Peak Oil 2005 ?  

Posted by Big Gav

Roland at New Era investor has some interesting comments to make about the possibility that the peak will arrive this year or if it is still a way off. He accurately notes that the core of the "peak oil 2005" meme is quite a small set of commentators (Campbell, Deffeyes, Simmons and, to a certain extent, T Boone Pickens), so paying too much attention to our echo chamber could result in some red faces if we prove to be 5 years or so out - and the reality of the peak may not be obvious until a year or two later (via Energy Bulletin who note a variety of reasons for not being too obsessed with the exact date of the peak in their postscript).

I note that more and more commentators are predicting this year as the "Big Rollover". Commentators like Richard Deffeyes, Matt Simmons and T. Boone Pickens have targetted 2005 as the year of peak oil. Richard Deffeyes has backed his prediction with analysis based on R/P projections. Matt Simmons no doubt has factored an imminent peak in Saudi production into his calculations. As for the others, I cannot say, it is likely that the majority of commentators are merely copying what one or two experts are saying and the message has propagated outwards accordingly in the true fashion of a meme.

As the price of oil rises more and more, so the pessimistic proclamations rise in unison and the whole affair takes on a life of its own. As the message gains a bigger audience, so commentators feel more confident in their assertions. However, at the core of the "2005 rollover" anthem will be no more than a few experts whose analysis came to that conclusion.

This year may be the year that global oil production peaks forever but caution is advised lest advocates of Peak Oil turn out to be wrong like their oil-shortage predecessors of other decades. This can happen in two ways.

First, recession can come and hit demand for oil based products. This can happen independently of oil prices and is likely to be triggered by the current and global real estate bubble. If that bubble bursts this year or next, the loss of paper wealth will propogate through to consumer spending and hence a contraction of GDP. When the recession runs its course, we will find that spare capacity has built up again through canned oil drilling projects and decreased production. That new capacity could be enough to foster a new demand record, but probably not too much higher than current demand.

Secondly, the high price of crude itself can draw back demand. We have noticed the moves to retrench energy consumption in countries such as Nicaragua and Indonesia. This problem is particularly noticeable in governments offering energy subsidies. This decreased consumption is not so obvious in cash-rich nations such as the USA or the EU, but it is undoubtedly there in a smaller measure.

In fact, a two pronged attack of high oil prices and the bursting of the real estate bubble may well lead to a recession in 2007 and a postponement of the downside of Hubbert's Peak. Only time will tell.

My advice? Peak Oil is coming soon, no doubt about it in my mind. But like religious groups who set the date for the Second Coming only to end up looking like fools, some caution is advised. If Peak Oil is postponed for a few more years due to a recession, the number of peak oil books and websites will also decline. If that happens, the actual peak in oil production may arrive with more of a whimper than a bang as scoffers deride those who proclaimed 2005 as the day of reckoning!

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