a temporary alignment of factors favoring producers at the expense of consumers. That suggests that the longer these market conditions persist, the more they will reinforce the idea that oil is nearing its peak, and the further this notion will move into the mainstream.

That could have many positive consequences. Congress and the federal government might finally focus on the need for more energy efficiency and aggressive R&D on alternatives. Some of the impediments to our continued shift toward natural gas, which will have to rely heavily on imports of liquefied natural gas, might be removed. "Peak oil" even dovetails nicely with efforts to reduce greenhouse gas emissions, since petroleum consumption in the transportation sector contributes to higher atmospheric carbon dioxide concentrations.

What would not be helpful, however, is a perception that further oil exploration and development are futile. Mathematically, half the world's conventional oil will still remain after production has peaked, so that even if this occurred next week, as much oil could be produced in the decades ahead as has been extracted in the 145 years since Colonel Drake's first well in Pennsylvania. Of course with much of the remaining oil reserves in the hands of OPEC, this won't necessarily be as cheap and painless as it has been.

"Peak oil" is an important issue to monitor, and its signposts will be measured in column-inches of newsprint and minutes of TV coverage, as much as in hard industry statistics. With many predictions focused on 2006, 2007, or 2010, it will be put to the test rather quickly. If we pass those years without experiencing a peak, or if oil prices revert to their historical range, the idea will lose steam and it won't matter if it turns out to be right in the long run. Meanwhile, look for an increasing number of alternative energy initiatives to reference an imminent peak in oil production as part of their justification.