Peak oil is alive and well, and costing the earth  

The Oil Drum may soon be closing its doors but peak oil articles continue to seep into the media nevertheless - SBS has an opinion piece saying peak oil remain alive and well - Peak oil is alive and well, and costing the earth.

You might have heard that peak oil – the theory that one day crude oil production will stop increasing, even as demand grows – is dead. Shale oil production is surging in the US. The premiere peak oil website, The Oil Drum, is shutting up shop. Even notoriously left-leaning columnist George Monbiot has announced: “We were wrong about peak oil”.

But he’s wrong about being wrong.

Peak oil is very much alive, and squeezing its hands ever more tightly around the throats of oil-dependent economies. The new economics of oil also have alarming implications for climate change, as Monbiot acknowledged, suggesting this is a subject we dismiss at our own peril.

Peak oil, of course, doesn’t mean that the world is running out of oil any time soon. There is a vast amount of oil left. Over the last 150 years, however, we’ve picked the low hanging fruit, so to speak, meaning that the remaining oil is harder to find and more expensive to extract. This is making it more difficult to increase the “flow” of oil out of the ground.

When the rate of crude oil production cannot be increased, that represents peak oil. This is considered by many to signify a defining turning point in history, because oil demand is expected to increase as the world continues to industrialise. The theory goes that, as the supply of oil stagnates and the demand increases, the cost per barrel will rise, making the consumption of oil an increasingly expensive and debilitating addiction.

So is this theory alive or dead? Well, it’s not a theory, it’s a fact. Around 2005 the production of crude or “conventional” oil stopped growing significantly and has been on a corrugated plateau ever since. This plateau has been acknowledged even by mainstream institutions like the International Energy Agency, a position it recently reiterated through its chief economist, Fatih Birol. Global demand for oil, however, has continued to grow significantly, which has put upward pressure on the price of oil.

This upward pressure on price has changed the economics of several sources of unconventional oil, making them financially viable to produce when once they were not. Shale oil was not produced previously because the costs of getting it out of the ground and refining it were significantly more than the market price for oil, historically around US$25 per barrel.

But now that oil is above US$105 per barrel, producers can make money producing shale oil and other unconventional oils, even though their energy and economic returns on investment are considerably lower than conventional oil.

The fact that unconventional oil is much more carbon-intensive than crude oil – exacerbating an already intractable climate problem – doesn’t seem to trouble oil producers or most politicians.