[extropy-chat] Peak Oil - the new Y2K?
J. Andrew Rogers
andrew at ceruleansystems.com
Wed Apr 20 04:36:36 UTC 2005
Y2K makes a good case study for Peak Oil. In the case of Y2K, there was a genuine problem
that billions of dollars were spent averting, and when it actually happened the entrenched
interests had impressive amounts of motivation to make it look like it hadn't. Between
creative strategies to make the problem a non-problem and the powerful impetus to make
any residual problems that cropped up disappear, the Y2K event for the average person had
all the appearances of a non-event. The problems that did occur were buried with
uncommon efficiency and haste to limit any possible liability (and yes, many serious
problems did occur -- I was party to dealing with more than one at Fortune 500 companies).
It is easy to forget just how resilient the market actually is, even though many free-market
proponents espouse its robustness and adaptivity.
Peak Oil is, in my estimation, premised on a combined Malthusian model and the assumption
that existing political inertia will continue unimpeded in the face of the economic reality. I
find both of these premises to be questionable. The oil markets are similar to one of my
favorite whipping boys, the gold markets. The current world-wide cost of production of gold
is around $175/oz on average. The major new mining sites and reserves are coming online
with a cost of $100-125/oz. The current price of gold is north of $425/oz. There is an
incredibly *VAST* supply of unambiguously profitable gold reserves at the $300/oz price
range. The spot price has very little to do with the cost of production or the immediate
Oil at its current price range encourages 1.) more aggressive extraction of known supplies,
and 2.) alternative energy sources as an economic optimizer. For the next few decades, the
more aggressive extraction of known supplies will dominate due to its infrastructure
advantages, while alternative sources find their footing. While there is a long-term problem
with supply, the problem is not imminent without making some Malthusian assumptions
about the growth of demand and supply apparently independent of economic pressures and
investments in technology for long-term profits. For a cheap example, see the recent
introduction of small diesel engines to the US automotive market with the increasing price of
fuel; diesel both has better efficiency and diesel-grade crudes are far more abundant in
supply than gasoline-grade crudes. Supply is a function of market value and I find no
evidence that production cannot adapt to meet demand in the context of fluctuating prices
given an outlook that is steady enough in the long-term to justify the investment in the
future. The theoretical supply at any given price usually follows a power law distribution
which can be exploited if you can project a profit on a long enough time horizon.
In short, "peak oil" looks like a replay of some rather old mistakes in predicting the future. I
don't want to get into the details of it, but I'm really dubious because the entire scenario
seems to be predicated on a very brittle and unwavering marketplace that I don't think exists.
At the end of the day, economics talks and the world shifts.
j. andrew rogers
More information about the extropy-chat