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Thursday, November 10, 2005

The Future of the Oil Industry: Conclusions

THE FUTURE OF THE OIL INDUSTRY
Conclusions

So, is the Hubbert Peak Theory right? Is it flawed? Are we running out of Petroleum anytime soon? Over the last few weeks we've been talking about the Petroleum Industry, we've analyzed the Hubbert Peak Theory, its possible implications, and also the point of view of its detractors... I certainly hope I had given you enough information to help you form (if you hadn't already) your own personal opinion on this subject.

The basic points on this disquisition were:
  • Petroleum is a cheap but non-renewable energy source
  • Our society is highly energy dependant
  • When a resource is scarce, its price goes up
  • There's no sign of society becoming less energy dependant, but there are many signs that petroleum is becoming harder to extract
  • We have not found any other energy source that is as cheap as petroleum

M. King Hubbert developed a theory trying to correlate petroleum availability with petroleum extraction rate. He pointed that we don't need to run out of petroleum to be in trouble: as soon as demand surpasses supply, prices would skyrocket. And, as demand shows no sign of deflating, this moment will coincide with the peak on petroleum production. The question (that remains open) is: are we reaching the peak?

Detractors discovered some flaws on this theory, basically on the mathematical side. They argue that the fact that the USA petroleum production followed a bell shape doesn't mean that the world's production has to follow the exact same shape. They also point out that Hubbert followers themselves cannot predict the exact moment of the peak: they have miscalculated it many times over the last decade.

So, who's right?

As far as I'm concerned, both are. Hubbert followers do us a great favor by pointing out that we're depending too much on a non-renewable resource. They also show us that petroleum production is becoming more difficult (and expensive) every day, and that if we don't change our society habits, we may face big trouble.

Hubbert detractors help us clarify some points: first, there's no way to know exactly when we're going to reach the peak. Or, for that matter, if the peak found is the only peak (the real behavior, they say, can have many peaks). They also point out that society can solve the problem following the laws of the free market: if petroleum is expensive and someone finds a cheaper energy source, we're going to turn to it.

There's almost no doubt that we're going to consume all our petroleum reserves over the next century. There's also no doubt that as production decreases, prices will raise. And, as in any economic analysis, there's no way to know (today) if nowadays' petroleum high prices are the result of this process (meaning, we have reached the peak in oil production), or if it's just a hiccup.

But there's something that we can say for sure: the cheap oil era is (almost) over. If we don't change our habits, and if we don't find a replacement for petroleum, we're going to crash a hard wall. We may have the time, we may have not, so, isn't it dumb to close our eyes to this reality?


Please, review the following links before you go. They have great information on the Hubbert Peak Theory, its implications, and what we can do, now. There's even one petroleum company (Chevron) that has candidly started a campaign that addresses the end of the oil era. Were the end of the cheap oil era far-far away, would a petroleum company have started such a campaign?

1 Comments:

  • Well, I am totally agree with you Giancarlo. We depend to much from a non-renewable energy source. It´s impossible to know when we are going to start running out of petroleum but we MUST NOT wait that (it will be too late). For example, in US too many people buy SUVs and only drive to the job every day, or very big V8 engines that consumes 20 Km/gallon (when a compact car does easily 40 Km/gallon or even more). We can only hope people realize the BIG problem we are facing.

    By Blogger Cloud Strife, at 1:22 PM  

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