Time and again I read Austrian School economists dissing Peak Oil Theory. They likely do this because they have not taken the time to fully understand the theory behind peak oil. Instead, they get caught up in the doom and gloom predictions made by many proponents of Peak Oil Theory and the erroneous calls for some sort of government intervention to alleviate the matter. The problem with this dismissive attitude, however, is that by not acknowledging the validity of Peak Oil Theory, the Austrians lose legitimacy in the eyes of a large percentage of the population, namely the environmental left.
In my younger days I, too, dismissed environmental concerns such as air pollution and overfishing, because in the back of my mind any acknowledgment of such would seemingly destroy the validity of the free-market. Only after having missed many opportunities with environmentalists did I finally discover a way to reconcile free-market economics with the environment. The same can be said for many Austrian economists who fail to acknowledge the validity of Peak Oil Theory.
One recent example of Peak Oil Theory denial is a piece written by David Deming and published by LewRockwell.com. To be sure, I am not familiar with David Deming or his economic background. My apologies to Austrians if David is not a student of our school. This attack on Peak Oil Theory, among other articles, having been published by LRC and Mises.org does demand a response from at least one student of the Austrian School and proponent of Peak Oil Theory. I will now go line by line of David’s article and pick apart his faulty logic.
Peak Oil is the theory that the production history of petroleum follows a symmetrical bell-shaped curve. Once the curve peaks, decline is inevitable.
True. For anyone who studies math, physics, or pretty much any other type of statistics or science, you’ll find that the nature of systems commonly take the form of a Gaussian(bell-curve). Although, it doesn’t have to necessarily be symmetrical.
The theory is commonly invoked to justify the development of alternative energy sources that are allegedly renewable and sustainable.
This is a loaded sentence. Whether or not the proponents of Peak Oil Theory advocate the use of renewable energy sources is moot. It has nothing to do with the validity of Peak Oil Theory. This is a smear attempt. Furthermore, he throws in the word “allegedly” as if solar, wind, and hydroelectric power are “allegedly” renewable. They are renewable. I don’t think there is any disputing that.
Peak Oil theory was originated by American geologist M. King Hubbert. In 1956 Hubbert predicted that US oil production would peak between 1965 and 1970. When production peaked in 1970, it was interpreted as proof that Hubbert’s model was correct and that US oil production had entered a period of inexorable and irreversible decline. Unanswered was the question of whether or not US production had declined simply because it had become cheaper to purchase imported oil.
Peak Oil is a theory based upon assumptions.
False. The theory does not rest on any assumptions about future demand. Regardless of whether demand skyrockets or plummets, the rate of production is destined to decline at some point. It is not a matter of if, but when.
Like other scientific theories, it is subject to empirical corroboration or falsification. Although Hubbert correctly predicted the timing of peak US oil production, several of his other predictions based on Peak Oil theory were wrong.
He is being extremely deceptive here. First, he writes about theories and empirical evidence, which is fine. But then he writes about false predictions. Predictions and theories are two totally separate beasts and he is trying to attack the theory of Peak Oil by way of false predictions. Example: Everyone on Earth will die(theory). Tomorrow, everyone will die(prediction). Two days from now when it is proven that not everyone is dead, will the theory then be proven false? The answer is no. Poor example, but you get the point.
Hubbert predicted that the maximum possible US oil production by 2011 would be one billion barrels. But actual production in 2011 was two billion barrels. Hubbert predicted that annual world oil production would peak in the year 2000 at 12.5 billion barrels. It didn’t. World oil production in 2011 was 26.5 billion barrels and continues to increase. Hubbert was grossly wrong about natural gas production. In 1956 he predicted that by 2010 US annual gas production would be 4 TCF. But in 2010, US wells produced more than 26 TCF of gas.
Mere false predictions that add nothing of value to his claim that Peak Oil Theory is false.
The flaw of Peak Oil theory is that it assumes the amount of a resource is a static number determined solely by geological factors.
Is oil a static resource or is it not? If anyone can prove that oil is regenerated at a rate of any significance for human consumption then I will admit that Peak Oil Theory is wrong. But that hasn’t happened. By all accounts the reserves(including undiscovered) of oil within planet Earth are understood to be finite. This fact alone shoots dead his entire argument.
But the size of a exploitable resource also depends upon price and technology. These factors are very difficult to predict.
How much oil can be exploited has nothing to do with the finite amount of oil that exists in Earth. The amount of oil that is exploitable in the future may change one’s predictions when Peak Oil hits, but it does nothing to disprove the Theory of Peak Oil.
The US oil industry began in 1859 when Colonel Edwin Drake hired blacksmith Billy Smith to drill a 69-foot-deep well. Subsequent technological advances have opened up resources beyond the limits of our ancestors’ imaginations. We can drill offshore in water up to eight-thousand feet deep. We have enhanced recovery techniques, horizontal drilling, and four-dimensional seismic imaging. Oklahoma oilman Harold Hamm is turning North Dakota into Saudi Arabia by utilizing hydraulic fracturing technology. US oil production has reversed its forty-year long decline. By the year 2020, it is anticipated that the US will be the world’s top oil producer.
A nice history lesson that has nothing to do with disproving the Theory of Peak Oil.
For at least a hundred years, people have repeatedly warned that the world is running out of oil. In 1920, the US Geological Survey estimated that the world contained only 60 billion barrels of recoverable oil. But to date we have produced more than 1000 billion barrels and currently have more than 1500 billion barrels in reserve.
Again, these were predictions about what would be recoverable. The predicted amount that is recoverable has nothing to do with the amount of oil in existence.
World petroleum reserves are at an all-time high.
This is likely bullshit. I write “likely” because few people know for sure. There are only a handful of entities that have a true stock of global reserves. For example, there are many who believe that Saudi Arabia(the most productive OPEC nation by far) falsifies the true amount of reserves that they have. There is speculation that they overstate their reserves so as to intentionally keep the price of oil low. While one might think that Saudi Arabia would benefit from higher prices one must realize that the Saudi puppet King is beholden to the U.S. And the U.S. Federal Government does not want skyrocketing oil prices. There are also many other political considerations concerning the amount any OPEC nation may produce relative to others. In other words, politics are likely hiding the true quantity of global reserves. Even if petroleum reserves are at an all-time high it says nothing about the future of reserves. It is false logic. Example: Home prices are at an all-time high. We have nothing to worry about. Crash!
The world is awash in a glut of oil.
Bullshit. Even by official reports the amount of oil that has ever been discovered in Earth is equivalent to three Lake Tahoes. And half of that has already been consumed. I would not call that awash. Would you?
Conventional oil resources are currently estimated to be in the neighborhood of ten trillion barrels.
Deception. Notice he uses the word resources here. There is a huge difference between sweet crude oil and oil shale, for example. Sweet crude can be easily extracted and yields a very high EROEI. Oil shale on the other hand is extremely difficult to extract. The amount of energy required to extract and produce usable oil from shale is relatively low to other forms of oil.
The resource base is growing faster than production can deplete it.
The resource base has not been growing at all. Oil is finite for all intents and purposes.
In addition to conventional oil, the US has huge amounts of unconventional oil resources that remain untouched. The western US alone has 2000 billion barrels of oil in the form of oil shales.
And we’ll be lucky to net 200 billion of that.
At a current consumption rate of 7 billion barrels a year, that’s a 286-year supply.
If we are lucky to net 200 billion barrels of oil it would mean a thirty year supply for the United States. This is also assuming the current consumption rate remains stagnant. I will admit, however, that in this regard one could count this as increased oil production. But it does not take into account the amount of oil necessary to extract oil shale. The net aggregate of produced oil will, at some point, decline.
Nine years ago, I predicted that “the age of petroleum has only just begun.” I was right. The Peak Oil theorists, the malthusians, and the environmentalists were all wrong. They have been proven wrong, over and over again, for decades. A tabulation of every failed prediction of resource exhaustion would fill a library.
Notice how he throws the Malthusians in with Peak Oil theorists? It is clear to me that there is a very large difference between food production(renewable) and oil production(non-renewable).
Sustainability is a chimera. No energy source has been, or ever will be, sustainable. In the eleventh century, Europeans anticipated the industrial revolution by transforming their society from dependence on human and animal power to water power. In the eighteenth century, water power was superseded by steam engines fired by burning wood. Coal replaced wood, and oil and gas have now largely supplanted coal.
Sustainability is a chimera? And this gets a pass from the Austrian School economists? Krugman would be proud! Not only does this line of thinking promote high-time preference but I find it laughable that he could write that “no energy source has been, or ever will be, sustainable.” Unless he wishes to employ the strawman argument, I think it’s safe to say that solar energy is a reasonably sustainable resource.
In the far distant future we will probably utilize some type of nuclear power. But for at least the next hundred years, oil will remain our primary energy source because it is abundant, inexpensive, and reliable.
This is another prediction which has no bearing on the legitimacy of Peak Oil Theory. And as far as his prediction is concerned, if oil is our primary fuel for the next century it will not be because of its excellence as a resource, but because humanity is still burdened by the regressive beast called The State.
Petroleum is the lifeblood of our industrial economy. The US economy will remain stagnant and depressed until we begin to aggressively develop our native energy resources. As Harold Hamm has said, “we can do this.” What’s stopping us is not geology, but ignorance and bad public policy.
Finally, something I can agree with!
To conclude, Peak Oil Theory is real. Many libertarian types are guilty of attacking predictions made by proponents of Peak Oil Theory instead of the theory itself. While I’m all for attacking predictions made by Peak Oil Theorists and their naive(or sinister) calls for government intervention, the refusal to acknowledge the theory of Peak Oil automatically disqualifies libertarians from the discussion table. A strong case can be made that much of what governs United States foreign policy and global finance is a result of Peak Oil Theory. It behooves libertarians to study Peak Oil Theory in earnest and steer the conversation towards free-market problem solving instead of turning a blind eye to the theory altogether.