John Hemming's Web Log John's Reference Website
Thursday, December 11, 2008
  Slight movement towards sanity from Government on Peak Oil
The link is to the minutes of the European Committee C on Higher Oil Prices. A rare moment of almost sense on the issue of Peak Oil from government Minister Mike O Brien This is from columns 11 and 12.

Steve Webb: As this is a helpful forum in which to have a measured question and answer session, rather than the frustrating soundbites that we get during questions in the Chamber, it is good to take the opportunity to raise a second issue. If I say the words “peak” and “oil” in the same sentence, people may have glazed expressions and there might be some concern about where I am heading, but I wonder whether the Minister could tell us the Government’s position on the first report—I was given it yesterday, but I do not know whether it is newly published—of the UK industry taskforce on peak oil and energy security? Serious organisations are involved in it, including one of the big six energy companies. It will take me just a moment to clarify my question, if you will allow me to do so, Mr. Taylor.

The simplistic argument is that oil output is going to peak—of course it is at some point—and it is suggested that supply and demand indicate that when it gets more expensive, new fields will be found and marginal fields will be explored, so people ask what is the substance of this peak oil argument. However, let us consider the contention, which is being taken increasing seriously, that we might reach peak capacity much sooner than the industry balance sheets would have us believe or, perhaps, national Governments are prepared for. What is the Government’s attitude to that developing theory, which was once regarded as extreme and heretical, but is now coming more into the mainstream? Is there anything in it, as far as the Government are concerned, or is just for the birds?
Mr. O'Brien: I would not go so far as to suggest that it is, as the hon. Gentleman says, for the birds. We need to look at how the oil market is operating. I made the point earlier that there were some structural issues in relation to the oil market. Some of the new oil sources and reservoirs, in particular, tend to be smaller and do not come on so often. We know that there are substantial reserves of oil and gas in the world that can keep us supplied for decades to come. Whether we will be at a particular point of peak—and, if we are, how much Column number: 13that matters—depends on various factors. Peaks only matter if there is a sharp drop after them. I do not think that we are likely to see the sort of peak after which we get such a sharp drop. We do not really know quite where the peak is.

There is, to some extent, a lack of information in this market. We do not know where all the oil reserves are and we constantly discover more. It is difficult to predict whether we have got to some peak and whether we will not get to another one a few years later. Additionally, in some parts of the market, there is a lack of open information. Some countries choose not to disclose information and, in one or two cases, if they did so, it would not necessarily be terribly reliable. Gauging the peak is not easy or straightforward. I am not convinced that I have a straightforward answer to the hon. Gentleman’s question regarding whether it would matter, although I suspect that it probably would not matter a great deal.


Where the government miss the point is that once oil production has peaked it will not exceed the peak and hence consumption will be forced down. So far we have an unmanaged process with economic destruction causing a reduction in demand. We could do this a few more times, but it really isn't the best way forwards.
 
Comments:
The market will sort out any oil crisis much more effectively than any government could.

As demand increases relative to supply (or, conversely, if supply falls behind demand) prices will rise and so ensure that oil continues to feed the most valuable uses.

Meanwhile, the increasing cost will make other alternatives more viable and spur greater innovation that will enable us to extract more energy from oil (up to physical limits), extract oil from more marginal sources, and find alternatives to oil altogether.

I've covered this in some detail in my article and the ensuing comments.
 
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