My Word, Fancy That?

Just goes to show, doesn\’t it?

The German-based Energy Watch Group will release its study in London today saying that global oil production peaked in 2006 – much earlier than most experts had expected. The report, which predicts that production will now fall by 7% a year, comes after oil prices set new records almost every day last week, on Friday hitting more than $90 (£44) a barrel.

Supply reduces, demand goes up or stays static, prices rise. Thus all those who want oil at that new higher price get it and those who can substitute for the oil go and do so. Amazing how it works really.

 

11 comments on “My Word, Fancy That?

  1. I really don’t understand the peak oil hysterics.

    John Hemming claimed that it is a battle of physics against economics (I paraphrase here), but surely economics is bound by reality (at least for sensible economists).

    Prices will rise, that will encourage both new sources of oil production and alternatives.

  2. “Prices will rise, that will encourage both new sources of oil production and alternatives.”

    Read Deffeyes’ book. It’s not about finding new sources of oil, it’s about finding new sources ever more quickly. It’s about rate of pumping, not about total quantities. We are about to top out on pumping rates.

  3. Sorry, not getting your point here. What about those who can’t pay and can’t substitute? Even the article mentions the short supply of the other staple energy sources, in amongst the bits about us all being Doomed.

    Sure, economic principles hold true. Might be a bit of a phyrric victory, though.

    Tim adds: Sorry, there’s no such thing as “can’t substitute”. It’s like “no comparative advantage”. The definitions of the terms don’t allow that to happen.
    People might very well find it very difficult to substitute, but “can’t” won’t ever happen.

  4. The “peak oil” argument has been the first publicised natural-resources worry of my life that has sounded plausible to me. As Tim says, if it pans out the consequence is surely going to be higher prices, not “shortage”- unless we give up market mechanisms entirely. Based on my experience, you can be confident that many scientists will talk absolute tripe on the issue; either the notion of supply and demand will sail right over their heads or they will be lying in pursuit of grants.

  5. But Tim, Niels is surely correct in saying that just because market mechanisms ensure no scarcity, they don’t mean that it is a positive outcome. If this report is correct – obviously a big if – then it’s going to be a much more sudden impact than was expected by most people, and not a nice one.

    Tim adds: Sure. My argument would be and is that the peak oil crowd are crying out that “something must be done”. My answer would be that markets do what is required. I’m far more worried about people trying to “solve” peak oil than I am the thing itself.

  6. Read Deffeyes’ book. It’s not about finding new sources of oil, it’s about finding new sources ever more quickly. It’s about rate of pumping, not about total quantities. We are about to top out on pumping rates.

    Yes, but the reasons for this, and the major barriers preventing and increase in pumping rates, are political, not geological or technical.

    See here.

  7. Right, I see where you’re coming from. But if you’re allowing everything down to Shank’s Pony and elbow-grease as substitutes for processes currently powered by oil derivatives, aren’t you at risk of trivialising the debate?

    When I said there wasn’t a substitute I meant one able to make up the shortfall without seriously compromising our standard of living. When you say the markets do what is required I don’t doubt you’re right, but doing what is required may involve eliminating a significant portion of the population through starvation and whatnot. You know, what happens to any population that outgrows its food supply (is it still 10 calories of petro-energy used per calorie of food we consume?)

    Look at it as trying to organise a soft landing rather than a flat out recession, if that’s not further displaying my econom-ignorance.

    Tim adds: “trying to organise a soft landing”

    OK, fair do’s. Now, who is going to do the organising? Our Lords and Masters, those who cannot even get a basic computer system to hire doctors up and running?

  8. I know, I know. But your original post sounds like it suggests ignoringthe issue entirely. Surely markets run more smoothly when those in them trade rationally, using all available information?

    Tim adds: “Surely markets run more smoothly when those in them trade rationally, using all available information?”

    Sure. What makes you think they’re not?

  9. Your original post, for one. But I’ll go away and read some of your older posts on the subject, maybe that’ll put it into perspective.

    Tim adds: Well, my view of peak oil is that…because the markets are not currently pricing it into matters, and because I think that markets are the best processors of information that we have, therefore I don’t think peak oil is upon us/important if it is.

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