Feeling a little Peaky...

In comments on previous posts, Draig chides me a little for my scepticism over the connection between the current high price of oil and the concept of Peak Oil. Peak Oil (like Climate Change) is certainly on my list of things to worry about. Both issues are challenging for all of us – although they may not be the two most pressing.

Peak oil, again like climate change, has become one of those things which have an almost religious status for some, and any challenge to it is met with outrage. But shouting ‘peak oil’ whenever the oil price goes up is as meaningful as shouting ‘climate change’ whenever we have a freak storm; neither follow necessarily from the science or mathematics.

In essence, the concept is incredibly simple. As oil is a finite natural resource, there will come a time when oil production reaches its peak, and production will decline thereafter. Unless the global economy has planned for this, and we have put alternative energy sources in place, the inevitable result will be price rises and energy shortages.

So far, so good. I have no quibble with that at all – my disagreement is about whether the current high prices are in any way related to the peak oil theory. Peak oil theory certainly predicts high prices; but it is a complete non-sequitur to argue that high prices at a particular time therefore prove the theory. I think that there is another, darker reason for the current high prices.

There will, of course, come a time when oil production does reach its geological peak, although estimates of when that will be vary. There are two main complicating factors in knowing when it will happen.

The first is that the current level of supply is artificially capped by the producing countries. I don't blame them or criticise them for doing that; but there is a great deal of difference between a cap on production based on geology and a cap based on politics, even if the effects (rising oil prices) might look similar.

The second is that, as the price increases, oil reserves previously considered unrecoverable on economic grounds become economic after all, so that the geological cap may continue to move a little further away in the short term.

At this stage, I remain unconvinced that the current price hikes are actually based on a real shortage of oil, or even on a genuine fear that there will be a shortage in the near future. Prices have been forced up largely by speculators who are betting on there being a fear of a shortage, and then trying to make vast sums of money by creating the fear that will enable them to win their bets. Those bets are thus in danger of becoming a self-fulfilling prophesy, but gambling on this scale doesn’t prove the peak oil theory – and this sort of gambling is hardly a rational basis for running the world economy either.