I've been writing about Peak Oil since I started this blog, nearly three years ago. Over that period, three distinct camps have emerged, each with different views of the theory of Peak Oil and its predicted outcomes. The perspective of Cambridge Energy Research Associates (CERA), which issued its latest report on the subject this week, stands roughly halfway between those of the latter-day exponents of M. King Hubbert's landmark analysis and the "cornucopians," who argue that the very concept of a peak is either incorrect or irrelevant. My own agnosticism about a geological peak in global oil production positions me near the CERA camp, but with important distinctions arising from my experience in trading commodities and in planning alternative energy projects and strategies. Even if CERA is right to dismiss the possibility of an imminent peak, we still face potentially severe market dislocations, with barely enough time to plan an adequate response.
Much of this argument boils down to how much recoverable oil was in the earth's crust when we started extracting it, nearly 150 years and 1 trillion barrels of consumption ago. (Now there's a sesqui-centennial to mark.) If the correct figure is 2 trillion barrels, then we're either on the verge of a Peak or have passed it. If it's 4.8 trillion, as CERA suggests, we're not even in the foothills. And if it's 12 trillion, then we'd better worry more about the environmental impact of burning it all than about running short--though many in this camp also see climate change as a non-problem.
Earlier this year, I suggested that Peak Oil was taking on many of the features of Y2K, in its predictions of a global discontinuity and the range of personal reactions to a perceived impending crisis. It also reminds me of the state of play on global warming 10 or 15 years ago, when the science was much less clear and the environmental signals less obvious. In Peak Oil we see multiple competing views of a geological effect that cannot be characterized with precision or certainty until its worst effects are either upon us, or have clearly failed to materialize.
The key event from a market perspective, however, is not the actual peak of production, but the point at which supply can no longer keep pace with demand. After the recent capacity crunch that took us to $80/barrel before retreating, we can begin to guess what that might bode. In that regard, CERA's "undulating plateau," which seems more realistic than the sharp tipping point inherent in most Peak Oil predictions, is potentially almost as catastrophic. Just look at the production graph in CERA's press release on Wednesday. At current growth rates, adding almost 2 trillion barrels to recoverable global oil resources only buys us another 20 years or so of keeping pace with demand. An undulating plateau postpones an immediate geology-driven oil-supply crisis, but it doesn't let us off the hook.
The most important sentence in CERA's press release is this one: "It will be aboveground factors such as geopolitics, conflict, economics and technology that will dictate the outcome." When you contemplate the additional reserves shown in the included table, these factors loom large. Unless the OPEC countries change their policies on access to their reserves, their contribution to incremental production will be modest, at best. Unless Canada's oil sands can be recovered with less environmental impact, in terms of facility footprint and greenhouse gas emissions, only a fraction of those 167 billion barrels will reach market. Unless Venezuela's government adopts a more investor-friendly posture, the many billions of dollars required to produce its Orinoco ultra-heavy oil and convert it into something that a refinery can process won't be forthcoming. Factor in the impact of offshore drilling bans and other restrictions that could spread beyond the US, as global environmental awareness increases, and you have to wonder how much of the 3.74 trillion barrels of potential extra oil will really materialize.
I'm sure that the Peak Oil community will respond to CERA's statements. The Oil Drum is a good place to watch for that. But for me, there's a clear take-away here. Whether we are at the 5-yard line on the Peak Oil side of the field, or on CERA's 5-yard line, the whole field only spans 25 years--and possibly much less--during which the global oil industry can keep pace with the present rate of demand growth, much of which is coming from developing Asia. I have to hope CERA is right, because 25 years is not nearly long enough to displace oil entirely, or for something like nuclear fusion to bail us out, unless the key breakthrough has already been made. In fact, it's just barely long enough to implement enough efficiency and alternative fuel technology--biofuels and electricity, with a dash of H2 thrown in--to stretch out this timeline and avert the hardest landing since the Great Depression.