Peak oil postponed again

So there is plenty of oil and gas after all. Prices will bumble along gently until well into the next decade. We are becoming more efficient in our use of energy, with 3pc extra savings annually. That is a faster pace than the rising real cost of fuel. Mankind will not run out of fuel for a very long time.

That at least is the story today from the International Energy Agency. Their medium-term outlook for fossil fuel markets is a dazzling contrast with last year’s warnings that a combination of break-neck industrialisation in China and lack of investment in new oil fields (thanks to the credit freeze) would exhaust global spare capacity by 2013.

The IEA said then that we would need “four new Saudi Arabias” within a generation to cope with the rise of China, and there were no such Saudi Arabias in sight. Such are the perils of forecasting the volatile variables of supply and demand for oil.

What has changed – apart from human emotions? For starters, the global gas market has been undergoing a revolution as a result of a) liquefied natural gas, a technology that is only just coming into its own and allows countries such as Qatar to ship their once useless reserves of gas on frozen hulls across the world; LNG output will increase by 50pc from 2008 to 2013. Actually, this is not that new, but never mind. b) advances in US gas extraction from rock, which have turned the US into world’s biggest producer of gas. Europe is jumping on the bandwagon. “The development of unconventional gas in North America is of global significance,” said the agency. Indeed it is. The knock-on effects run right through the energy complex.

“Peak Oil” is evidence of being ignorant of the laws of supply and demand in light of a fungible commodity.

In short Peak Oil is NONSENSE. What counts to the consumer and to the economy is the cost at the pump of the retail product, whether it is jet fuel, diesel or gasoline. We do not burn crude oil, we buy refined products that are presently made mainly from converting crude oil. They can just as well be made by converting coal, or for that matter many other form of hydrocarbons. The only issue is the cost.

Over a hundred years ago we burned whale oil. That became expensive and was replaced by coal oil which in turn was replaced by kerosene. Each of these conversions took decades to complete. They were peaceful and orderly because government did not intrude and force conversions.

Today, coal can be converted to diesel for around $70-80/bbl. That happens to be the world spot price for crude oil. Should oil rise in price, conversion projects will be viable, that is unless government burdens them with regulations and delays.

We are awash in hydrocarbons. The can be converted to the various forms of finished fuels that we need. The only issue is price.

Thus “peak oil” is about creating a crisis, and we now know that we must never let any good crisis go to waste to advance the agenda of the destruction of liberty and of growing government.

“Over a hundred years ago we burned whale oil.”

During the same period, our cities appeared to be under the threat of being inundated by horse manure: in some cities it was piled like snow on the side of the street. Had one made forecasts of the amount of manure cities would have to handle based on trends in population and buggy use, a “crisis” would have appeared inevitable. All of which was soon swept away by the appearance of the horseless carriage in the late 19th and early 20th century.

There is a marked tendency among progressives to be fear-mongers as a population naturally suspicious of government tends to only relax its guard under crisis conditions. Hence only by whipping up a crisis can progressives seize the degree of control over the economy and our lives that they desire.

I like this columnist, but he really didn’t do his homework on this one. The problem is not about the volume of crude oil, it’s about the amount which can be extracted quickly and cheaply. That’s what we are lacking and the reason BP was in the deep waters of the Gulf.

The problem has never been the total amount of oil. Even Jimmy Carter talked about the oil shale and the tar sands, claiming we had more oil than Saudi Arabia. Technically, that’s true, but right now, we cannot extract it in massive quantitues with an energy rate of return that makes sense. We are getting what we can with the infrastructure that is in place, but to move to another level would mean an investment level that no one is willing to commit to.

LNG requires specialized port facilities. Right now we don’t need it, as we still produce 90 percent of the natural gas we need and import the rest from Canada and Mexico. Those two markets are declining, and Canada will need a lot more of its own natural gas to extract its unconventional oil from the rocks. At that point, LNG might become more important, but it would also become a terrorist target.

The efforts in wind and solar simply do not scale up fast enough to make a difference. There is no substitute for oil in producing the levels of energy we seem determined to utilize. A wise society would do what our grandparents did, reduce demand to match the supply that is reasonable to provide. That doesn’t mean eating granola bars, but it might mean better land use design, combining tasks in a single trip, moving to a four-day work week, or other ideas that will vary from one family to another.

Since 2004 the world has had an almost flat amount of crude oil production, with the technical peak in 2005. We don’t use as much oil due to our recession. (Unemployed people don’t drive to work.) If everyone is fine with a 20 year recession/depression, we’ll get by with the inefficiency we have built into our current lifestyles.

Heaven forbid we modify our zoning laws to allow a small market within five miles of our homes or target the high energy costs of the 150-600 mile trip that can be done more efficiently with the rail system we had in 1952. After all, there doesn’t seem to be much “conserve” left in today’s conservatism.

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