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Al Fin

Al Fin

Al Fin runs a number of very successful blogs that cover, energy, technology, news and politics.

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What Most Peak Oil Believers are Failing to Consider

A lot of otherwise normal, well-functioning persons are firm believers in the idea that global oil production has irrevocably peaked -- or is soon to peak irrevocably. Whether such a peak will result in total global collapse, or simply lead to widespread economic hardship, is a point of contention within the peak oil community itself.

But the essential reasoning upon which most peak oil believers appear to base their quasi-ossified expectations is inherently invalid. The past production rates of national oil companies cannot reliably be used to predict future production potential for wells that are controlled by national sovereign oil companies -- and yet that is exactly what is being done by peak oil prognosticators and associated grifters.

True, oil production is likely to decline, causing oil prices to rise. But the reasons for the decline are critical to understand, if one wants to comprehend what is happening.

From an interview with Rick Rule:

The most important theme that people need to understand with regard to conventional oil is that most conventional oil that is produced in the world and sold for export is not produced by companies like Shell or Exxon or Total, in other words it’s not produced by major oil companies. It’s produced by national oil companies, where the shareholders aren’t public shareholders but rather sovereign governments, and that’s important to understand.

It’s important for investors because most of the national oil companies have been, for some period of time, diverting substantial amounts of the cashflow from their domestic oil industries into other domestic spending programs that aren’t oil related, thereby starving their domestic oil industry of sustaining capital. I think this has gone on for so long that several of these national oil companies have production decline curves that are irreversible for the next decade.

The consequence of that is that several countries, particularly Mexico, Venezuela, Peru, Indonesia and perhaps Iran, will cease to be oil exporters within 5 years, even if they start spending now, which they aren’t able to do. The impact of that is that as much as 20% of world export crude will come off of export markets and that could lead to a truly precipitous increase in price.

The only hope that oil import countries have is that sustaining capital investments have increased in Saudi Arabia, the United Arab Emirates and Kuwait. These three countries, with the help of a resurgent Iraq (if it does resurge), are the importing countries’ only hope for moderated oil prices in the next 5 years. It’s my belief that production declines as a consequence of a lack of reinvestment will be greater than the production adds and I suspect we will see sharply higher world oil prices in the next 5 years. _GoldSeek

Many peak oil disciples will claim that it makes no difference whether oil production declines due to lack of investment, or due to lack of oil. Clearly, however, they are being disingenuous when making that assertion.

More from Rick Rule on Peak Oil:

Peak oil is more an economic and political phenomenon than it is a geological phenomenon. I think we’re past $40 peak oil but I don’t think we’re past $200 peak oil. There are technologies, as an example, miscible CO2 flooding to recover oil from allegedly depleted oil fields. There are new basins, albeit remote, frontier basins. There are new technologies that allow dry gas or LNG to be substituted for liquid oil. It’s an economic function because these technologies and substitutions require higher energy prices. At $200 oil, we’ve got lots of oil. _GoldSeek

Again, many peak oil proponents will claim that it makes no difference why oil prices climb higher. The very fact of higher oil prices will vindicate their beliefs, according to the true believers and disciples. But again, clearly, they are wrong. If prices are high, but oil is plentiful, either the world will move on to cheaper forms of energy and fuel, or technology will be spurred by higher prices to achieve more efficient economies of production in the more difficult oil (and oil equivalent) fields.

If a nuclear renaissance does come about, demand for fossil fuels will decline precipitously across most of the world -- except for specific applications as engine fuels. But at the rate that biomass and microbial fuels are progressing, it is likely that demand for oil and oil equivalent for fuel will begin to decline quickly after the year 2030.

Peak oil is a religion. And like most religions, the majority of followers do not have a clear understanding of exactly what it is they are supposed to believe. They only know that they believe it, and they are right, dad-blame-it! Meanwhile, the world keeps turning.

By. Al Fin

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  • Anonymous on July 14 2010 said:
    Peak oil is proven behaviour of oil fields. U.S, U.K, indonesia, Mexico, Russia have all peaked. Its a reality.yes, there is plenty of oil at $200 a barrel, but if it costs $150 dollars to get that barrel, your return on that barrel is smaller, despite the increased effort to obtain it. Diminishing returns.Peak oil is an evolutionary pressure, like when monkeys who lived in forests had to live on the plains when the trees started to recede, We can either tap into the next most abundant source of energy - Hemp biomass - Which is a viable alternative to crude oil, or return to the earth, having not caught on to the lesson nature has been trying to teach us for thousands of years.
  • Anonymous on July 14 2010 said:
    It is a dead giveaway when the author refers to Peak Oil Disciples... he subscribes to the infinite growth religion, which is at odds with reality, not to mention Peak Oil.
  • Anonymous on July 15 2010 said:
    Peak and religion have nothing to do with each other. This article attempts to discredit physical realities of oil supply and production, and completely ignores the simple truth that oil is by far the most cost-effective energy source on Earth, that it is quickly being used up, and there is no alternative except to reduce consumption and change how everything operates. Arguments from "Rick Rule" about how much more oil can be recovered if there was just enough investment is ridiculous because that means scraping the bottom of the barrel. There is absolutely no way our society can continue the way it is. Declining oil production will deliver this reality regardless of what you believe. Where are all the hydrogen cars? And if you've seriously researched electricity as an alternative you know it has no chance of sustaining the lifestyle we've built. Prepare yourselves now and urge your governments to do likewise. Educate yourselves and study better articles than this one.
  • Anonymous on July 15 2010 said:
    This article is awfully hypocritical, offering little or no factual data, yet repudiating peak oil 'enthusiasts' for the same reason. The diminishing energy security reality is aptly demonstrated by ballooning deficits in response to peak resource supplies, not to mention actual research.

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