The "Living" Peak Oil Theory
In the o'l biniss (in Texan wildcatter speak) “peak oil” is considered a four-letter word; it conjures up visions of a doomsday cult ranting about the inevitable day when the world as we know it gets sucked into the black hole. The peak oil debates are once again making the headlines, and I can just image all the oil execs having to loosen their bootlace ties in order to let all the hot blood in their heads flow back into their bodies. These hot heads do have cause for concern, however. Most of them are over 50 years of age, and in their lifetimes have seen the world "run out" of oil several times; every time with same amount of hyperbole, fear, and public hatred of the oil companies that are "controlling" oil prices to fill their fat coffers (I'm talking about you Suzan Orman).
So how is today different than the last three, four, or five times we've run out of oil? I believe a clue to this answer is based on definition. The peak oil theory (and it is a theory) was originally based on the production decline rate of aging individual fields in the United States in the 1950s. Today, however, the theory has taken on a new meaning and is being used to describe the entire state of the world oil industry—encompassing not only geological factors but geopolitical and market concerns as well. What’s more surprising is that the company execs are starting to buy into it. Mr. de Margerie, CEO of French oil major Total, on peak oil in a Wall Street Journal article:
“There’s a virtual world, and then there’s reality,” … The crunch is due to a slate of “above-ground” factors that make it unlikely the world will ever produce the amounts of oil Mr. Yergin or the International Energy Agency think it will…That includes sudden and voracious demand from China and India; cost issues that make exploration more expensive for companies; geopolitical barriers that make that exploration untenable; and environmental constraints that hamstring oil production in way they never did before.
Mr. de Margerie is certainly right that all of these factors have contributed to strained production and increased prices, but let’s put to rest the “peak”. Today’s all-encompassing peak oil theory is essentially moot. Clearly the majority of today's production problems lie in politics, finance, macro economics, and technology. Isn’t it time that we kill this “living” theory and come up with another term or phrase to describe the real state of the world oil market; perhaps “pesky Russians/Venezuelans/Nigerians/Federal Reserve” or "let's all buy Vespas"?
