[extropy-chat] Peak Oil news

Hal Finney hal at finney.org
Tue Mar 7 03:07:27 UTC 2006

As I have mentioned occasionally, I have been following the Peak Oil
phenomenon for several months.  There are many variants but the most
interesting and common belief is that oil production rates are about
to peak and from then on, oil production will decline.  Predicted
consequences range from a near-permanent recession to a global famine
that will kill off most of the human race.  Even if the premises of Peak
Oil may seem unlikely at first, these outcomes are so serious that it
is worth watching to see if anything comes of it.

My favorite site for serious discussion of Peak Oil (PO) is
<http://www.theoildrum.com>.  This uses a team-based weblog format with
a number of knowledgeable contributors.  One of their best people is a
guy named Stuart Staniford, who is actually a computer security expert.
He recently made a post summarizing the best evidence he could find for
why PO is about now:


I don't find it completely convincing (in fact I got into a big debate
about some of the points) but it does bring together a lot of different
lines of evidence.  Also worth noting is their article quoting a New
York Times editorial endorsing (some form of) the Peak Oil concept:


Personally, I like to look at the markets to get an idea of the true
consensus on an issue.  Oil is expensive these days, about $64 a barrel.
You can buy and sell futures contracts for oil delivery on up to the
2012 time frame, and generally those long-term oil contracts are priced
about the same as today.  Prices climb slightly up until mid 2007 and
then decline to about today's levels.

It's not clear how to interpret this, but on its face it doesn't seem
to point to a particularly drastic Peak Oil scenario.  OTOH if you
look at options contracts they give you an idea of the range of prices
the markets expect, and that turns out to be very wide.  If you look
at prices at the end of 2008, the one-sigma price range is $34-104,
which corresponds to a 68% chance.  The two-sigma range, corresponding
to a 95% chance, is $20-180.  So the markets are certainly not ruling
out oil in the high $100's in the two to three year time frame.  Such a
high price would almost certainly cause a serious recession.  Of course
the markets aren't ruling out $20-30 oil either, in which case we can
go back to bathing in the stuff.

The financial markets not offering much guidance, we can look at the FX
game.  It has a number of Peak Oil claims although they are relatively
thinly traded.  The main one is pkyr20:


This is a scaled claim that basically predicts the year that oil
production peaks.  Peaking is defined as two consecutive years of drops of
3% or more in worldwide oil production.  This is not a great definition;
I'll say more below.  But the bottom line is that this points to about
2009 for the year of the peak; not quite as soon as the doomsayers had
it, but very uncomfortably close, much more than official estimates
which have any peak out decades away.

Unfortunately this FX definition could be subject to false positives
or false negatives.  A false positive would be where we had met the
criteria but it wasn't a "real" production peak.  For example, a serious
recession lasting more than two years could cause demand to drop by
enough to satisfy the claim.  In fact, this actually did happen back in
1980 during the Iran-Iraq war, when oil prices spiked.  But then they
dropped back down, production increased and the economy boomed.

More worrying is the false negative.  Many Peak Oilers predict that
the peak will be a "bumpy plateau".  We won't hit some maximum and then
find production heading straight down.  We will have some up years and
some down years, but the trend will be down.  If this is true, we would
probably not see the FX criteria satisfied for several years after the
true peak.  In this view, FX's prediction of a 2009 date could actually
be consistent with the near-term peak foreseen by many Peak Oil believers.

It may seem odd that I have not discussed the issues that most people
would use to judge the accuracy of Peak Oil claims: the likely future
course of oil production, the possibility of alternative fuels, etc.
Frankly, I don't have much confidence in our ability to forecast these
kinds of numbers.  One thing I will say is that in the next five years
or so, it is pretty clear that alternative fuels cannot ramp up to make
a very significant contribution.  So if conventional oil peaks soon, we
will probably see at least several years of genuinely dropping production.

Mostly my interest in Peak Oil is not really the question of whether
or when it will happen, and what its effects will be, although as I
said these are good questions.  My interest is more "meta".  I see
the Peak Oil community as a relatively closed group of true believers.
They believe that they are privy to important truths which the larger
world is either ignorant of, or is intentionally being misled about.
The question, then, is what methodologies we can use to evaluate whether
belief systems like these, beliefs which are contradicted by those of
the larger world, are correct or not.

As I have commented before, I do not believe that attempting to evaluate
these beliefs at the "micro" level is the right way to get at the truth.
The situation is far too complex for that, and even experts have sharp
disagreements.  No doubt I could study the issue and eventually come
down on one side or the other, but I don't see any particular reason to
expect that my position would be correct.  Rather, I hope to find "black
box" methods of evaluation that could be of general utility in judging
the accuracy of claims that come from relatively isolated communities.
Maybe there's no such thing and I am wasting time with my relatively
detached perspective.  But it is the direction I am pursuing for now,
and my results are those summarized above.


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