Did peak oil go away? No

With the price of oil plummeting below $50 a barrel, shedding close to $100 since July, and commensurate readings appearing at the gas pump, people have something to feel good about during an otherwise dismal economic time. Unfortunately, it may mislead the less informed to dismiss warnings about imminent peak oil as so much Y2K false alarm.

For there is a dark side to this otherwise salutary turn of events.
Rather then rendering moot the question of peak oil, the falling prices of petroleum actually exacerbate it. This is because, while the current economic free fall will continue to lower demand for petroleum and drive down prices, these lower prices have also fallen below the cost of bringing new oil into production.

As the International Energy Agency (IEA) has repeatedly warned for over a year, excessively low prices will discourage investment in production, especially with the steadily rising costs of extracting and processing oil from increasingly difficult places. This lack of sufficient investment has serious implications for the future supply, once the global economy recovers from its current descent, particularly when we wrap our minds around the $26 trillion that the IEA says it will now cost over the next 20 years to keep energy flowing at its current pace.

What lends special significance to this development, however, is that it is part of a larger trend of underinvestment in the industry that predates the current drop in prices. Western oil companies have been decapitalizing in recent years, buying stock back and otherwise returning cash to shareholders, rather than exploring for large new fields that just aren’t there.

Petroleum is a capital-intensive industry, where massive amounts are required just to offset depletion and to maintain production. Drilling and platform equipment has aged and is unavailable. The cost of drilling rigs has doubled in recent years. There is an alarming dearth of skilled personnel. What is the oil industry telling us with this retrenching, while it continues to reap unprecedented profits at the same time?

The fact is that the systemic conditions that drove prices to record levels have not disappeared. Oil production has “plateaued” (to use the term favored by the industry) at about 85 million barrels per day since 2005, and this at a time when prices were rising. Production is in decline in 33 or the world’s 48 oil-producing countries.

Brattleboro Reformer