[extropy-chat] Re: peak oil debate framed from a game theory standpoint ?

[Hal Finney]

user writes:
> The debate over peak oil and its related causes/effects/probabilities has
> been discussed quite a bit on this list.  I am curious if anyone has
> looked at the likelihood of peak oil simply by observing the actions of
> the parties that are likely to have the most perfect knowledge of the
> subject ?

Sure, in fact that is one of the strongest arguments against Peak Oil.
Who are the insiders who would know if we were about to peak in oil
production?  Well, how about the oil companies?  They should have plenty
of inside information.

What would you do if you owned an oil well and knew that the world was
about to hit a supply/demand crunch in oil?  Wouldn't that imply that
oil prices are likely to shoot up incredibly high?  There was a widely
discussed article in the New York Times last week where Peak Oil analyst
Matthew Simpson bet that oil would hit $200/barrel by 2010.

http://www.nytimes.com/2005/08/23/opinion/23tierney.html
or
http://www.iht.com/protected/articles/2005/08/23/opinion/edtierney.php

If you were an insider and knew that oil was going to be worth that much
in a few years, why would you be pumping for all you were worth and
selling it today for $70/barrel?  That doesn't make sense.  It would
be more profitable to reduce your pumping to the minimum necessary to
cover expenses, and to keep it in the ground until the oil is far more
valuable than it is today.

The thing is, we don't see that.  Insiders act as if they believe that
today's oil prices are the best they will see in a while.  They are pumping
and selling oil as fast as they can.

And it's not just oil producers.  The speculators and hedgers acting
in the futures market see the same thing.  You can buy a contract today
for oil to be delivered in 2010 and lock in a price.  What do you think
that price is?  It's not $200, and it's not $100.  It's not even today's
price of $70 or so.  It's more like $62/barrel, considerably LOWER than
today's prices.  You can lock in that price today and protect yourself
against any price rises between now and 2010.

If insiders knew that these prices were unrealistic, they could take
positions in the futures market and make enormous profits in a few years.
But by their actions they would drive up the prices of the futures
contracts, and we don't see that.

If you look at Peak Oil websites they have a lot of statistics and
evidence for why the peak is just around the corner.  It makes for a
pretty impressive sounding case.  But they don't have a good answer IMO
for why all these facts and figures are unconvincing to people who are
in the business and people who are investing money based on expectations
of future prices.  If these facts were really as convincing as Peak
Oilers claim them to be, the markets wouldn't be behaving as they are.
Insiders and market experts would be convinced, just as the Peak Oil
enthusiasts have been, and we would see the kinds of high prices that
Matt Simmons bet on.

The fact that we don't see this behavior means that insiders don't believe
in Peak Oil.  To me, that is the strongest argument against that scenario.

Hal Finney