The fallacy of ‘Peak Oil’ theory

In Opinion

There are plenty of reasons to fret about our nation’s future.

Government debt is growing at an unsustainable rate. Increased taxation and regulations calcify the sinews of the economy and monetary distortions threaten to sow the seeds of a future economic calamity. However, many people fear a world bereft of energy resources.

Politicians and scaremongers stoke these fears through fallacious theories like Peak Oil, which foretell an imminent world shortage of oil, and warn that we must follow a centrally-planned energy policy that conveniently steers millions of dollars to well-connected donors and lobbyists of so-called green energy firms.

Thus through the failures of our central planners, we not only retard our own energy development by slowing domestic production, but produce a twisted form of crony capitalism that results in taxpayer funded collapses such as Solyndra and Fisker.

Politicians often promote the unrealistic fear of Peak Oil by exploiting latent popular insecurities and anxieties.

In 1865 (when coal was the prevailing hydrocarbon fuel), economist William Stanley Jevins warned fellow Britons that at the contemporary rate of depletion, his fellow countrymen would soon burn through all available coal in the country and be left facing unheated winters. Of course, coal is still cheap and plentiful today, more than a century and a half later.

Likewise, American doomsayers predicted in 1956 that domestic oil production would begin to decline in the 1970s. However, modern production projections conclude that by 2020 the U.S. will surpass Saudi Arabia to become the largest oil producer in the world.

All of the aforementioned calculations were correct in their day, so how are these discrepancies possible?

In short, they failed to incorporate the explosive growth in new discoveries of earth’s useable energy resources. Exploration and drilling are of course very expensive; therefore, exploration slows in times of cheap oil since that new production would often prove unprofitable at low market prices. When oil prices rise, exploration and the expensive start-up costs of production again becomes cost effective and new fields are found and developed.

New technology and higher oil prices also allow drillers to re-work previously exhausted wells. For example, the long declining wells of Texas have increased production for the first time in decades, using new technology to squeeze more oil from presumably exhausted wells, and new oil discoveries ranging from the Caribbean to South Dakota are constantly increasing known reserves.

Of course, someday there will be a point when the world has “peaked” in oil production, but in such a scenario, rising costs associated with lower supply will push energy production into other resources as natural gas and coal that offer a competitive price advantage. North America possesses massive amounts of both energy sources, and the natural gas boom in the Dakotas and Canada continues to unfold.

Instead of peak oil production, the future appears to promise global peak oil demand by 2020, after which global consumer thirst for oil decreases in preference of less costly alternatives.

Despite presumptions, no central planner can predict or direct a more efficient energy policy better than the billions of decentralized decisions made by millions individuals acting in their own self-interest; real-time information is provided through the price medium in a chaotic process also known as the free-market. For this reason, political attempts to promote so-called green energy companies on the taxpayers’ dime are both wasteful and ill-conceived.

Despite the high hopes of pandering politicians, solar and wind power will never be market competitive with natural gas, oil and coal without an astounding efficiency breakthrough.

However, through lofty rhetoric and unscrutinized promises, politicians continue to steer government-backed loans and grants to questionable green energy companies with insider connections. Recent bankrupted taxpayer funded companies include electric car maker Fisker (leaving taxpayers on the hook for $193 million), battery producers A123 ($249 million), Ener1 ($118 million) and solar panel maker Solyndra ($535 million), to name a few.

Of course, our central planners and associated statists understand that solar and wind power will never compete in the free marketplace with hydrocarbons. If given the choice, the vast majority of consumers will purchase cost-effective energy. For this reason, so-called green energy proponents must resort to political influence by regulating coal power plants from existence, inventing various cap-and-trade tax schemes and blocking the construction private infrastructure (like the Keystone Pipeline) to achieve their goals.

Only through restricting the choices of millions of people through taxes, heavy regulations and generous but uneconomical subsidies can central planners attempt to dictate human behavior while dressing these restrictions in a façade of lofty intentions.

Ultimately results, not intentions, are what affect the quality of life for millions of people, and the artificial raising of energy prices through politicized reductions in supply will lower the standard of living for all Americans, especially the poor.

Perhaps Jevins was right and we will someday reach a peak production of energy. However, likely inconceivable to him, any modern peak energy production will be the result of an artificial and political straightjacket that stunts humanity’s long rise from our impoverished past.

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28 commentsOn The fallacy of ‘Peak Oil’ theory

  • stopthesocialism

    Have crazy peak oil doomers been coming up with failed peak oil predictions since the 1800’s? … Yes

    Are oil resources 1,000 times greater than crazy peak oil doomers think they are? … Yes

    Will civilization replace oil based energy with other resources long before the oil “runs out”? … Yes

    Will oil production decline only when demand for that oil declines? … Yes

  • are some people compelled to deny peak oil because peak oil was the reason they needed a new pearl harbor?

  • Did conventional oil production peak? Where King Hubbert’s methods valid?

    Unconventional fossil resources are vast, but at what cost? And at what rate can production be expanded? We are definitely in a different world now.

    That said, tar sands production will probably expand as the synthesis process is made more efficient, and eventually when economical nuclear steam is introduced, but then we’ll be subsidizing fossil production with nuclear power.

    http://nextbigfuture.com/2013/04/terrestrial-energy-will-make-integral.html

    The point about “peak oil” is a bit more subtle than most people realize.

  • Some people don’t need reality, just need irrationality if need be.

  • He got both right: U.S. oil production peaked in 1970 and conventional world production peaked in 2005 (see his 1976 interview in Youtube, where he stated 1995 + 10 years).

  • Actually, it happened to the U.S.

    The best-case scenario for North America is 12 Mb/d by the end of the decade.

    Current consumption for the U.S. alone is 19 Mb/d.

  • Is it easier for you to just be silly than to deal with actual issues and arguments? That’s nice, but when you grow up someday, then you can argue about real ideas just like the big people do!

  • Just curious about how you explain all of the melting ice in the Arctic and the melting glaciers all around the world? If “global warming” is a hoax that is. And that means you must have a better explanation. We can’t wait to hear it….

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