Forget Hubbert�s Peak, think Drake�s ingenuity.
Commodity prices are collapsing, as I predicted in my Aug. 8 column. Copper is down 28% from its February top. Cotton has dropped 58% from its early March peak. Crude oil is down from its late April peak of $114 per barrel to $96, but it is still up 28% from its $76 October low.
Why? Beats me. The Arab Spring disruptions have fizzled, and Libyan oil production�zero in August�will likely reach 700,000 barrels a day at year�s end. In October OPEC cut its 2011 global demand forecast for the fourth consecutive month, this time by 180,000 barrels to 87.8 million per day.
Despite these dynamics the oil market is still worried about shortages, as first predicted by geoscientist M. King Hubbert in 1956. He examined the rise and fall of individual oilfield production and projected those patterns for the entire U.S. He then predicted a peak in output in 1970. Few believed him, but his forecast proved correct, and then shortages caused oil prices to surge in the 1970s.
Followers extrapolated �Hubbert�s Peak� globally and predicted a top in worldwide output in 2010�12. That hasn�t panned out, so they pushed it to 2015�20. They had to. Continual rises in output belied the static Malthusian shortage mentality of Hubbert�s Peak.
History shows that human ingenuity and free-market prices always overcome prospective shortages. In the mid-1800s a shortage of whales threatened to blow out all the whale-oil-fueled lights. Edwin L. Drake�s first-ever oil well in Titusville, Pa. in 1859 gave the whales a reprieve as kerosene replaced whale oil.
Initial engineering estimates of proven oilfield reserves tend to be conservative. But by accounting for further development, continual technology advances such as horizontal drilling and supportive prices, the U.S. Geological Survey calculates that 86% of total U.S. proven reserves are additions to original numbers.
New finds are adding still more. Norway�s Statoil, for example, recently discovered a potential 1.5-billion-barrel oilfield, among the five largest off Norway. With new technology permitting oil drilling under 6,000 feet of water, Petrobras discovered a huge field off the coast of Brazil under layers of salt.
The Hubbert�s Peak devotees also seem blind to the vast array of substitutes for petroleum. Hydraulic fracturing�fracking�is producing tremendous quantities of shale gas, and natural gas has plummeted from $13 per million Btu in 2008 to $3.42. U.S. gas reserves are estimated to last 100 years at current consumption rates.
Shale gas is also prevalent in China, Argentina and the U.K. With abundant natural gas, Canada is planning to ship LNG to Asia, and the U.S. is likely to retool import terminals to export LNG. South Africa�s Sasol is planning a $10 billion facility in Louisiana to convert natural gas into diesel fuel, which competes with petroleum products.
Coal has a dirty image due to sulfur and carbon dioxide emissions, but new technology is solving these problems. Coal can also be turned into gasoline and diesel fuel.
Nuclear energy is on hold in many parts of the world after the tsunami in Japan but will probably be revived, as it was after the Three Mile Island incident in 1979 and the Chernobyl disaster in 1986. Petroleum from Canadian oil sands is relatively expensive but supported by today�s prices, and production is forecast to double to 3 million barrels a day by 2030.
Renewable energy sources such as ethanol, wind, solar and geothermal require huge government subsidies and are losing favor in the federal budget-cutting era.
On the demand side, regulations like auto-mileage minimums curtail energy consumption. Higher prices encourage efficiency. With economies here and abroad becoming more service- and less goods-oriented, global oil consumption per real GDP fell 41% from 1980 to 2010.
Shale gas excepted, cheap North American energy is fully exploited. However, most Americans favor energy efficiency and production on this continent against imports. In fact, imported energy fell to 49% of the total for sources outside North America in 2010, down from 60% in 2005. The Obama Administration is torn between the energy industry and labor unions, who want more energy development, and environmentalists, who want none.
Given the sagging global economy, expect crude oil prices to fall�barring outside shocks�with Hubbert�s Peak nowhere in sight.
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