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Peak oil vanishes; peak green arrives

General Ideas

Peak oil theory and the green energy fad both arise from a failure to ­understand how markets work

Half a dozen years ago, the late peak oil fanatic Matt Simmons claimed in his book Twilight in the Desert that the Saudis were lying about their production capabilities. Earlier this year, Jeff Rubin, a former chief economist with the CIBC who had gone off the economics reservation to start preaching at the church of sustainability, took up the claim.

Well, if the Saudis were lying, it might not now matter so much. Their new concern seems to be their ability to sell what they do produce. According to an intriguing piece by the Post’s Yadullah Hussain on Monday, the Saudis are now concerned about the prospective boost in North American petroleum production displacing their oil, whatever the Keystone XL protesters think they might have achieved.

Khalid Al-Falih, chief executive of Aramco, the giant Saudi production company, not only admitted that non-conventional supplies — shale gas and oil — presented a powerful prospective competitor for Saudi oil, he suggested that green alternatives, which need to be heavily subsidized, are a bust, not least because of “shifting environmental priorities.”

How far those priorities might further shift as the result of a new release of climate emails this week remains to be seen. Terence Corcoran demonstrated on Monday that the latest IPCC pre-report certainly further reduces the “settledness” of the science. Meanwhile, Ross McKitrick confirms elsewhere on this page that the IPCC process is a possibly irretrievable mess. The official climate conference that begins next week in Durban is guaranteed to produce little except hefty expense chits.

As if all this wasn’t bad enough for peaksters and warmists, there comes the cascade of news that the end of petroleum may have been greatly exaggerated. Peak oil hysteria has peaked. No longer does an assorted array of renegade anti-economists, loopy investment gurus, and end-is-nigh lefties hold much credibility, even for a doom-craving media.

The peaksters claimed that the world was on the point of reaching an oil production tipping point. After that, the laws of the market — which these individuals never understood in the first place — would cease to function and the Four Horseman would gallop abroad. The solution was much tighter control by governments, and draconian restrictions on personal freedom. Strangely, the statist soulmates of the peaksters were those in the climate alarmist community who complained that petroleum might not run out soon enough to stop the global climate from self-incinerating. The solution this latter group recommended was, er, much tighter control by governments, and draconian restrictions on personal freedom.

The central nonsense of the peak oil case was that peak production of any resource would lead to the end of markets and civilization as we know it. Increasing scarcity merely means higher prices, which promote conservation and make previously marginal supplies viable. They also boost the search for economically viable alternatives. That is exactly what has happened. Revolutionary developments in drilling and production technology mean that vast new petroleum supplies are available not just in the Alberta oil sands and deep offshore, but from the “tight” formations of shale gas and oil opened up by the technological wonders of hydraulic fracking and horizontal drilling.

The Saudis may have some way to go in the human rights department, but they have always been pragmatists, which derives partly from their role as the “swing producer,” theoretically able to open or close their considerable spigots so as to influence global oil prices. More than 30 years ago, Saudi energy minister Sheikh Yamani visited Alberta to check out the oil sands’ viability. As an expert in markets, he realized that permanently higher global prices could open the door to such supplies, as would inevitable advances in technology.

Meanwhile even more ridiculous than the peaksters’ non-problem was their solution: not just chaining markets but promoting “technologies of the future.” The era of petroleum would cede to a New Age of wind, solar, biofuel and electric cars. The silly old short-sighted market, with its silly old price signals and its silly old profit-oriented ingenuity, could not hope to match the far-sighted wisdom of the policy wonks and their elected servants, who would herald the new age either by getting out in front of the market, or successfully bringing it to heel. This perspective was blind both to the nature of markets and the lessons of history. Anyone who tried to remind peaksters that resource doomsters had a batting average of .000, while governments had an unparalleled record of picking technological losers, was blasted with moral condemnation. This time it’s different! The stakes are too high!

The notion that government can beneficially insert itself into the R&D process simply will not die, despite the ever-higher mountain of contradictory evidence. That governments can pursue only follow-the-leader, drunk-under-the-lamppost policies is obvious from the comprehensive failure of high-cost, scandal-ridden green industrial strategy. It is proving a particular burden in debt-laden Europe, but Dalton McGuinty’s Ontario is heading for a sectoral crash too, as feed-in tariffs produce more and more fed-up consumers.

While peak oil perpetually recedes into the future, peak green may already have arrived.

Financial Post

10 Comments on "Peak oil vanishes; peak green arrives"

  1. WhenTheEagleFlies on Wed, 23rd Nov 2011 7:40 pm 

    Why do journalists who are clueless about petroleum geology prattle on?

  2. rebecca on Wed, 23rd Nov 2011 8:55 pm 

    “Revolutionary developments in drilling and production technology mean that vast new petroleum supplies are available not just in the Alberta oil sands and deep offshore, but from the “tight” formations of shale gas and oil opened up by the technological wonders of hydraulic fracking and horizontal drilling.”

    Another clueless peak oil denier. No facts or statistics to back up phrases like “vast new petroleum supplies” and no understanding of the fact that peak oil is not about “running out of oil” but the rate of production vs the rate of demand. Not to mention that there is a ceiling on what the world economy can afford to pay for oil and that the current economic conditions can be blamed on expensive oil.

  3. SOS on Wed, 23rd Nov 2011 9:04 pm 

    Thank you financial post for seeing and reporting the location of the herd of fools. This article is absolute truth. I just heard North Dakota now produces over 500,000 Barrels of oil/day, up 125,000 barrels per day from just a short time ago. Its going to take almost 30 years to drill out the Dakota Bakken formation as it is known today using current well spacing regulations. Our overabundance of natural gas, truly a phenomenal resource that would provide almost endless cheap energy if fully utilized, will also help assure us all of a future full of abudent energy if politics would stop abusing the sea of useful idiots that have accepted the notion they must pay a lot for energy and as a result wallow in the doom and gloom. Depressed people are suckets! LOL

  4. SOS on Wed, 23rd Nov 2011 9:07 pm 

    Ps. Canadian Tar Sands will also prove to be phenomenal in scope. This jaw dropping reserve is going to be piped right through the center of the country for everybody to use and the surplus will be exported, dispacing Saudi and other competitior supplies. The affect on prices will be favorable for the consumer if the government steps back and doest try to maintain policies that keep energy artificially high.

  5. SOS on Wed, 23rd Nov 2011 9:12 pm 

    Pss. Dont forget about all the oil now known to exist off the coast of Brazil. They are just starting to develop that staggeringly huge oil reserve on the strength of the 10 billion dollars Obama gave them while the BP well was leaking into the Gulf. LOL The west has so much oil and so much fossil energy reserves that it is starting to split the world into east and west energy hemispheres. Development in the west is starting to displace imports and this trend will only increase. Demand is also growing in the east. As a result displaced supplies from the east are being diverted to growin geasten economies. Western supplies are being used by the US and other western nations.

  6. BillT on Thu, 24th Nov 2011 3:22 am 

    This article is nothing but an ad for big oil. Trying to convince themselves that oil production has not peaked, while the evidence points otherwise.

    They need to keep their stock holders from looking elsewhere for investing their money. Prices will keep demand down, stretching out the peak into a plateau, but, eventually, we will start down the other side.

    No-one mentions ERoEI or the fact that the junk we are pumping now is not the high energy intensive sweet crude of past history but sludge that requires more energy just to get and refine into useful products. We have a lot of coal left also, but it is barely above the energy content of wood.

  7. Gale Whitaker on Thu, 24th Nov 2011 4:27 am 

    All previous civilizations have collapsed because some fool mismanaged the available resources. This civilization is loaded with fools and it will certainly collapse for the same reason.

  8. SilentRunning on Thu, 24th Nov 2011 7:11 am 

    All this article shows is that Peak Oil Denialists have reached the peak of their intelligence.

  9. Grover Lembeck on Thu, 24th Nov 2011 9:26 am 

    If you have no way to argue with someone, just make a bunch of stuff up, is what this is.

    This guy isn’t clueless at all, he’s a shill. He isn’t genuinely denying, he’s profiting. There’s no other way to explain the degree of misrepresentation going on here.

  10. Sam Powrie on Fri, 25th Nov 2011 12:39 am 

    Clueless or otherwise, this article is rubbish! The author argues that the idea of peak oil is based on unfounded assumptions. This is completely untrue of course, but it is itself peddling the baseless assumption that peak oil is about reserves. Nothing of the kind. Peak oil is about our ability to get useable oil out of the ground at a rate and in a form that continues to be useful in both energy profit and economic terms. That’s the key to tyhe problem. Arguements such as the author is advancing – that it’s all about reserves – completely ignore the central roles or energy return on investment. When this ratio falls to about 5:1 – BTW about where biofuels are right now – the game changes. That’s where all of this ‘new oil’ is headed! These arguements also completely fail to understand that we can’t decouple the economy from energy consumption. The notion of ‘reducing energy intensity’ (which the renewable energy wonks are so keen on) has relatively limited application. Sooner or later we have to simply power down – to use less energy overall. How come the rest of the world, from the guy in the street to heads of government, understands what Americans seem to find so hard to digest? It can’t be lack of intelligence so it must be cultural bias (or ‘blindness’). If we are to understand the IEA’s latest report (released last week) it’s way past time to wake up from the dream. To take the blue pill and leave the matrix!

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