Is peak oil a thing of the past?
Technologies like fracking may have merely postponed peak oil
When he was younger, Max Fawcett wanted to make a mint in the markets. Now as the managing editor of Alberta Venture he gets to write about them. Close enough, right? He can be reached at email@example.com
by Max Fawcett
When former CIBC Chief Economist Jeff Rubin was writing his 2009 book, Why Your World Is About to Get a Whole Lot Smaller: Oil and the End of Globalization, it must have looked like his thesis– that the world had exhausted the available supply of cheap oil and would have to surrender privileges like New Zealand lamb and cheap air travel in the face of ever-rising fuel and transportation costs– was playing out to the letter. In April 2008, with oil at $118 a barrel, he predicted that the price would reach $225 by 2012. And as the year dragged on, it continued its climb, all the way to $147. Rubin would soon quit his job in order to put his controversial book out into the world, and with it his career as a public prognosticator.
Oops. By the end of the year, oil was in the tank, trading below $40 a barrel. So too, it seemed, was his theory. But is it? Some have suggested that while Rubin’s thesis of a radically smaller world may not come to pass, the constraints on production that informed it still remain. As such, technologies like fracking haven’t killed peak oil. Instead, they’ve merely postponed it. So, we’re asking: Is peak oil a thing of the past or still a part of our future?
If the last few years should have taught people anything, it’s that they can’t count out the power of human ingenuity to change what might appear unchangeable. Yes, Rubin’s models seemed to suggest that oil production was on the verge of peaking, and would soon enter a terminal and irreversible decline that would drive prices up to the $225 level he predicted. But he didn’t count on engineers figuring out a way to use pressure, water and geological know-how to liberate the billions of barrels of oil that had been, until then, trapped in rock formations around the world. And while that oil is unquestionably more expensive to tap than traditional formations, everyday companies are learning how to do it better and cheaper. Will we ever return to the days of $30 per barrel oil? No way. But will we be forced to stop using airplanes because of the exorbitantly high cost of oil? That’s just as unlikely. Peak oil was a nice theory. It’s just too bad it didn’t account for the fact that it applied to unpredictable human beings.
Jeff Rubin may have been wrong in calling for $225 oil by 2012, but that doesn’t mean we won’t still get there at some point. Yes, fracking has unlocked massive reserves in North America (and may yet do the same in other less technologically advanced markets), but we don’t yet know what the long-term production profiles of those new wells will be. And because they’re monumentally expensive compared to more traditional vertical wells, they need to be prolific in order to justify the cost associated with drilling. And so, while the timing on his thesis may have been off – way off, even – the fundamental idea underpinning it still holds true. We have exhausted all the easy oil in the world, and the cost of getting at the harder stuff may ultimately drive the price up to a place that either encourages substitution (natural gas as a transportation fuel, for example) or merely does economic damage. We can only hope that it’s the former.
The Results Are In
Last month in this space we asked you whether or not ATB ought to be privatized. Here’s what you said:
Yes – 36%
No – 64%