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Posted By Russ Roberts On March 1, 2006 @ 1:14 am In Energy | Comments Disabled
Robert Semple in this New York Times story  ($) raises the supposedly scary coming of “peak oil:”
The Age of Oil  — 100 plus years of astonishing economic growth made possible by cheap, abundant oil — could be ending without our really being aware of it. Oil is a finite commodity. At some point even the vast reservoirs of Saudi Arabia  will run dry. But before that happens there will come a day when oil production “peaks,” when demand overtakes supply (and never looks back), resulting in large and possibly catastrophic price increases that could make today’s $60-a-barrel oil look like chump change. Unless, of course, we begin to develop substitutes for oil. Or begin to live more abstemiously. Or both. The concept of peak oil has not been widely written about. But people are talking about it now. It deserves a careful look — largely because it is almost certainly correct.
My favorite part:
demand overtakes supply (and never looks back), resulting in large and possibly catastrophic price increases that could make today’s $60-a-barrel oil look like chump change.
How does demand “overtake” supply? How does demand look back or never look back? And I’m glad he hedged his bets with that “almost certainly.” The doom-and-gloomers don’t seem to understand that the demand they’re talking about is overtaking supply right now and yesterday and the day before. The only thing that keeps demand from running forward without looking back is price. In the absence of price, there’s never enough to go around. If the price were zero, if there were no charge for gasoline, say, then people would use a lot more than they do now. They would drive different cars, drive them more often and live farther from work than they otherwise would. We’d have different kinds of cars on the market as well.
But gasoline’s price isn’t zero. It’s positive. And it isn’t randomly positive or set arbitrarily. As people try (as they always will) to buy more of something they like than there is of that stuff available, the price goes up and rations expansive demand relative to finite supply.
This is true when most of the earth’s oil is under ground undiscovered and unrefined. It will still be true when most of the earth’s oil has already been discovered and refined and we are in the allegedly frightening history of oil when reserves are falling. There’s no reason for price to spike suddenly because some arbitrary number of reserves are left relative to demand.
It’s a little more complicated than this because the supply of oil isn’t random. It responds to price today and to price tomorrow. And it’s also more complicated because Saudi Arabia and a few others can control the flow coming out of the tap. But none of those complications change the irrelevancy of the peak oil concept , the idea that something changes fundamentally when reserves start to diminish.
The Times article goes on and on. Even under the rosiest of scenarios, we’ll allegedly face a crisis in 2037. Seems far off but we’ve barely enough time, according to Semple. Catastrophe looms:
This is going to take serious investment. It will also take real leadership, which may be the biggest missing ingredient of all.
A couple of years ago, David Goodstein , vice provost of the California Institute of Technology, published a slim, intelligent, and spry little book called “Out of Gas: The End of the Age of Oil .” A Hubbertian [a believer that the peak oil problem is imminent—RR] at heart, he nevertheless thinks we have time to avoid the worst, but only if we stop deluding ourselves. He also knows, though, that human nature does not easily leap to a challenge that seems always to be receding, and for that reason he does not think that we will really act until the wave crashes down upon us. “Our present national and international leadership is reluctant even to acknowledge that there is a problem,” he writes. “The crisis will occur, and it will be painful. The best we can realistically hope for is that when it happens, it will serve as a wakeup call, and will not so badly undermine our strength that we are unable to take the giant steps that are needed.”
Never mind that these kinds of books that are meant to frighten the citizenry are also meant to increase the demand for the services of the author. Even more disturbing is that the worriers seem oblivious to history. Don’t they know that “experts” have been warning us of the peril of running out of oil for decades? Don’t they know that technology and prices have solved the alleged problems with any central leadership or design?
I prefer prices to “real leadership.”
Article printed from Cafe Hayek: http://cafehayek.com
URL to article: http://cafehayek.com/2006/03/peakaboo.html
URLs in this post:
 this New York Times story: http://select.nytimes.com/2006/03/01/opinion/01talkingpoints.html?pagewanted=all
 The Age of Oil: http://www.economist.com/printedition/displaystory.cfm?Story_ID=2155717
 Saudi Arabia: http://www.cia.gov/cia/publications/factbook/geos/sa.html
 the irrelevancy of the peak oil concept: http://cafehayek.com/2005/10/the_fake_energy.html
 David Goodstein: http://www.its.caltech.edu/%7Edg/bio.html
 Out of Gas: The End of the Age of Oil: http://www.wwnorton.com/catalog/fall04/032647.htm
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