For a number of years there has been an arid debate between economists and geologists about Peak Oil. The geologists maintain that Peak Oil (maximal production) is a geological imperative imposed because reserves are finite even if their exact magnitude is not, and cannot be, known.
In contrast many economists maintain prices will resolve any sustained supply shortfalls by providing incentives to develop more expensive sources or substitutes. The more sanguine economists do concede that the adaptation may be slow, uncomfortable and economically disruptive.
The reality, I believe, is that both groups have part of the answer but that Peak Oil is, in fact, a complex but largely an economically driven phenomenon that is caused because the point is reached when: The cost of incremental supply exceeds the price economies can pay without destroying growth at a given point in time. While hard to definitively prove, there is considerable circumstantial evidence that there is an oil price economies cannot afford without severe negative impacts.
Thus the geologists are right that the depletion of low cost oil will produce Peak Oil but it will not be caused by a shortage of oil resources.
The economists are right that there is no shortage of oil resources or oil substitutes but have so far failed to recognise that there is an oil price which cannot be afforded and this constraint will create and define an economic Peak Oil to be differentiated from a geological Peak Oil.
Graph 2 (see below) plots an oil price rise of $10/year and a productivity gain of 3%/year (adaptive response). The graph shows the price increases, driven upwards by depletion, outrunning the adaptive responses that higher prices induce, to give a crossover in 2014. The crossover gives the timing of the economically determined Peak because an oil price is reached that is economically destructive and cannot be paid for any length of time.
This analysis now gives an alternative method of determining the likely timing of Peak Oil. The other method is to determine the net flows of incremental capacity (new capacity minus depletion) and to balance this against the most likely growth trajectory.
The dating of Peak Oil using this economic approach gives almost identical results to calculations based on net incremental supply (new capacity minus depletion) with both approaches showing 2014/2015 as the crunch point. This coincidence is not surprising as most of the remaining oil development projects are high cost (Deepwater, Tar sands, Arctic).
energybulletin
