The Paradox of peak oil

19th February 2010 By: Saliem Fakir

The paradox is simply: the lesser something gets, the more there will be of it. An oil peak implies that the production peak will occur when about half of the total oil in the reservoir has been extracted.

One can extend the insights from peak oil studies to other fossil-based fuels, such as coal and gas – the principles governing their use are about the same.

Oil peak is not a theory – it is self- evident that oil, as a fossil fuel, will dry up at some point.

It was Marion King Hubbert who, in 1956, developed a modelling system for determining the availability of oil that led to his predicting that the oil bonanza in the US would have a short life.

Hubbert was right about the US. The question remained whether Hubbert’s model was replicable for the rest of the world.

Dissenting voices argue that it is difficult to say precisely when the oil peak will hit because the US data is far more robust on oil reserves and resources than on what can be estimated for the rest of the world.

They point to the fact that peak oil periods can be extended by the effects of new discoveries. Increases in the oil price make tech-nologically expensive options feasible and once unrecoverable reserves recoverable, often making a mockery of peak oil predictions.

The merits of peak oil debates should not lull us into complacency.

Greater demand creates scarcity value. Scarcity is either the result of actual reserve depletion or the fact that there is a lag behind demand in the rate of investment in expanding total extractions and new finds.

Both these will have effects on the price. As the resource becomes scarcer, the price incentives will induce further investment in exploration and in expanding the total reserves of oil.

High prices, nonetheless, will be resisted by inflation intolerance.

They will encourage the development of nonconventional sources like coal- to-liquid projects and the extraction of oil from tar sands or shale, or the production of biofuels.

The total volume of fuel available expands and can do so dramatically, depending on whether prices remain stable and at high levels for long periods.

The utility of oil can also be extended through improvements in efficiencies for the internal combustion engine, the building of smaller vehicles that use less fuel, the development of hybrids, hydrogen fuel cars, electric cars or simply car use behavioural change by consumers.

These permutations, collectively, will eventually result in less and less oil being used or, perhaps, oil being completely displaced as an energy source.

The irony goes two ways: as much as the fossil fuel economy does not end, the very knowledge of its peak and the increasing price actually create the conditions for the transition to new low-carbon solutions and unconventional sources.

This is also largely facilitated by the fact that, during the transition, peak oil creates future insecurity and is also marked by high levels of price volatility. Volatility in price will impose uncertainty in future investments in stranded, conventional or uneconomic reserve sources.

This will be disruptive and these disruptions will create an inclination to move to less volatile sources and diversification of sources to improve resource security and lower supply risk.

The parallel process of fossil intensification (by the expansion of the volume of available and the life span) and the transition to a low-carbon economy become in-built within the logic and dynamic of the fossil-fuel economy.

This is the paradox of peak oil – its nature is to create internal contradictions that sort of reinforce the old and the new. It is likely that the new will displace the old – some or all of it – as the major driver of mobility.

The result is that there will always be oil but less and less will be used as prices for the new come down. It may also be that we will have to live with both – side by side – for a long time to come, until a systemic solution is found that will replace fossil fuels completely.

Here, too, an irony will prevail – the fossil economy will be the mother of the new out of shear necessity until the new can walk on its own feet.

While peak oil pundits tend to be alarmists, the opposing reaction tends to be complacent. Neither is conducive to good policy. There is always an aversion to risk. Both trajectories will survive in the transitional period until the real winner takes all.