National Commentary

The Peak Oil Crisis: Is $50 Oil in the Offing?

In the last few weeks, there has been an upswing in articles emanating from prestigious commentators, such as the American Enterprise Institute (AEI), and Fortune magazine, which attempt to debunk the notion that the world’s oil supplies may start to fall in the next few years.

There is of course nothing new in the AIE’s and Fortune‘s arguments that there is plenty of oil left in the ground and that free enterprise, new technology, and higher prices will bring all the oil you will ever want to your nearest gas station in time to avert an economic crisis. Fortune even talks about a great glut of oil and lower prices ($50 a barrel) that will soon emerge from the unusually high U.S. stockpiles, a great surge in Iraqi and Kazakh oil production, and more efficient cars. The editors commissioning these pieces and the authors apparently have never looked at the IEA’s and EIA’s oil production and demand charts which show global production has been flat for five years, and that demand from China, India, and domestic consumption in oil producing countries is rising steadily. There are simply not enough new oil fields being drilled to offset declines in production from currently producing oil fields.

An interesting question is what motivates the publications that are pumping out stories denying peak oil? If the publishers, editors and writers believe that the possibility of an imminent decline in global oil production is as nutty an idea as flying saucers or the world ending next Friday, why do they not simply ignore the whole topic instead of denouncing peak oil as an unproved theory and concocting silly arguments as to why it can’t possibly be true. The answer to what motivates these stories lies right in our daily financial press.

Take nearly any story about economic developments and somewhere close to the top will be a reference to “the ongoing economic recovery” which as we all know by now has been underway for the last 18 months. If the economic news of the day is good, or can be spun to sound good, then the prospects for the ongoing economic recovery have brightened. If the economic news is bad or perhaps downright terrible, the economic recovery, which is still going on of course, will simply be stretched out a bit.

Peak oil is a phenomenon no one with an interest in the status quo cares to acknowledge

With rare exceptions, more than sporadic discussion of further economic decline is simply not tolerated in our mainstream newspapers, the financial press, and cable networks. For Americans, the middle name of our civilization is growth – in jobs, population, economic production, and more importantly personal and public wealth. To imply that the future, both immediate and distant, has anything in store but a return to endless economic growth is the worst kind of heresy. In some circles, the mantra of growth at any costs approaches an intensity unknown outside of religious fanaticism.

Now what does peak oil tell us about economic growth? In a nutshell, it says that continuing to grow with declining global supplies of oil and eventually coal and then natural gas is going to be very difficult if not impossible to pull off. For the last 100 years, the global economy has been in lockstep with global oil production. More growth requires more oil. There are of course many unknowns and interactions ahead. We have no idea how fast global oil production is going to go down or how much is going to be available to oil importing economies. We have no idea whether China, India and the oil exporters are going to be able to continue growing at 8-10 percent a year until they hit the wall of falling resources.

Closer to home, we have no idea whether the economies of the U.S. and the other OECD countries are going to lurch along with little or no growth for the foreseeable future or sink further into decline under the weight of massive public and private debt. There are simply too many variables to work out a likely path ahead. While there are substitutes for oil and many ways to conserve or increase the efficiency with which we use the world’s remaining resources, these substitutions cannot happen overnight. While discretionary motoring can be abandoned, conservation programs started, and car pools formed relatively quickly, implementing sufficient efficiencies in energy consumption will take decades – even if there remain sufficient resources to implement the required changes.

Therefore, peak oil is a phenomenon no one with an interest in the status quo cares to acknowledge publicly or even think about for it implies there will be massive changes in ways of life. Those “debunking” peak oil know this, but they also want to keep the status quo moving for as long as possible. Once a critical mass of people understands that global oil production will soon be in a decline and a return to economic growth will become nearly impossible, behavior will change. A massive scramble will ensue that likely will cause great harm to the financial services industry that has grown so large and influential in recent decades.

It is to delay the realization of what is about to happen on the part of the general public for as long as possible, is what motivates the debunkers. Until the day when declines in global oil production become too obvious to deny we will continue to read stories about $50 oil.




Tom Whipple is a retired government analyst and has been following the peak oil issue for several years.