I hate to say I told you so, but...

September 13, 2005 I wrote:

Higher oil prices create the incentive for existing producer to INVEST IN EXPLORATION.  With higher oil prices, the oil that used to be too expensive to extract become economically attractive.

Simple economics right?  Fast-forward almost three years (from CNN):

Stanley, North Dakota, might seem an unlikely boomtown located in the northwest part of the state near the Canadian border. But the town is teeming with activity -- all thanks to rich oil deposits sitting deep below the surface...

It's always been known there was oil in the region, but it wasn't always cost effective to drill for it or the technology wasn't good enough. When oil was cheap overseas, it also was easier for a company to import it, rather than explore for it, experts say. But that's all changed with high oil prices.

Comments

[Rutger]

http://www.digitalfuntown.com has maps of other nearby places with similar oil deposits

[Scott]

That's great, it gains us another 59 days of oil supply, assuming we really can afford to pump it. Does this mean oil production is not peaking ... doesn't look that way to me.

[Captain Quirk]

Told us what? That higher prices increase economically viable reserves? Only a dolt doesn't know that.

That's not the issue. The issue has been (a) deer in the headlight conservative WSJ opinion page types who didn't understand that prices would probably be heading higher and (b) those who think, given current estimates of reserves, that additional development will lead to production able to bring prices back down significantly.

[Bob Murphy]

Does this mean oil production is not peaking ... doesn't look that way to me.

It does to the EIA (MS Excel file). 4q 2007 world output was the all-time record, and then 1q 2008 broke it.

The peak oil theorists were looking good from 2005-2007 (when OPEC cut back output to offset non-OPEC increases) but not anymore.

[Bob Murphy]

Tim,

Good job! You should generalize it, and say that rising prices lead to higher quantities supplied in any market. Call it the Law of Tim. :)

[Tim Haab]

Bob,

I'm glad someone found the humor.

Cap'n Q:

At the time I wrote that, I was responding to claims by peak oilers (not all--but a few) that the market was broken and prices weren't responding the way they should and even if they did rise, the market wouldn't respond. What's obviouis to you average dolt isn't obvious to all dolts.

[odograph]

"Peak Oilers" is a big umbrella, though the fringe pessimists ("Doomers") own it more than the moderates like to admit.

I still think the recapitulation of the "Peak Oil" position is a bit strange:

"that the market was broken and prices weren't responding the way they should and even if they did rise, the market wouldn't respond."

I think they all see the market trying to respond, just with different visions of future resource constraints. If it were true that we'd hit hard and fast resource constraints (I don't think we will) then the market will have less time to respond.

We see that in a milder form when gas jumps from $3 to $4. People with SUVs and the proverbial 6 year loan are caught out a bit. With a jump from $3 to $9 they'd be caught out that much more.

Market mechanisms would still be there ... but that doesn't make every past market decision look good in retrospect.

I guess I should finish with what I think, since I'm analyzing the Peak Oil position as "theirs." I think I borrow from them the basics: the simple observation that quality land-based oil reserves have been increasingly exploited, and the simple explanation that the industry is moving to poorer forms (shale) and harder to reach (deep off-shore) oild.

That's a game-changer.

[odograph]

Shorter: Oil available deep off-shore in the arctic is not the same sort of resource as on-shore oil in sunny California.

To paint, with a broad brush, that economics will make them equivalent is probably naive.

[Bob Murphy]

To clarify my own definition, I take "peak oil theory" to mean, "World crude output has peaked." I'm not talking about price.

[odograph]

Bob, "oil" or total liquids ;-) ?

[Scott]

It is worth noting that when US domestic oil production peaked, the peak was not particularly sharp, doubtless due to the fact that higher prices do drive production from more expensive sources. World wide peak oil is likely to be an even broader and thus more difficult to pinpoint peak. Exactly when the absolute peak in production is reached, whether it will prove to be 2007, 2010, or 2015 is not particularly material to the basic fact that production will peak, that we are very near to that time, and that forever after oil supplies will diminish. The fact that it is proving to be broad is all to the good in allowing our energy infrastructure more time to be reconfigured. I am hoping we make wise use of that time. Nevertheless for both peak oil and climate change we should be forcing that change as fast as we practically can. A WWII war footing reaction is not at all too extreme IMHO. Unregulated market forces are in and of themselves insufficient. Perhaps they would suffice if all external costs, most especially those of climate change, were captured in the cost of oil.

[joshua corning]

A WWII war footing reaction is not at all too extreme IMHO.

I love how the left summons militarism as the solution to their flavor of the day crisis.

To be honest I really think the "crisis" is just a side show in order for them to full fill their militant dreams.

It is worth noting that when US domestic oil production peaked, the peak was not particularly sharp, doubtless due to the fact that higher prices do drive production from more expensive sources

Lots of production types have peaked in the US....this in no way has meant the end of production of say video players.

If sugar subsidies stopped today i am sure sugar production in the US would peak...would this be a sign that world sugar production would stop 20-30 years later?

[Bob Murphy]

Exactly when the absolute peak in production is reached, whether it will prove to be 2007, 2010, or 2015 is not particularly material to the basic fact that production will peak, that we are very near to that time, and that forever after oil supplies will diminish.

Scott, I realize the silliness of two guys throwing predictions at each other on a blog, but for the record I think you are wrong here. I would be very surprised if oil output--whether crude or total petroleum products, Odograph!--in 2030 is lower than any year prior to 2020.

The only way I can see this happening is because of carbon legislation.

[odograph]

Wow Bob,

Not to argue that with you, but I find it surprising that you are more optimistic than CERA, who are usually considered to hold the optimistic pole of prediction.

(The dip-and-rise they show for conventional oil in Figure 1 looks a little convenient, but this is really about uncertainty vs false certainty. "Maybe" is probably the best answer to their graph .. or your prediction.)

[Scott]

Bob,

From an economic perspective I hope you are right, because if production peaks before we are ready for it the current economic environment will seem very benign. From a climate perspective we need to be drastically reducing CO2 output now, oil not being the major source it is far less important than dealing with coal. If you are right we may well see world production rising for another 20 years. I doubt it. Time will tell who is right.

Joshua,

I was also considering an Apollo metaphor – frankly I like it better for the reasons of your critique, but it just isn’t big enough. We need to turn not just ours but the entire world's economy and energy infrastructure and the only comparable events in scale were WWI and WWII. That is a simple fact, not a martial bias on my part.

As for US oil production peaking and declining steadily since 1970, why do you think that is if not a physical constraint in extracting more oil? Consider this: real oil prices have been rising more or less steadily from 2002 and yet every year from 2000 to 2007 US production has dropped year over year. How do you explain that?

http://tonto.eia.doe.gov/dnav/pet/hist/mcrfpus2a.htm
http://www.wtrg.com/oil_graphs/oilprice1970.gif

Bob, Josh, Peak Oil is a real phenomenon. Wishful thinking will not make it go away. I suggest you look closely at the US production numbers from 1970 until now and think about the implications of production having risen year over year only 8 times in the last 48 years; the fact that the last year over year increase was 17 years ago; and the fact that current US production is just 52% of the peak year production.

[odograph]

And in case it isn't obvious: Maybe not.

(I was observing in another forum that if people have tried to prove peak oil or not for years, and the question is still unproven and uncertain ... maybe that uncertainty is the real answer.)

[odograph]

Bob, something crazy about that link, sometimes it shows figures sometimes it doesn't.

Scott, by "prove" I mean prove timing (or shape of peak).

[Joshua Corning]

I suggest you look closely at the US production numbers from 1970 until now and think about the implications of production having risen year over year only 8 times in the last 48 years; the fact that the last year over year increase was 17 years ago; and the fact that current US production is just 52% of the peak year production.

Hey if you give me a penny one day then the next day you give me 2 then 4 the next pretty soon that adds up to a lot of pennies!!! Friggin brilliant observation.

[Joshua Corning]

and the fact that current US production is just 52% of the peak year production.

If you are picking fruit from a tree and you may or not pick all the fruit and the easy to pick fruit is on the lower branches and you picked all the low fruit on one branch does it make sense to pick higher harder to get fruit just above that branch or does it make sense to move to another lower branch?

[Scott]

Josh,

I am sure with your last two posts you are trying to make some kind of point, but I must be stupid because I just don't get it.

The last year that oil production was lower than 2007's production was in 1946 making 2007 is the lowest US production in over 60 years. Why is that Josh? Are we just too lazy to reach for that higher branch? The fact is US oil production peaked 48 years ago and is now dropping every year, that trend will not reverse, the recoverable oil just isn't there any more. Sad but true.

[joshua corning]

Why is that Josh?

Becouse it is produced cheaper elsewhere.

Are we just too lazy to reach for that higher branch?

No we like paying lower prices for things. We could make DVD players in the US as well but we would pay more for them if we did. Oil is the same.

The fact is US oil production peaked 48 years ago and is now dropping every year, that trend will not reverse, the recoverable oil just isn't there any more. Sad but true.

Recoverable oil at a competitive price....the "competitive price" is an important point that you keep missing. The US has lots of oil (100s of years worth of it at current consumption levels) only it would cost 30-40$ a barrel to recover.

[Scott]

recoverable oil just isn't there any more ... Recoverable oil at a competitive price....

What you seem to be missing is that is what Peak Oil means. After the peak, oil recovery becomes increasingly difficult (or expensive if you prefer) and therefore production goes into long-term decline.

Yes there is plenty in the ground, but you just cannot recover it economically unless prices rise dramatically, which is a self limiting proposition. Production has to fall to drive up prices. Higher prices depress demand. Production has to fall even further to support the economic recovery price in the face of falling demand. Note the feedback loop. The logical result is either the collapse of the oil based economy or the replacement of oil as a major energy source. What does not happen though is a return to the good old days.