Arguments Against Peak Oil

There ’ s no doubt increasing world oil production will be challenging in the face of growing
geological and political barriers. But today isn ’ t unique. The world has frequently fretted
about oil supplies over the last century. Recall the Arab oil embargo of the 1970s, when
similarly dire predictions about peak oil abounded. The world responded by making new oil
discoveries, increasing oil reserves, lifting oil production, developing alternatives, and
increasing energy efficiency.
Then, peak oil theorists were proven wrong.
Fallout from that botched prediction has kept peak oil theory from gaining widespread
acceptance among industry veterans.
Most feel peak oil is too far off to be of dire concern today. After all, if the theorists have
been proven wrong so many times before, what would
Make them right now?
It’s difficult to say who’s right, but in either case, the spirit of skepticism is always
encouraged for good investing.
It’s dangerous to categorically dismiss anything unless you’re absolutely sure about it (which
is an important reason for diversifying any portfolio). Here are some primary arguments
against peak oil theory.

There ’ s More Out There

Peak oil theory is generally based on assumptions about conventional oil reserves without
taking unconventional reserves into account. That’s likely a mistake. Estimates of
conventional and unconventional resources vary widely throughout the industry; and while
there ’ s really no telling precisely how much unconventional oil we ’ ll be able to ultimately
use, it’ s highly likely it will make a major difference.
The offi cial estimate of conventional oil reserves is 1.3 trillion barrels as of December 31,
2007, but some industry experts foresee total oil reserves (conventional and unconventional)
in the 12 trillion to 16 trillion barrel range.
As technology is continually developed to exploit the world ’ s unconventional reserves, the
peak in conventional oil production may become less important than originally feared.
As mentioned earlier, even with big strides in technology and
newer, more precise seismic and other measuring instruments, no one
has ever accurately calculated oil reserves. Oil fi rms have always found
ways to increase reserves when prices become high enough. The question
is whether that will continue. In
either case, history
shows
we

have
always underestimated
reserves,
and it
’
s
plausible we
’
ll
continue
to
do so.

For
example, it may not be entirely
correct
to assume the days of
giant
oil fi
eld
discoveries
are
long past us. Recently,
there
have
been
three
major discoveries
that could eventually
be classifi
ed
as giant
fi
elds,
once more
testing is completed. The
Jack
Field,
discovered
in
the
Gulf
of Mexico
in 2006, is estimated to contain up to 15 billion
barrels
of oil. The
Jidong
Nanbao
fi
eld,
discovered
off the coast
of
China in 2007, is estimated to contain seven
billion barrels
of oil.
The
Tupi
Field,
discovered
off the coast of Brazil
in 2007, is estimated
to
hold between
fi
ve
to eight billion barrels
of oil.
We ’ re Getting Better Predictions of the peak rest on big assumptions.
That
’
s
one reason
they can vary
tremendously,
because analysts
base
their models on widely differing assumptions of oil decline rates
and
oil recovery
rates. After all, not all oil is recoverable
and production
in any one fi
eld
will eventually
decline.

While
the industry
struggled
over
the past century
to recover
a
majority
of reserves
in most oil fi
elds,
modern science and new

technologies
will likely increase
recovery
effi
ciency
in the future.
For example, while a typical oil company is able to extract only one
out of every three barrels in the ground historically, enhanced contemporary
oil recovery
techniques pull two out of three
barrels.

Some
estimate even a 10 percent gain in extraction effi ciency on a global
scale could unlock 1.2 to 1.6 trillion barrels of extra resources.
20

Cambridge Energy Research Associates (CERA) — a prominent

21
independent energy research consultancy — has long dismissed an
imminent peak in world oil production. Based on a fi
eld - by - fi eld
analysis, the company predicts global production capacity could
rise from 91 Mbd in 2007 to as much as 112 Mbd by 2017, when
demand will be 101 Mbd.
22
CERA also notes there is no evidence oil
fi eld decline rates will increase suddenly, as suggested by some peak
oil theorists.
Demand Matters, Too! Peak oil theory focuses solely on the supply
side of the equation, with no regard to how demand might change.
The theory assumes demand would continue on an upward trajectory
in line with its historical average, eventually reaching a point where
supply is unable to meet demand. This shortfall between supply and
demand is what will cause prices to spike upward.
As mentioned in the beginning of the chapter, higher prices will
eventually elicit a demand response. Higher prices will encourage
the use of alternatives, promote conservation, and alter consumer
behavior until the pain of higher prices is reduced. If high prices
cause enough demand destruction, the world may eventually see peak
demand, rendering peak oil insignifi
cant.