Yet another analysis why the Peak Oil concept is dead – #22

An investment manager, The Boston Company, has a paper out which explains from an investment perspective why Peak Oil is dead. The paper starts with an explanation of the concept:

For decades, pundits have been trying to predict a tipping point for Peak Oil – when a sustained and unabated climb in oil prices sparks a near-collapse of the global economy. According to Peak Oil theory, the rate of petroleum extraction will crest and then begin an immutable decline, pushing oil prices ever higher as demand for this finite resource permanently exceeds supply.

You can find End of an Era: The Death of Peak Oil at their website.

They cite several causes for the passing of the late Peak Oil.

New technologies are getting oil out of the ground that was untouchable before. What would those technologies be? Horizontal drilling and hydraulic fracturing. This is the same story I’ve mentioned repeatedly.

More elastic demand. As prices rise, people drive less. If you actually think back to your Econ 101 class, this won’t be a surprise.

Large new discoveries of off-shore oil. Exploration is up. A new field has been found in the North Sea:

Activity has also recovered in the North Sea, where a recent discovery, the Johan Sverdrup field, boasts 3.3 billion recoverable barrels, making it the area’s largest discovery since 1980.

Yeah, you read that right. Three billion barrels…

Recoverable…

That the engineers didn’t know about a few years ago…

In a place where you would think the geologists knew everything. 

Exhibit 4 shows a sharp rise in off-shore discoveries in the last 7 years. Very cool.

Finally, increasing investment dollars are flowing into exploration.

As I think about their paper, it is a presentation of the same issues I’ve been reading and talking about since starting this blog:

  • The geologist whizzes keep finding oil they didn’t know about
  • New technology allows getting to oil that was untouchable previously
  • People respond to price signals with changed behavior, whether it is using less oil or increasing investments in upstream, midstream, and downstream capacity.

Check out the paper.

There are lots of Peak Oil devotees around. Just do an internet search for the above paper. You will find a number of places that discuss the report. Check out the comments to see lots of people arguing that Peak Oil is just around the corner. The immutable decline will start soon and the collapse of civilization will follow shortly thereafter.

Any day now.

Really soon.

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