Wednesday, November 5, 2008 4 comments ++[ CLICK TO COMMENT ]++

What Happened To The Peak Oil Theory?

Anyone remember the Peak Oil Theory? What happened to it? According to some, we already hit the peak a few years ago, while others were saying we would hit it in 2007 or 2008. Yet, here we have oil prices plunging and OPEC cutting production. The weaker form of the Peak Oil Theory, which states that only cheap oil will hit a peak also seems to be in question.

Even before OPEC started cutting, we had a whole hoard of junior oil&gas companies cutting production and/or exploration. Now we are seeing stories of established oil&gas companies cutting production.

Not only are we not at any peak, we have so much oil that producers are actually cutting back in order to save themselves. It's so bad that some oil superbulls like Boone Pickens, who was implying that oil will never drop below $100, seem to have taken massive losses on their investments.

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4 Response to What Happened To The Peak Oil Theory?

Anonymous
November 5, 2008 at 9:58 PM

Peak Oil has always been a myth...

http://www.youtube.com/watch?v=LHD4U2q_p4c

November 6, 2008 at 9:29 AM

That video is a perfect explanation of peak oil theory. We have effectively run out of cheap oil and are now forced to rely on more expensive, harder to extract sources of oil. When we expend those we're going to have to move on to even more expensive sources, like coal liquefaction and oil shale.

Perhaps 80% of the bituminous tar sands in Athabaska are too deep to be extracted by the cheaper pit mining presently employed. Those will have to be extracted using in-situ techniques which are less efficient and more costly. Again, the cost of extraction increases as we use the cheaper stuff first.

At some point we get to a state where the EROEI (Energy Returned on Energy Invested) drops below 1 - that is to say it would cost 1.2 barrels of oil to extract 1 from the earth. This is the point at which it gets very, very difficult to maintain the kind of global, petroleum fueled economy we have become accustomed to.

November 6, 2008 at 10:15 AM

Good point Zach... but the thing is, that point might be several decades away. The timing is so vague as to be almost meaningless. This is especially true from an investing point of view, where something happening in 2 years is very different from 20 years from now.

November 6, 2008 at 10:37 AM

can we both at least agree that John Stossel is a major bitch?

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