For decades there was a widespread belief that peak oil was just around the corner. This belief was based on the work of the world reknown geologist, King Hubbert. Although, there were a large number of skeptics, “Hubbert’s Curve” carried the day in the policy world. That is until horizontal drilling and hydrological fracturing unleashed the potential of shale oil.
While peak oil production can rest in peace, peak oil has returned in the form of a growing view that peak oil demand is just around the corner. A recent article in the Wall Street Journal—November 27—focused on the coming peak in demand. In the 1970s, Saudi oil minister, Sheikh Zaki Yamani made an insightful prediction, “the stone age did not end for lack of stone and the Oil Age will end long before the world runs out of oil.” His prediction was based on economics and a long view of technology. What he did not adequately factor into his analysis was the heavy hand of government.
The Wall Street Journal article draws heavily on the views of European oil companies, Hungary’s MOL Group, BP, and Shell. Shell’s finance chief sees the peak coming in 5-15 years. The views of these companies are not surprising because the EU has been pursuing an aggressive green agenda that has contributed to its economic stagnation and high unemployment and companies in those countries dare not stray too far from government orthodoxy. A more neutral source, the International Energy Agency forecasts that consumption will continue to rise for decades unless governments become even more aggressive in mandating climate change actions, which means technology forcing.
There is little evidence that technology forcing works in the long run because commercialization is achieved at a very high cost. Look no further than the string of failures over the past 8 years in battery technology companies and the subsidies needed for electric vehicles. To illustrate this point, the chief financial officer of BMW recently gave a downbeat outlook for electric cars, according to Bloomberg. He said, “We’ve learned that people aren’t prepared to pay a higher price for an electric vehicle. I don’t see some kind of disruptive element coming from electric cars that would prompt sales to go up quickly in the next five to six years.” The problem is likely worse than that. A 2015 MIT Technology Review article candidly stated the problem with achieving EV goals is that we still don’t understand battery technology.
Economic history suggests that there are limits to how long nations can sacrifice economic growth and better standards of living in pursuit of illusory environmental objectives. Predictions of a climate apocalypse that were supposed to be evident over the last decade have not occurred and the IPCC keeps reducing the effects of doubling CO2. Where it use to give its “best” estimate, it now gives none. Doomsayers may eventually be proven right but right now the climate system is not cooperating and as a result the public is likely to become more skeptical and aware that it has been bamboozled by environmental advocates who have profited from marketing fear.
For the foreseeable future, oil will continue its dominant transportation role because it is abundant, affordable, and has superior energy density. Its competitors maintain their life support through subsidies. Those should be on the hit list of actions to take to stimulate economic growth. The reaction of the stock market since the election is one piece of evidence that consumers and business are fed up with being over governed by the Obama Administration. If the market is allowed to determine oil’s long term future its peak will be like the horizon: it recedes as we approach it.