The Sky is Falling…We Are Running Out of Oil
Well okay not really. My contention is that we will never actually run out of oil. But I am always amused by the doom-n-gloom crowd and Kevin Drum has periodically posted doom-n-gloom about oil. His latest is no exception. Kevin has gotten a review copy of Matt Simmons book Twilight in the Desert. According to the Sunday Harold of Glasgow,
At the same time, Matt Simmons, one of BushÃ¢€™s energy advisers, was at a conference in Edinburgh, spelling out harsh facts on Saudi oil production which, if proved true, would have severe repercussions for the global economy.
Okay. Sure, technically if there is no technological advancement at all then yes, things would be bad when we start to use up the last of the oil supply. But how likely is that? How likely is it that there will not continue to be advances for things like hybrid cars, improvements to solar, wind, and other forms of alternative energy. Not very likely, in my view.
However, there is a problem. The problem is that busybodies such as environmentalists and politicians get involved in the market for energy and just muck things up. Gasoline prices are too high, so naturally the politician wants to find some way of getting the prices back down. Of course, low gasoline prices don’t do much for inducing research and development into alternative fuels, hybrid technology and what not. If gasoline is cheap, why not drive a monster SUV?
We see the political aspects of the above problem from both sides. We have the conservatives who are blabbering on about drilling in ANWR as if that oil will be sold at rock bottom prices and not at the prices prevailing on the world market. We see the similar mouthings from some on the Left with releasing oil from the Strategic Petroleum Reserve. Then there is the obligatory hot air from the D.C windbags about the price gouging of oil companies. Or pressuring OPEC to up its production. Keep the price low, keep the voters happy.
Environmentalists, the hard core loony ones, I have always felt want a return to some sort of pre-industrial society. Nuclear is bad. Oil is bad. Coal…really, really bad. They gives up empty chatter about renewables, but when we get right down to it…those don’t work either. After all, we can’t cover the Mojave with solar panels. So…really you’ll just have to go without. Learn to make your own organic wax, on your own sustainable farm while wearing hemp clothing and sandals made of corn husks.
So what happens? We end up in precisely the situation where the oil is running low, prices are going high and because of the busybodies the alternatives are still not on the horizon. Things could get really ugly and painful. My reaction to the higher gasoline prices is: Do Nothing. Let the prices rise and let people and firms react accordingly. Sure it’ll be painful, but so are lots of things.
For example, if we had the government we do now back when mechanization was first moving into the farming industry the politicians and activists would be wringing their hands. We see books with titles like Twilight on the Farm and people worrying about the massive dislocation of farmers and the resulting unemployment. There would be bread lines, generations born with no hope, cats living with dogs and we’d all have a third class ticket on a handbasket to Hell. Fortunately we didn’t have a government like we do today. Nobody worried about mechanization, at least not on a grand scale that resulted in a National Strategic Farm Policy. Instead the mechanization occured, family farms basically disappeared and people went out and found other income generating means.
Another example: whale oil. As whales became more and more extensively hunted the price rose. If we had a Bureau of Whale Oil Accountability there would be dreadful predictions with charts showing global economic collapse. Policies would be implemented to make sure that whale oil would be around for our children and grandchildren. In the end, there probably wouldn’t be a whale left in the ocean. Instead what happened? Someguy figured out how to use kerosene in lamps and in 1859 in Titusville PA the first oil well hits strikes it rich.
But in each of these instances if a person was asked what was going to replace whale oil (prior to Titusville) or what were the erstwhile farmers going to do for a living (prior to mechanization) the answer probably would have been a shrug or “I dunno”. What is going to replace oil and gasoline? I dunno. Is civilization going to destroy itself in a blaze of nuclear glory over oil? Maybe, but I doubt it. For one thing, there has not been a single instance where a resrouce has gone through a complete Hubbert cycle.
A complete Hubbert cycle is where first production is low and flat. Then it ramps up to a peak (or in some cases peaks) and then it ramps down back to low and flat. Why haven’t we seen a complete cycle? How about this hypothesis. As production ramps up, prices fall, but then as production peaks and starts to decline then prices rise. As prices rise people look around for substitutes. Could oil and gasoline be the first complete Hubbert cycle? Sure, but history is against it (hence my bet we wont run out oil). However, if I had to bet as to why oil and gasoline could be the first case of a complete Hubbert cycle it would be due to the busybodies.
My previous post on the Hubbert Curve.