Peak oil still relevant? More than ever.

Monday, December 08, 2008

From an article on the Web site of the Post Carbon Institute:

Before the Thanksgiving holiday we got an email from William M., a reader of our newsletter, asking, "Why if oil supply is decreasing and demand is increasing is the price collapsing? What is happening? Is Peak Oil therefore a myth?"

I addressed parts of this question in an October blog post but there's more to dig in to, particularly regarding some common misconceptions about what's happening with supply and demand. I'll take William's question as a framework for addressing some of these issues:

Strictly speaking, the global oil supply has been decreasing since we started drilling in the mid-1800s. What we really care about is the ever-increasing flow of oil from underground reservoirs to markets because that's what feeds ever-increasing global demand. The oil industry generally talks about 'production' (i.e., extracting oil out of the ground and 'producing' it into a usable barrel), so this part of the question is more accurately stated, "If global oil production is declining..."

But, production isn't necessarily declining right now. To explain why, we first need to pick apart what we really mean by the word "oil" -- which isn't as clear-cut as most people think. . . .