R.I.P. Peak Oil As Oil Drum Closes Down

R.I.P. Peak Oil As Oil Drum Closes Down

Print publications go out of business because the well of subscribers willing to pay for paper by snail-mail dries up. But it's rare for an on-line publication to close down because the well of ideas and content dries up.

But this month the iconic blog The Oil Drum, announced it's shutting down because of the "...scarcity of new content caused by a dwindling number of contributors." The Oil Drum was a forum, arguably the best such, dedicated to the "peak oil" theory; the idea that mankind's ability to produce oil had peaked and particularly in the hydrocarbon fields of America. The inevitability and urgency to subsidize alternatives to hydrocarbons was fueled by the peak oil theory.

But what peaked instead was the ability to argue that the era of oil, and hydrocarbons, was over.

Today we find the U.S. has become the world's fastest growing oil & gas producer - on track to becoming a major energy exporter. (More on export implications here.) America is now a net exporter of refined products, gasoline and diesel, for the first time since 1949, and the world's biggest natural gas producer. Businesses now strain against bureaucratic and political harnesses to be allowed to export natural gas. (Coal exports, by the way, have doubled.) The Energy Information Agency came out with yet another revision to world hydrocarbon resources; dramatically upwards. The International Energy Agency labels America a "new Middle East."

The only debate now is over how fast hydrocarbon production can increase - or, for inveterate anti-hydrocarbon adherents, should be allowed to increase. Now environmentalists scramble not to promote peak theory, but to promote bans on using America's productive shale fields lest a bevy of states look like, well, say Texas, and North Dakota with oil and gas gushing out -- along with, one should note, a surplus of subsidy-free jobs and tax revenues.

Peak schmeak. How could they and so many others similar have been so wrong? Let us count the ways. But let's start with geophysics.

The notion of imminent exhaustion of hydrocarbons has been a core tenet of alternative energy pundits and rent-seekers. But considering geophysics, this has always been, to put it politely, silly. Sure, the world consumes a lot of energy; annually some 80 billion barrels in oil-equivalent terms, wherein 80% comes from hydrocarbons. But the Earth's known, never mind unknown, quantities of hydrocarbons are countable in the tens of thousands of billions of barrels. The scale of the resource itself is bottomless.

In the end, what is available is mainly about technologies (and of course, whether governments permit one to use them). To believe oil had peaked you also had to believe that technology had peaked, which is even sillier. The oil beneath the North Sea didn't exist for all practical purposes until technology unleashed deep-water production there and around the world in the 1980s. Technology has unleashed access to billions of barrels in hydrocarbon shales and sands onshore.

And while hydraulic fracturing ("fracking") shale is often claimed as the proximate cause of the energy revolution, the enabler has been smart drilling. Fracking has been around for decades, as has horizontal drilling. The new abundance comes from knowing where to drill, (dry wells are a thing of the past), where to steer in the subsurface, and how to manage production in real time. Subsurface imagining, sensors and analytics are revolutionary. The hydrocarbon future is like everything else now, all about information technology. As Bill Gates recently said: "The one thing that is different today [in energy] is software, which changes the game." It sure does. And innovation is bottomless too.

Big data has come to the oil fields, and not just for Big Oil but for the tens of thousands of small and mid-sized oil and gas companies that have been responsible for the American hydrocarbon resurgence.

Of course technology has improved wind and solar tech too. Over the past two decades both have seen a 200 percent gain in productivity (energy out per dollar capital). Drilling rig productivity grew 200 percent as well, in five years. Consequently, in just two years oil output grew five-fold more than wind production, and 200-fold more than solar output did over two decades. Maybe we should be talking about peak solar and wind?

As for the future, patents are the bellwether for what has yet to be deployed. Over the past five years about 65,000 patents were issued across the entire alternative energy domain versus 150,000 for hydrocarbon technologies.

The only remaining argument for ‘peakers' is whether the world is willing to pay a premium to stop using hydrocarbons because of another theory; global warming. The world has voted on this too. Over the last 10 years, coal supplied two-thirds of all global growth in electricity, where the only realistic alternative at scale and costs that matter is a hydrocarbon cousin, natural gas, oil supplied 99 percent of all new fuel used to fly, drive, ship and schlep people and things around the planet.

None of this means the world won't see episodic shortages and price spikes. Such is the nature of huge commodity markets. But the yearning of billions of people for cheap power and transportation can only be met for the foreseeable future with hydrocarbons. Fortunately, both Mother Nature and human technology are up to the task.

The Oil Drum launched eight years ago, the same year my colleague and I published our book, The Bottomless Well. The title is self-explanatory. We could say "I told you so," not as a school-yard epithet, but simply as a fact.


Mark P. Mills is a Manhattan Institute senior fellow.

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