John McElroy is a reliably engaging commentator on the auto industry, at times controversial and generally well-informed. But he's confused about "peak oil" -- the theory that global oil production will reach an apex and then decline -- as a recent opinion piece for Autoblog demonstrates.
Supply and demand and price
Here's his peak oil take:
A decade ago, the Peak Oil theory attracted a lot of adherents. It postulated that global oil production would peak in 2006, and that the following shortage would send oil prices skyrocketing. Sure enough, in 2008 a barrel of oil shot to $150. It looked like the Peak Oil theory was coming true. But less than 12 months later it dropped to under $40 a barrel. And though the price is now closer to $100 you don't hear as much talk about Peak Oil anymore.There are several problems with this analysis:
- It's not clear that 2006 was the official peak year. No one is really sure when the peak will occur. Maybe it already did (some observers are skeptical about the truth of Saudi Arabia's reserves), and maybe it won't occur for another 20 years.
- Let's say oil production did peak in 2006. The 2008 price spike wouldn't have been representative of that long-term phenomenon, but rather of market dynamics at the time. The lack of Peak Oil didn't cause the price to retreat from $150 to $40 -- it was the market's inability to rationalize that price.
- The return to $100-a-barrel oil also doesn't have anything to do with a precipitous peak oil supply decline -- it's a snapshot of future demand, with the expectation that a global economic recovery will translate into an elevated oil thirst.
McElroy disputes the consensus among "top executives in the auto industry" that reduced oil supplies will drive a shift toward cars that get higher MPGs. If there's plenty of oil, who needs to worry about that?
He goes on to detail new Brazilian offshore oil discoveries, improved Iraqi oil extraction infrastructure, and the controversial process of "fracking," suggesting that these will initiate a new oil boom. But apart from Iraq, none of this is oil that's easy to get at.
What's more, building more fuel-efficient cars isn't about addressing peak oil but rather correcting a massive U.S. trade imbalance, a hugh chunk of which is due to oil imports. The economist Peter Morici has been relentless on this point for years.
Plenty of oil -- for now
Peak oil doesn't mean that the world's oil supply will abruptly drop off a cliff, leading to massive shortages. It means that we'll have to get used to being on the gradually descending side of the bell curve.
At the moment, there probably is plenty of oil available. And supplies may not be significantly constrained for a decade. The point is that we need to look at proven reserves as a finite resource, albeit a relatively immense one. This means that long-term conservation -- through higher MPG cars, among many other innovations -- is the prudent thing to pursue.
But the peak will eventually be felt
Fracking isn't necessarily a magic bullet, either, as its environmental implications are pretty disturbing. Plenty of folks would rather pay more for gas than sacrifice the environmental equity that countries like the U.S. have built up over the past few decades.
Regardless, even if these new oil discoveries come on line, peak oil wouldn't go away. It would just be pushed farther into the future. The bottom line is that there won't be plenty of oil forever. So why not take action now to prepare for the era when supplies really get tight?