Peak Energy: A Reply to Kevin Drum, Part 1
Kevin Drum has posted a sequence of 5 posts on peak oil and appears to all intents and purposes to be a Hubbert curve believer, or more accurately a believer in the doom-n-gloom predictions of many who use the Hubbert curve. I’ll look at each of his five posts and comment on each one. This post looks at part 1.
First up in Kevin’s post is this graph.
The first problem is Kevin’s interpretation of this graph,
Basically, it’s Exxon’s view of how much oil the world can produce on a daily basis.
Actually, according to the website where the graph is found, it is the demand for liquids on a daily basis, not necessarily production. Granted in a market that is equilibrium the supply (production in this case) is equal to demand, but that does not really tell us about how much other than what is happening in equilibrium. In other words, production is in part dependent on both what is physically capable of being extracted and what the demand is. A change in either one will change what we observe in equilibrium. To take these numbers as something cast in stone is not a good idea.
For example, later in the post Kevin asks the following question:
Which leaves us with a disturbing question: can OPEC do it? If we accept the fact that the rest of the world has reached (or very nearly reached) its production peak, it would be nice to know if OPEC is up to the job of continuing to pump out ever increasing amounts of crude. And since Saudi Arabia is where most of this extra OPEC oil is supposed to come from, it would be really nice to know if Saudi Arabia can increase its production by 5 or 10 million bpd in the next decade or so. Because if it turns out they’ve peaked too, we’re screwed.
The for Kevin and many other “peak oil = doom” believers is that as the price rises there will be no change in behavior by consumers, firms, etc. This has always struck me as the Achilles Heel of the peak oil doomsters. That no matter how high the price of crude oil gets people are not going to respond to that price change other than to curtail spending in other areas (i.e. in economics lingo this would be a demand curve with only an income effect and no subsitution effect possible, but unlikely).
And as for the view that peak oil believers are cranks; the reason for this is that so far there has not been a single case of any commodity going through a complete Hubbert cycle in the sense that we don’t switch to something else. There have been peaks in the production of a great many commodities many of which are finite in the same sense that crude oil is finite. Yet the end of the world has not occured. One reason is that as the price goes up for whatever good is being used up, the price of previously uneconomical substitutes becomes relatively cheaper. Also, looking for subsitutes becomes relatively cheaper as well. For example, whale oil in the mid 1800’s had a price (in current dollars) that makes oil look like an unbelievable bargain. Then the kerosene lamp was invented and the impact on the whaling industry was almost immediate. By 1860 at least 30 kerosene plants were in production in the U.S. and whale oil was eventually driven off the market.
Some say that this kind of thing is just dumb luck. Really? What about the replacement of labor on farms by machinery? Granted it isn’t a classic Hubbert curve example, but it has many of the same characteristics in that people tend to get all bent out of shape and wring their hands, “What are all those unemployed people going to do?!” If it were to happen today there would be calls for a national strategy (much like the current clamoring for a national energy strategy), there would be talk of soup kitchens, massive unemployment, dogs and cats mating, and it would be a sure fire sign of the End Times. Back then people went looking for other jobs…manufacturing jobs. And incidentally we do have something like this going on today except we call it offshoring/outsourcing.