Source: The Economist
Remember peak oil? If you’re unfamiliar, peak oil is the idea that the world has reached (or will at some point soon reach) its peak in terms of being able to extract available oil from out of the ground, and that the future holds a world of oil scarcity as there is less and less oil available to pump out of the ground, sending prices skyrocketing. According to the peak oil pessimists, the consequences of peak oil range from negative — but manageable — to a catastrophe that will cause massive global upheaval in the future. Peak-oilers have one thing going for them: there is a fixed amount of hydrocarbons buried in the earth’s surface, and the formation of these hydrocarbon reserves takes a really long time (millions of years), so as far as humanity is concerned there is a fixed amount of oil in the ground.
Unfortunately, peak-oilers also have a few ideas working against them, namely the economics of natural resources (and history). As this Telegraph article explains, the actual amount of oil isn’t all that important:
Resource constraints are always an economic problem: solved by the price mechanism.
It was never true that we would run out of oil – it just gets more expensive. At a higher price, people use less and go and hunt for more. Both have happened: the amount of oil (or energy of any kind) used to produce one dollar of GDP has been falling for decades now. Techniques to extract more have been developed as those prices rise. And I’m afraid that people don’t seem to understand the implications of those new techniques.
Take the Macondo field drilled by BP. Yes, a disaster in the Gulf: but also the deepest well ever drilled. Having developed the technology to drill so deeply we have not only discovered one new oil field – we’ve also discovered a whole new Earth that we can explore for oil. That part of the entire globe that between 4,000 and 5,000 feet below the surface.
Inventing fracking does not mean just extracting gas from Pennsylvania or oil from the Bakken. It means prospecting the whole planet again for such deposits. New technologies mean we have invented whole new planets to explore for resources.
The hydraulic fracturing revolution has completely remapped the state of energy in the world. While global demand has grown such that incredibly cheap oil is unlikely, the world can continue to grow on the moderately high oil prices we see today.
A longer study (.PDF) by Harvard Kennedy School’s Belfer Center for Science and International Affairs confirms this:
Contrary to what most people believe, oil supply capacity is growing worldwide at such an unprecedented level that it might outpace consumption. This could lead to a glut of overproduction and a steep dip in oil prices.
Based on original, bottom-up, field-by-field analysis of most oil exploration and development projects in the world, this paper suggests that an unrestricted, additional production (the level of production targeted by each single project, according to its schedule, unadjusted for risk) of more than 49 million barrels per day of oil (crude oil and natural gas liquids, or NGLs) is targeted for 2020, the equivalent of more than half the current world production capacity of 93 mbd.
The study predicts that by 2020 the world will be producing roughly 110 million barrels per day of oil, up from 93 million barrels per day in 2012. In the sake of fairness, here is a critique of the Harvard study by analyst’s who aren’t convinced by his optimistic predictions.