Peak Oil - Geologists VS Economists

Commentary By Ron Beasley

You may have noticed that I don't refer to Peak Oil but Peak Cheap Oil. Our economy is dependent on cheap oil for transportation.  Eaun Mearns explains that Peak Oil is more about economics than geology but that the economists don't get it right either.

For a number of years there has been an arid debate between economists and geologists about Peak Oil. The geologists maintain that Peak Oil (maximal production) is a geological imperative imposed because reserves are finite even if their exact magnitude is not, and cannot be, known.

In contrast many economists maintain prices will resolve any sustained supply shortfalls by providing incentives to develop more expensive sources or substitutes. The more sanguine economists do concede that the adaptation may be slow, uncomfortable and economically disruptive.

They are both correct.....

.....but that Peak Oil is, in fact, a complex but largely an economically driven phenomenon that is caused because the point is reached when: The cost of incremental supply exceeds the price economies can pay without destroying growth at a given point in time.

So what is that price?  WTI has been in a range between $80 and $90 bbl.  We have seen at best anemic economic growth.  Any thing above $90 will result in stagnation or even negative growth - recession.

The economists say that we can adapt to higher oil prices.

As adaptive responses come through in terms of more efficient vehicles, social and organisational changes such as more home working and the improving economics of energy alternatives, economies will become better able to cope with higher oil prices and suffer less economically.

But it's not happening nearly fast enough in large part because of successful resistance by big oil and coal and I'm not sure it even applies to transportation.  The result is oil the economy can't afford and low or no growth.  What you won't hear from the politicians or CNBC:

Since there will never be a return to low oil prices during periods of sustained economic growth, the chance of there ever being sustained economic growth is approaching zero.

You won't hear this from the politicians not because it's not true but it's not what the voters want to hear.  Some of the politicians are in denial but many know what we face.  They also know there is little we can do about it.  So all we get from the politicians are attempts to blame the other tribe.