Would Peak Oil and / or Peak Demand make any difference

The Guardian of September 27, 2013 reporting on the  Intergovernmental Panel on Climate Change (IPCC) that concluded with it would take 30 years to climate calamity if we carry on blowing the carbon budget knowing that the world’s “carbon budget” was one of the most striking findings of the IPCC’s calculations then and to date. Would Peak Oil and / or Peak Demand make any difference to any outcome to each of them ?

Peak Oil and / or Peak Demand ?

In any case, life carries on and as a good captain of industry, Elon Musk tried and still is trying to turn this into an opportunity.  Here he is relating to the owners of those geological assets cause of this calamity in the making.
This article of Robert Rapier, engineer and investor, ( Follow him on Twitter @rrapier or at The Energy Letter ) is very educational in the sense that it is quite a good eye opener onto the issues at stake, for above all the people of the MENA region. So is it Peak Oil and / or Peak Demand, Robert Rapier makes a good case with perhaps some questions we should all be asking ourselves.
Tesla CEO Elon Musk (R) sits next to Mohammad al-Gergawi, UAE Minister of Cabinet Affairs and Future. Will Musk and the electric vehicle cause oil demand to wane, or will geology cause oil production to decline first? Photo credit STRINGER/AFP/Getty Images.

Peak Oil And Peak Demand Have Entirely Different Outcomes

Following my previous article — Peak Demand? No, A New Gasoline Demand Record — I received some interesting feedback from readers. It quickly became apparent that some didn’t understand that the current discussions around “peak oil demand” are quite different than the “peak oil” arguments that were popular a few years ago.

Some interpreted my headline to mean that peak oil is a myth and that oil supplies will simply continue to grow. Actually, I was addressing the irrational exuberance around the near-term peak oil demand argument, which is something entirely different.

So let’s review.

Almost from the beginning of the U.S. oil industry, there have been those who suggested that it wouldn’t be long before oil production began to inevitably decline. The layman’s understanding of “peak oil” typically boiled down to “The world is running out of oil.”

But that was a misunderstanding of the actual peak oil argument. It wasn’t that the world was going to run out of oil, it was that oil production would begin a long decline and cause havoc in a world that is still highly dependent upon oil. A decade ago many prognosticators made dire predictions of the consequences of peak oil, pointing to events like the 1973 OPEC oil embargo or highlighting the fallout whenever oil shortages took place in an area.

Simply put, modern civilization can’t function without oil, so peak oil necessarily meant dire consequences. Books were written on the concept. In 2005 the late Matt Simmons published Twilight in the Desert, in which he argued that oil production in Saudi Arabia was nearing terminal decline.

For a while, it looked like Simmons could be right. Production in Saudi Arabia remained flat, global demand continued to grow, and oil prices skyrocketed above $100 a barrel (bbl). These were just the types of consequences predicted by the peak oil camp.

Fast forward a few years, and after falling for nearly 40 years, U.S. oil production began to surge as a result of the marriage between hydraulic fracturing and horizontal drilling. It turns out that high prices can indeed enable a lot of new oil production, which was perhaps the biggest blind spot among the near-term peak oil adherents.

That’s the peak oil argument in a nutshell, but the peak demand argument is entirely different. In this case, oil production falls — not because of geological factors — but because the world turns its back on oil as cleaner, cheaper options become available. Electric vehicles and ride-sharing on a massive scale are envisioned as two of the key factors that will make oil obsolete.

The biggest difference between peak oil and peak demand is that a peak oil scenario leads to much higher oil prices and havoc with the global economy. A peak demand situation, on the other hand, means plunging oil prices and a world economy that just keeps growing uninterrupted. It means no inconvenience for anyone, as we continue to happily motor along. Who needs oil when Elon Musk is going to fly down in his Iron Man suit and deliver cheap electric cars to the masses?

Robert Rapier has over 20 years of experience in the energy industry as an engineer and an investor. Follow him on Twitter @rrapier or at The Energy Letter.

Please visit Forbes magazine for the rest of this story.

 

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