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June 10, 2005


Hi Half Sigma
There's no doubt that there is only so much oil in the ground: they're not making any new dinosaurs. The question is, should we be concerned about the impending oil shortage. The free market will take care of this nicely. As Oil becomes more scare, people will shift from oil to other fuels like coal (the supply of coal still very large).

Hybrids have already been produced that can make our cars more fuel efficient. In the future (probably near future) these cars will have batteries and we can charge them up overnight and run them on pure electricity for twenty or thirty miles before we have to use gasoline power.

I think it would be wise if we invested in research and development of alternative energy sources. I would like to see nuclear fusion developed. But even bad old nuclear fission might make a serious comeback. Sometimes a old technology comes back better than ever. I read somewhere that Porche developed the original hybrid many years ago and it flopped. They've come back.

You might also want to point your readers to "The Bottomless Well," the recent book that helps explain why the "there's only so much oil in the world" view is misguided.

I do not completely believe in the peak oil theory.

The peak oil theory applies well to individual oil fields, but not to the whole world. When you consider the whole world, there is also the issue of price. When demand exceeds supply, the price will go up sharply, as is happening now. This will cause demand to reduce and supply to increase.

It is not so much that the world is running out of oil, it is just running out of cheap oil.

Thanks for the mention HS...we're doing what we can.

Oil supply is going to be an important topic for the next thirty years, in our opinion.

Learn all that you can about peak oil, folks...that's about all I can say.

"I think it would be wise if we invested in research and development of alternative energy sources."

The world has plenty of energy, thousands of years of nuclear power if we use breeder reactors. We're not running out of energy, we're running out of oil.

"The question is, should we be concerned about the impending oil shortage."

For two reason: (1) curiosity about what the future is going to be like; (2) if people don't know there's going to be an impending the shortage, then they will make the wrong decisions. In order for free markets to work efficiently, people need knowledge.

"The peak oil theory applies well to individual oil fields, but not to the whole world."

We've seen fields depleted, we've seen entire nations depleted (the United States being the best example). It's only a matter of time before oil production in the ENTIRE WORLD begins to decline. And people who know a lot more about oil than I do predict that the peak of oil production may be here already.

I posted about Peak Oil back in April. Here is what I said then:
[...]we know that oil producers will extract cheap oil before they extract more expensive oil. In other words, whatever oil we have not extracted is always more difficult to extract than the oil we have already extracted. Assuming technology doesn't change, the price of extracting the next gallon of oil from the ground should always be higher than the last and extraction stops when the marginal cost of extracting the next gallon is higher than the value to be derived from it.
Technological changes affect both the cost and the value enough to make any claim that we have reached a peak extremely dubious. To say that we have reached "peak oil" is to be like that apocryphal patent clerk from 1899 who urged that we should close the patent office because everything that can be invented already has.
But even aside from alternative fuel technologies, peak oil advocates seem to forget that people can store oil. If people really believed that oil was going to run out, they would buy oil and keep it in storage tanks (or in the ground) for the future. Effectively the expectation of future high oil prices would drive up current prices sufficiently that we should expect no major price change associated with any form of peak extraction.
My view of both the technology and the economics hasn't changed much since then.

Economics doesn't change just because supply and demand change. Peak Oil theory strikes me as another attempt to cause mass hysteria in the general public. If the cost of producing oil and gas gets higher, we'll deal with it, just as we've dealt with higher prices in practically everything else that's ever been produced.
People will respond by conserving fuel, looking for alternative fuels, seeking out transportation alternatives, etc. Will this change "life as we know it"? Certainly, if you mean that in a very narrow sense. Not at all, if you're looking at the bigger picture. It certainly won't mean the end of civilization. Unless the mass hysteria takes over and people panic over a non-existent problem. Actually, it's rather surprising that the politicians haven't taken to Peak Oil Theory for political advantage.

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