A skeptical view of peak oil

Learn more about Peak Oil at Energy and Capital.

Since posting my very own Peak Oil Clock, I have been mulling over this Peak Oil concept. Since I do work for an oil company, I knew about the concept but it seems to me that there are conflicting and vested interests in determining when Peak Oil Production will be reached. According to the clock above, it is less than 3 years away. Other predictions take Peak Oil to 2015 and beyond. It depends obviously on who you ask. Oil companies are not interested in discussing a short-term Peak Oil because it would affect their stock price - even though price of oil after Peak Oil is reached will definitely begin to rise sharply. Governments of oil producing companies (why is it that oil is found in troublesome spots like Nigeria and Venezuela?) are not interested in discussing the issue although I suspect Mr. Chavez may want to say that Peak Oil has been reached already as he wants the price of oil to rise to $120 per barrel.

And it will rise. But, very important to understand the debate, is to look at past estimates of our oil reserves. According to Wikipedia, here are the estimates of world reserves during the course of the 20th century:

- In 1874 the state geologist of Pennsylvania believed that all the oil would be gone by 1878
- In 1920 the U. S. Geological Survey estimated 60 billion barrels as the world reserve
- In 1950, estimates were raised to 600 billion barrels. Note that some barrels of the original 60 had already been consumed.
- In 1970 we were looking at 1500 billion barrels
- The same USGS estimated in 1994 2400 billion barrels and in 2000 revised the estimation to 3000 billion barrels

Where are those barrels coming from? They are not being produced but better estimates and better extraction technology (as well as rising prices) are allowing more and more oil to be recovered from places that were previously inaccessible and uneconomical to produce from.

Dave O'Reilly, Chairman of Chevron Corporation, indicated in a speech at the 26th annual Oil and Money Conference in London, that Peak Oil would more resemble a plateau than a peak. It seems to me that he is on to something, as there is a lot of investment going into increasing production, what with oil at $90 per barrel more and more locations where previously oil companies did not feel inclined to give a second glance at are now being actively worked on. The oil containing sands in Canada and Colorado are one example - this oil would have been uneconomical to recover at $40 or $50 a barrel but with current prices, it begins to look like a good opportunity.

And the side of consumption needs to be looked at. Although we are now using more fuel efficient vehicles, oil consumption continues to rise, with China and India leading the way. These countries are both motivating international oil companies to look for new sources of oil as well as sending their own national oil companies to look for sources of crude abroad. An example is the newly formed alliance between China and Venezuela and the (unsuccessful) attempts of China to buy out other oil companies such as Unocal.

When discussing Peak Oil, these factors have to be taken into account and as one of our known skeptical thinkers, Brian Dunning, likes to say: "Be skeptical".