Peak Oil In The FT  

The FT seems to have taken something of an interest in oil and gas depletion recently (especially with regards to European gas supply security) the latest example being this column - "Peak no Evil" - which notes that even if peak oil isn't imminent, there are plenty of other reasons for wanting to switch to alternative energy sources.

As millenarian prophecies go, “the peak is nigh” does not pack the same doom-laden punch as a promised “end”. Except, that is, in oil circles.

Oil resources are finite. “Peak oil” theorists posit that about half of all the world’s crude has been used and that output will soon peak prior to an irreversible decline. Such thinking has helped propel crude to the $100 per barrel level it touched yesterday. Conventional oil fields are like champagne bottles: once “opened”, pressure forces out some of the contents. Eventually field pressure drops and, barring using such techniques as re-injecting gas, output inevitably declines. Back in the 1950s, Marion King Hubbert, a US geoscientist, correctly forecast – to within a few years – when output in the US’s lower 48 states would peak (it was 1970). The “Hubbert curve” is a totem of peak oil theorists.

Even as we have burnt more oil...Applying this globally, however, is fraught with problems. Mr Hubbert originally modelled global oil output peaking at 34m barrels per day in 2000 – less than half the actual figure. One difficulty is poor data. Modelling the mature US oil sector – with its huge sample size today of over 500,000 working wells and more inactive ones – is relatively easy. In contrast, Saudi Arabia has only 2,000 producing wells and large unexplored areas.

Even if the world’s total amount of oil can be established – estimates vary wildly – better technology means the proportion that can be pumped out increases over time. Since 1980, this has risen, on average, from a fifth to more than a third, boosting recoverable reserves. In spite of rising consumption, the ratio of oil reserves to output has been pretty constant since the late 1980s. Today’s high oil prices also make complex sources, such as oil sands, viable and damp consumption.

Oil output is not just a function of geology. “Surface” factors such as Opec have a huge impact. Indeed, geopolitics and environmental concerns provide enough reasons to curb dependence on oil for transportation. If the noise generated by the peak oil debate adds to the sense of urgency in addressing this, it will serve some useful purpose.