Many of you have probably heard of “peak oil,” the idea that world oil production either has peaked or will soon peak, and it’s all downhill from there. The implications of this could be that the world economy is crippled by high prices and short supply, or the world economy is not crippled by high prices and short supply. In either case, most folks I talk with seem to believe we will soon be facing resource constraints.
Well, Daniel Yergin, author of the cinder-block-sized epic The Prize (now in documentary form) is back with his take on peak oil. The condensed version of his argument — puh-leeze.
In his piece, Yergin goes over the basic storyline of so-called “cornucopian” economists, such as the late Julian Simon, who claim that human ingenuity is likely to overcome any “natural” resource constraints. Here’s Yergin on the premiere peak oiler, M. King Hubbert:
Hubbert insisted that price didn’t matter. Economics—the forces of supply and demand—were, he maintained, irrelevant to the finite physical cache of oil in the earth. But why would price—with all the messages that it sends to people about allocating resources and developing new technologies—apply in so many other realms but not in oil and gas production? Activity goes up when prices go up; activity goes down when prices go down. Higher prices stimulate innovation and encourage people to figure out ingenious new ways to increase supply.
Indeed.
New technologies and approaches continue to unlock new resources. Ghana is on its way to significant oil production, and just a few days ago, a major new discovery was announced off the coast of French Guiana, north of Brazil.
As proof for peak oil, its advocates argue that the discovery rate for new oil fields is declining. But this obscures a crucial point: Most of the world’s supply is the result not of discoveries but of additions and extensions in existing fields.
In addition to the WSJ piece, Yergin is back in print with The Quest: Energy, Security and the Remaking of the Modern World. If you are interested in third-party opinions, Steven Hayward has a column in the WSJ, and Steven Levine reviews the book for Foreign Policy.