A new study out of Cambridge Energy Research Associates claims peak oil is still 30 years off. For peak oilers, this just pushes off the inevitable. For economists, it leaves time for markets to react.
What do economic models predict? As oil becomes more scarce, oil will become more difficult to find, more difficult to extract and less profitable. In short, prices will rise. As prices rise there will be incentives for additional exploration (if you can make more money, you'll look for more oil), incentives for conservation (who likes to pay high prices?), and incentives for investment in alternative energies (hydrogen may not be cost effective now, but if gas hits $10 a gallon, it might be). The upshot: peak oil doesn't matter. There's no particular significance to reaching the peak, the real problems come when we reach the bottom of the hill. But most economists and CERA don't see that as too big a problem either...prices are creating the right incentives*.
The CERA study debunks the so-called Hubbert Peak Oil Theory, first espoused in 1956 by geologist M. King Hubbert. Working at the time for Shell Oil Co., he predicted that world oil production would follow a bell-shaped curve in which production grows steadily until it peaks, followed by a rapid decline.
Hubbert was pretty accurate on the timing of U.S. peak oil production, coming within two years of 1970, the year experts now recognize as the peak of continental U.S. production.
But his theory failed to recognize that new technologies enabled reserves to grow over time. His theory preceded the exploitation of massive oil reserves in Alaska and the Gulf of Mexico.
That's why Yergin dismisses talk of peak oil.
"This is really the fifth time we've `run out of oil,'" Yergin said in a teleconference with journalists on Tuesday. He recalled past predictions dating back to 1880 of an end to oil or gasoline production.
Yergin's views carry weight because he won the Pulitzer for his 1991 book "The Prize," an exhaustive history of oil economics.
He and colleagues believe that the decline in oil availability will play out as an "undulating plateau," in which annual production produces a series of ups and downs, eventually peaks and then declines slowly.
"We see the undulating plateau existing one or two decades, rather than a sharp decline," said Peter Jackson, CERA's director of oil industry activity. He sees outright decline beginning no earlier than 2030 and perhaps after 2050.
Future oil supplies, said CERA, will be accessible by new technologies that permit drilling more than 7,000 feet below the ocean's surface or extracting oil from tar-like deposits in sandy soil found in western Canada.
"Ours is not a view of endless abundance of resources," said Jackson, cautioning that he doesn't want CERA's findings to "distract us from addressing real issues."
Another source of optimism for this energy-hungry world emerged from another report this week, this one a technical paper from the Los Angeles-based think tank Rand Corp. It ran 1,500 simulations of varied energy prices and technology costs to estimate future supplies of both renewable and nonrenewable fuels.
It concluded that up to one-quarter of the electricity and motor fuels consumed in the United States in 2025 could be produced from renewable sources, up from only 6 percent today. For that to happen, the price of fossil fuels must remain high and the costs of producing alternative energy must keep falling.
"The renewables case could displace about 2.5 million barrels a day of petroleum products in the United States in 2025, or 20 percent of total consumption," the Rand report said.
Together, the two reports give hope that energy will be plentiful for another generation or more.
"I've never seen so much activity in terms of energy technology all along the spectrum," Yergin said. "I think the system is responding."
Gotta love the system.
*I'm ignoring the climate change externalities here. If we account for those externalities, prices would have to be higher now, which actually extends the life of oil--pushing the peak off even further, doh!