January 6, 2010
Economic Snapshot | Jan. 6, 2010
Peak oil: Are we there yet?
JOHN CLINKARD
consulting economist, CanaData
For some time now, and with greater frequency lately, energy analysts have been predicting that the output of conventional oil will soon peak unless something is done to reduce demand.
Predictions of the date of this event have varied from ‘imminently’ to ‘in the next 20 to 30 years.’
In the International Energy Agency’s latest World Energy Outlook, however, the chief economist stated that “the output of conventional oil will peak in 2020 if oil demand grows on a business-as-usual basis.”
According to a recent article in The Economist, this estimate of the peak is more accurate than others.
The peak oil debate is no longer about whether oil supplies could stop growing. It is about what happens when they run out.
The pessimists – some of whom echo the views expressed in 1972 by the Club of Rome in its book The Limits to Growth – think oil supplies have peaked or are close to peaking and that the world is headed for economic disaster.
There is another school of thought that is more sanguine about the future of oil.
In its recent publication, The Future of Global Oil Supply, Cambridge Energy Research Associates (CERA) projects growth of productive (petroleum) capacity through 2030, with no peak evident.
The Economist refers to folks at CERA as oil “optimists.” Based on past experience, though, they should probably be described as “realists.”
They base their analysis on the fact that higher oil prices will, as they have in the past, encourage oil/energy companies to locate new oilfields, as has recently happened off the coast of Brazil and in the Gulf of Mexico.
What’s more, higher prices will provide firms with an incentive to develop new technologies to produce oil from other carbon-based fuels, such as coal, and to develop oil substitutes.
Finally, higher prices will, as they are supposed to, provide consumers with an incentive to use a scarce resource with more care.
Though oil may peak some time in the future, CERA concludes that there is little doubt that existing and potential future resources can support capacity growth through 2030.
John Clinkard has over 30 years’ experience as an economist in international, national and regional research and analysis with leading financial institutions and media outlets in Canada.
Data sources: U.S. Energy Information Agengy, Statistics Canada. Chart: Reed Construction Data – CanaData.
