Thursday, May 06, 2010

The Meaning of Peak Oil

The common criticism of the Peak Oil theory is that "there is plenty of oil left to get"; from tar sands to coal conversion to drilling at deeper depths of the ocean. The problem is, people making this argument are missing the obvious point. Of course there is plenty of oil, it's just not the "easy oil". Most of the easy to get stuff is gone - now we're going to have to go after stuff that is riskier to get and more energy intensive to produce. At some point, the economics will have to take over, and some people (or nations) will not be able to afford the stuff. When that becomes widespread enough, global instability will occur, local economic instability will become more prevalent, and....more bad stuff will happen.

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Anonymous Anonymous said...

Any discussion about peak oil and oil prices over the next decade must include an attempt to quantify emerging economy demand as an important driver at the margin. Here is a simple thought experiment using Chinese demand to give some idea of the magnitude of the supply issues we face:
- China moves from 3 bbls/person/year to the South Korean per capita consumption level of 17 bbls/person/year
- Transition takes 30 years
- No peak in global production

In next 10 years we must find 44 million BOPD. If you superimpose peak production on top of this demand profile using the following parameters oil prices would increase approximately 250% in real terms over next 10 years:
- Oil demand elasticity of -0.3
- Current production 84 million BOPD, current price US$ 80
- Peak production 100 million BOPD
- Post peak decline rate of 3-4%

If you want to try the model for yourself using your own assumptions it can be found at Petrocapita Income Trust:
www.petrocapita.com/index.php?option=com_content&view=article&id=128&Itemid=86

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