“Peak Oil” was always nonsense

Unless they are legislated out of existence by leftists, fossil fuels will still be the world’s primary energy source 100, even 200 years from now.  As we saw in the period 2005-15, as prices go up, new sources come on line to keep increase supply and lower price.  Eventually, a new stasis is reached. Historically, crude oil has averaged about $20 per barrel in today’s dollars, at least it did until disordered economic practices and scarifying in the media led to panic-driven price increases.

Yes, Saudi Arabia is playing a long game to get the price back up to the $50+ dollar range by running all the shale frackers out of business, but if the price does go to that level again, new players will exploit that massive resource yet again.  Apparently, Saudi doesn’t want the US to be able to takeover their role as the world’s number one producer and exporter, which was rapidly happening before they glutted the market.  If that means $20 per barrel oil, so be it.  It hurts portions of the US economically (apparently, thousands of rigs are now idled in Texas since the price has plummeted), but overall, lower energy costs have a hugely positive impact on the overall economy, since energy cost is virtually a VAT that affects all sectors from raw material production, end product, and consumer.

My dad worked in the oil industry in a quite influential role (he used to fly to DC at one point almost weekly to meet with high-power attorneys and lobbyists and testified before Congress numerous times) for decades.  He started in a refinery in the 50s and worked through to the early 00s.  He’s seen booms and busts.  He doesn’t think we’re going to run out of oil any time soon, and he’s seen so much technological development over the past 60 years or so that he is convinced that oil and natural gas will continue to be the primary energy source for many, many decades to come.  Prices may eventually go up, but there is really nothing else available that can match the high energy content, massive scalability, relatively cheap availability, and overall minimal environmental impact as fossil fuels.

Hopefully we won’t fool enough to throw all that away over a leftist fever dream concerning gerbal worming.

For a long time the conventional wisdom was that we arrived at “peak oil.” My pal Rob Bradley revisits this old Malthusian chestnut today over at the MasterResource blog, and it is not to be missed:

“This time it’s for real,” says the cover story of the June 2004 issue of National Geographic. “We’re at the beginning of the end of cheap oil.”

Books and articles written by geologists, environmentalists, and others regularly announce a new era of increasing oil scarcity……..

…….Anyone remember Goldman Sachs predicting that oil was headed to $200 a barrel? Now, theWall Street Journal reports this morning, the smart people who predicted $200 oil are now predicting that oil, today hovering around $30, could fall as low as $16 a barrel:

Money managers in near-record numbers are betting that oil prices will fall even lower, spurring analysts to cut their own forecasts again. Morgan Stanley on Monday joined Goldman Sachs Group Inc. in suggesting crude could hit $20. Royal Bank of Scotland Group PLC has called for $16, and Standard Chartered PLC said prices could fall as low as $10. [I doubt $10. But $16-20 is quite likely. And that means sub $1.50 a gal gas, at least in Texas and other Gulf States]

In other words, oil is falling back to its historic, long-term inflation adjusted price. Here’s the inflation-adjusted price chart I generated last night from last year’s BP Statistical Survey of World Energy, which only takes the price up through the end of 2014, and therefore doesn’t accurately depict the price drop of the last year. But use your imagination, and you can see how we’ve reverted to the mean. I’m sure there will be more price cycles in the future, but there’s reason to think that OPEC won’t be able to squeeze $100 oil again in the future, for the simple reason that the technology has evolved to the point that the rest of the world can bring new supply on quickly and very profitably if the price (i.e., demand) spikes.

If you compare the post-war price of oil with the overall performance of the American economy, you can see that price of oil is one of the best predictors of an economic boom, whereas high oil prices correlate very strongly with recession, inflation, stagflation, etc, and sudden spikes correlate with the onset of recession.  Thus, while low oil prices will surely hurt the economies of some locales and states, overall, low prices can be expected to generally lead to much improved economic performance.

OTOH, the world economy is presently mired in the greatest amount of debt that has ever been seen.  There are numerous bubbles ready to burst (housing, personal debt, college, national debt, etc), so who knows how all this will play out.

And I bet billion dollar wells like those Shell drilled for the Perdido platform 170 miles off South Padre Island in 10,000 ft of water are going to have a damn hard time paying off.  But overall, cheap oil should be very good for the economy.