So you think peak oil is nonsense?
Have a look at this graph showing historic oil prices including one with an adjustment for inflation.
As you’d expect, the price falls as we get better at getting it out of the ground.
The first peak on the right hand side is the 1973 oil crisis which was triggered by an OPEC oil embargo.
To the right of the 1973 spike is roughly where we are now.
The price of oil peaked in the middle of 2008 when it hit a record $147 a barrel. Since then the global recession has restricted demand so the price has fallen.
You’d have to be quite an optimist to imagine that the price will settle back down to the sort of levels seen in the mid 20th century.
Peak Oil isn’t about running out of oil – we’ll always produce oil. Rather, Peak Oil is about running out of cheap oil.
Cheap oil that has enabled the cost of food production to come down through more mechanisation, fertilisers and pesticides. The reduced cost of food has allowed the world population to swell to almost seven billion.
To put this into context, when drilling for oil began to fuel the agricultural revolution (which had started about 100 years earlier in the late 18th century) the world population was only around a billion.
But that is only half of the story. Having made it through the trials of the two large scale mechanised world wars in the first half of the twentieth century the latter part of the twentieth century saw much of the global population launch themselves headlong into a culture of consumption – fueling the demand for goods from around the world.
So now we have more people than ever before consuming more than ever before; and its all underpinned by our ability to produce cheap oil.
So what happens when the price of oil goes up? Well normally there is a recession. We’ve just had one of those.
The recession acts as a brake on our oil consumption, the price falls back (look at the graph) and everything’s hunky dory. But what happens when we get to grips with the recession and demand for oil rises again? As we come out of recession this time the developing nations like China and India will also be demanding a larger share of the world’s oil production capacity so the price will rise again.
There is evidence to suggest that volatility and a peak in oil prices is actually a precursor to a recession. Each recession may have its own explanation assigned to it: banking crisis, reduction in government spending after the war, bad monetarist policy but at the end of the day the price of oil also appears to be a factor.
So what happens when we want to ‘put our foot on the gas’ to pull out of recession? The price of oil spikes very quickly because we don’t have much excess capacity which leads to an increase in the price of goods. This acts as a brake on the world economy and increases recessionary pressure. It looks like a very vicious circle to me.
So when you put more than one recession back to back you get an extended period of negative growth which means a general fall in the standard of living. While for those of us in the West this means delaying the plasma TV upgrade or doing a bit less ‘retail therapy’ the consequences for poorer nations are much more severe. Areas of the globe with high levels of people living at a subsistence level are likely to see large numbers of people facing the ultimate tragedy.