Saturday, October 17, 2009

Daniel Yergin on the long goodbye to oil

Yergin wrote The Prize which remains one of my favourite books.

He writes here about the long goodbye to oil and how it has morphed into a financial commodity as much as a physical commodity. He also notes that technology changes will ensure oil will be extracted for decades to come and peak oil has been mooted many times before. Some extracts

Both the U.S. Department of Energy and the International Energy Agency project that, even accounting for gains in efficiency, global energy use will increase almost 50 percent from 2006 to 2030 -- and that oil will continue to provide 30 percent or more of the world's energy in 2030.

But will it?

At the time of the first Gulf War in 1991, China was still an oil exporter.

So far this year, more new cars have been sold in China than in the United States. When economic recovery takes hold again, what happens to oil demand in such emerging countries will be crucial.

Inevitably, any country in China's position -- whose demand had grown from 2.5 million barrels per day to 8 million in a decade and a half -- would be worrying about supplies. Such an increase, however, is not a forecast of inevitable strife; it is a message about economic growth and rising standards of living.

How does that get done? How does the world at once meet both the challenge of climate change and the challenge of economic growth -- steady expansion in the industrial countries and more dramatic growth in China, India, and other emerging markets as tens of millions of their citizens rise from poverty and buy appliances and cars?

The answer has to be in another defining change -- an emphasis on technology to a degree never before seen. The energy business has always been a technology business. After all, the men who figured out in 1859, exactly 150 years ago, how to drill that first oil well -- Colonel Drake and his New Haven, Conn., investors -- would, in today's lingo, be described as a group of disruptive technology entrepreneurs and venture capitalists. Again and again, in researching oil's history, I was struck by how seemingly insurmountable barriers and obstacles were overcome by technological progress, often unanticipated.

Consider the "peak oil" thesis -- shorthand for the presumption that the world has reached the high point of production and is headed for a downward slope. Historically, peak-oil thinking gains attention during times when markets are tight and prices are rising, stoking fears of a permanent shortage. In 2007 and 2008, the belief system built around peak oil helped drive prices to $147.27. (It was actually the fifth time that the world had supposedly "run out" of oil. The first such episode was in the 1880s; the last instance before this most recent time was in the 1970s.)

However, careful examination of the world's resource base -- including my own firm's analysis of more than 800 of the largest oil fields -- indicates that the resource endowment of the planet is sufficient to keep up with demand for decades to come.


JC said...

Clean coal, oil sands and shales, and in a CO2 rich world.. ethanol will do what we want till we make the step change to some other form of gee whizz technology.


gomango said...

Heres another really good article on oil.

Peak oil has become a religion, and what the fundamentalists ignore is the incentives to invest in alternative technology and improved efficiency as oil prices rise. Tehy focus only on the disruption from high prices. The world will never run out of oil, we just may not like the price.

A useful thought experiment is to transport yourself back thru history to the hundreds of points in time just before a disruptive technology or process came on the scene. Think forward 20 years - how will society respond to higher energy prices? You're either in the "end of the world is nigh" camp or where mankind usually gets to which is an improved place.

Anonymous said...

Read about the Jevons Paradox.

The more you increase the efficiency of a fuel the more the consumption increases. Jevons was talking about coal though so the geopolitics of oil wasn't considered.

Redbaiter said...

Good post. Oil, and the adventurous nature of its discovery and the financial risk associated with its development is something that is completley beyond the comprehension of your standard leftist pencilpusher/ "environmentalist".

baxter said...

The solution to the challenges you mention and to many others is the one no-one is prepared to face..Population control.

Anonymous said...

population control huh, you the first to volunteer for group suicide, or are you like the rest of the eurolefties, and expect the darkies or slopes to have their populations curbed?
Technology has enabled the west to free up 96% of the labour force from subsistence farming to over-production in the space of a little more than a century.
technology enabled mankind to abandon whale products for oil products.
Technology will be the answer to so called over population, peak oil bollocks and any other problem borne as a result of technology in itself.

sagenz said...

Interesting article gomango. Thanks for that. In my view energy supply is practically infinite. Technology will keep finding more oil and when demand rise above the rate it is being found solar will be used to harness the hydrogen stored in the oceans.