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Page added on October 27, 2012

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America’s (Un)Peak Oil

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News stories in recent days have touted America’s recent surge in oil production, positing the US could produce more oil than Saudi Arabiaby 2020.

US oil production has indeed surged in recent years—to levels not seen since 1995. Because of falling US demand and the production surge, the US now imports just 40% of the oil it uses, down from 60% five years ago—the “smallest share in 20 years.”

Will the US be the globally dominant producer in 8 years? Maybe. Production is trending that way, but 8 years is a long time to forecast, and long-term forecasts are fraught with peril.

Just another reason you shouldn’t fear Peak Oil. Peak Oil (also known as Hubbert’s peak theory) is the idea that, eventually, oil production will peak and start falling. Hard to argue with that—crude oil is a finite commodity.

Yet, in some circles, it’s given way to panic. Folks who ardently believe in Peak Oil (capital P, capital O) believe the era of Peak Oil is upon us, or, worse, already passed. This (they believe) will usher in an era of economic stagnation and possible a forced return to subsistence living. (Google “peak oil” and you can find websites recommending how to prep your doomsday bunkers and learn to farm.)

And it does appear we’re past peak production—from conventional sources. For now. But don’t trade the Manhattan condo for a pair of horses and a plow just yet. For the last 30 years or so, known reserves of crude oil have only increased. (See the graph, which shows crude oil reserves in major oil-producing regions and the world overall.)

We’ve gone from 642 billion barrels of known crude reserves globally in 1980 to 1.34 trillion in 2009 (the latest available date from the EIA). If we’ve been consuming oil all the time, how can it be that known reserves have increased? Over double!

First, never believe a long-term forecast—anything can and will happen. Second, it would be hubristic to assume we could ever know exactly how much oil is recoverable at any one time.

That increased oil didn’t magically appear beneath the earth’s crust. Advanced technologies have made it possible to not just extract more oil from conventional sources previously thought tapped, but frack and deep-water drill in spots not even thought of 20 years ago. And they’ve also allowed us to locate more oil—in conventional and non-conventional spots. Very often, energy firms will search for as much crude as they believe economically recoverable at the current or projected price of oil. If they tap out (for now) a spot, or if fundamentals shift to make further exploration economical, they “search” for more.

Conventional production may have peaked. But as oil prices rise, that makes unconventional extraction more economical. As those methods mature, they become less costly (and, eventually, rather conventional), increasing supply and putting downward pressure on oil prices over time.

And if prices rise again (for whatever reason), certainly still more technologies can emerge to find/extract more crude—in both old-school conventional, new-school conventional and super unconventional spots.

Or maybe not! Maybe the world continues its trend of becoming less energy intensive, mitigating demand. Or maybe over the next 8, 10, 15 years the combustion engine becomes a relic. Just because subsidized “green-energy” firms have been going belly-up left and right doesn’t mean there isn’t now or won’t be a potentially profitable alternate to crude energy. Or multiple alternatives! Like natural gas, which is experiencing a full-scale US boom. Or maybe some combination of all these scenarios. Folks who fear an impending deleterious economic impact from “Peak Oil” must, by defintion, assume there will be no futher innovations that will increase supply, mitigate demand, drive down costs and/or change how we power our economy.  That’s a dangerous (and historically baseless) gamble to make.

So, sure, the US might surpass Saudi Arabia in the next decade—maybe by a wide margin. But long-range forecasts based on today’s (or yesterday’s) static assumptions rarely prove true.

Markets Never Forget But People Do by Ken Fisher (CEO of Fisher Investments) and Lara Hoffmans is available now.

This constitutes the views, opinions and commentary of the author as of October 2012 and should not be regarded as personal investment advice. No assurances are made the author will continue to hold these views, which may change at any time without notice. No assurances are made regarding the accuracy of any forecast made. Past performance is no guarantee of future results. Investing in stock markets involves the risk of loss.

Forbes



12 Comments on "America’s (Un)Peak Oil"

  1. DMyers on Sat, 27th Oct 2012 2:54 am 

    More of the same Maugeri ignorance parading as hope and conquest. The Devil is in the details, so don’t go there. All it takes to bring on this surfeit of oil is higher prices! What great news. Gas forever, that we can’t afford, especially on our fast food, prison guard incomes.

    Drive on brothers, drive on. Don’t lower yourselves to an embarrassing little compact. Go big! Drive the biggest! Drive it everywhere to nowhere. The future looks really good. We have it in the ground. We’re Saudi Arabia times three. Nicole Foss don’t know nothing. She didn’t even go to business school!

    Tomorrow is 1960! Giddeeup, giddeeup 409!

  2. DMyers on Sat, 27th Oct 2012 3:18 am 

    Editorial correction. The 409 cubic inch V-8 engine probably came out in 1963. Lay a patch of rubber that would bring a blonde cheerleader begging for a ride. Don’t forget slicks, lake pipes and spinner hubcaps. Doowap, doowap, shamalama ding dong. It’s yesterday, once more!

  3. BillT on Sat, 27th Oct 2012 4:23 am 

    Ah yes, I owned my first new car in 1965. A Chevy Impala Super Sport Convertible with a 396 cu.in. engine and a quadra-jet carb. Got 12 mpg. around town and maybe 16 on the interstate … unless you had the peddle-to-the-metal. Then you could watch the gas gauge go down, literally. LOL. I burned over 6 gallons of gas going about 20 miles when drag racing a Dodge hemi from the drive-in theater exit to the next exit at 120 mph+. I was 21. ^_^

    But those days are about over. We are burning moonshine and gas vapors today, not the real, high powered fuel of yesterday. The Us will never be totally oil independent until the day it all shuts down. Maybe 20 years. Maybe next year.

  4. Arthur on Sat, 27th Oct 2012 11:32 am 

    “Conventional production may have peaked. ”

    Not bad for Forbes.

    And frankly, whatever may happen in the coming years, the least of my fears is an immediate running out of carbon fuels for geological reasons. War and/or financial collapse rank higher on my worry list. But war could very well lead to carbon scarcity.

  5. Arthur on Sat, 27th Oct 2012 11:53 am 

    My parents were strictly anti-car all their lives, so it took a little longer for me to break the greenish ideological boundaries to join the car age with my 1000 buck third (fourth?) hand Volvo240, basically an APC in disguise and insisted on using 6 km/liter lpg or 15 mpg (my current car consumes an unbeateble 80 mpg diesel). I had a lot of fun with it, as long as I made sure that the monster was parked on a hill, face down, just in case. Those happy days came to an end unceremoniously on a lonely parking lot in the middle of the gigantic Rotterdam harbour, when after a bad day in the office, I had forgotten that morning to switch from gas to liquid benzine, and because of a tiny gas leak the entire space under the bonnet had filled with gas, resulting in a James Bond scene on the very moment I turned the key. Nothing serious personally, but it meant the end of driving Swedish.

  6. Gale Whitaker on Sat, 27th Oct 2012 3:29 pm 

    Does the fact the gasoline is $4.50 a gallon prove that peak oil has passed and that the oil companies can’t keep up with production? There is nothing speculative about the price of gasoline, is there? If the earth could spew up cheap oil wouldn’t the price of gasoline be $2.25 per gallon?

  7. Windmills on Sat, 27th Oct 2012 5:35 pm 

    I think we should burn strawmen for energy. The denialists seem to have an infinite supply of that fuel source, especially when it comes to trying to convince people that reserves are the same as production.

  8. Rick on Sat, 27th Oct 2012 8:56 pm 

    I can’t even read articles like this, pure and utter BS!

    I don’t drive much, but when I do, I like driving my small car, a Honda Fit. I hate SUVs!

  9. BillT on Sun, 28th Oct 2012 2:13 am 

    Another ‘if we say it often enough, maybe it will be true’ article denying peak oil.

    I started driving in 1962. Gasoline was $ 0.31 or $2.27 adjusting for inflation. Oil was abundant then.

    “…AAA Mid-Atlantic says the average price of regular gasoline in New Jersey on Friday was $3.57…”

    I guess that says that oil is not as abundant now and we have to pay 57% more for it. But then that is obvious to anyone who looks beyond the MSM prestitute for information.

  10. Beery on Sun, 28th Oct 2012 1:39 pm 

    I can no longer read articles like this either. I just skip to the end and read the comments, which (other than the odd craziness from SOS and Co.) are much more enlightening than the comments.

  11. Beery on Sun, 28th Oct 2012 1:39 pm 

    Much more enlightening than the artcicle, I mean.

  12. SOS on Sun, 28th Oct 2012 2:24 pm 

    Cant read this author? Ignorance is bliss. No need to be aware of the fact energy is abundant. Forgotten wages were $0.75/hr when gas was $0.21/gal? Forgotten taxes on gasoline cost more than the gas? Forgotten about burgeoning reserves making a mockery of peak oil claims?