Oil Glut

The New Economics of Oil:

The total stock of recoverable oil resources is assumed to be known and the main focus is on the optimal pace at which these resources should be exhausted. […] But in practice, estimates of recoverable oil resources are increasing all the time, as new discoveries are made and technology and understanding improves. And, importantly, they are increasing far more quickly than existing reserves are consumed. […] In very rough terms, over the past 35 years, the world has consumed around 1 trillion barrels of oil. Over that same period, proved reserves of oil have increased by more than 1 trillion barrels. […] Put differently, for every barrel of oil consumed, another two have been added.

… what has changed in recent years is the growing recognition that concerns about carbon emissions and climate change mean that it is increasingly unlikely that the world’s reserves of oil will ever be exhausted. […] Existing reserves of fossil fuels – ie oil, gas and coal – if used in their entirety would generate somewhere in excess of 2.8 trillion tonnes of CO2, well in excess of the 1 trillion tonnes or so the scientific community consider is consistent with limiting the rise in global mean temperatures to no more than 2 degrees Centigrade. And this takes no account of the new discoveries which are being made all the time or of the vast resources of fossil fuels not yet booked as reserves.

From the supply side, it might still be natural to assume that the relative price of oil will increase over time as it becomes increasingly difficult (and costly) to extract. The most easily accessible oil is extracted first, forcing energy companies to dig deeper and deeper in increasingly difficult environments. […] But this increasing difficulty needs to be set against technological progress. The oil industry, as with any other successful industry, is continually innovating and implementing new techniques and processes. […] The poster child for these advancements in recent years has been the US shale industry. The use of increasingly sophisticated drilling techniques and huge improvements in cost efficiencies has allowed previously uneconomic resources of oil to be recovered. Productivity gains within the US shale industry in recent years have been mind-boggling. Productivity growth, as measured by initial production per rig, averaged over 30% per year between 2007 and 2014 …

Industry opinions, like markets, tend to overshoot in both directions. Still, there seem to be some solid grounds here for shelving the framework of Peak Oil interpretation as a guide to the future of oil prices.

3 thoughts on “Oil Glut

    • Greer’s most critical prediction is the economic impracticality of large-scale photovoltaic substitution for fossil fuels. It’s far from obvious to me that his confidence about that is solidly grounded. (To play his own game, he seems to have a religious commitment to the inevitability of righteous retribution for modernity’s hydrocarbons orgy.)

      • reading a little more and talking to some people about it, it seems a fuzzy future. it all depends in fact on much oil is left there, and how fast solar or nuclear power could replace oil and its derivatives. both outcomes seem likely.

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