Is the world really running out of oil?

November 15th, 2009

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Many of us would have heard of the threat of Peak Oil to our way of life. To put it very simply, according to the Wikipedia, Peak Oil is the

Peak oil is the point in time when the maximum rate of global petroleum extraction is reached, after which the rate of production enters terminal decline.

Unfortunately, there is a lot of misunderstanding as to what Peak Oil is. For example, in our quote of the news article in our previous post, it reported that

The world is much closer to running out of oil than official estimates admit, says a whistleblower at the International Energy Agency…

This is an example of how the mainstream news media can oversimplify things and subtract knowledge from their readers’ minds. Please note that we are not saying that the news media is useless, but it pays to be careful with what you read, especially with so much vested interests wanting to control public opinion through control of the media.

To add to the confusion, the debate on Peak Oil is as polarising as the inflation/deflation debate with both sides having different motives and vested interests. There are some experts who do not believe in Peak Oil (we are not geologists here, so we shall not get involved in this debate). For example, one of our readers forwarded us this news article by an expert (Leonardo Maugeri, the senior executive vice president of the Italian oil company Eni, and a visiting scholar at the MIT), who believes that there will still be plenty of oil in the 21st century and we need not fear losing our way of life as we know it.

First, let us understand what Peak Oil is not. It does not mean that the world is running out of oil. There are still plenty of oil on this earth. The last drop of oil will not be used up any time soon. But there is a problem. The cheap and “easy to get” oil is getting harder and harder to find and extract.

The best way to understand this problem is to use an analogy. Imagine we have a fruit tree that has plenty of fruits. We have been consuming the low hanging ones for quite a while and are realising that our daily supply of fruits are in decline. No doubt, there are plenty of fruits on the tree. But the problem is, the low hanging ones are getting fewer and fewer and the ones left are hanging higher and higher. That means, we have to expend more work (e.g. using a ladder) to get those higher hanging fruits if we want to maintain or increase (with China & India coming) our daily supply of fruits.

The point of contention is what is means by “low hanging” fruits. Critics of Peak Oil believe that new technologies will help us to extract the higher hanging fruits more easily than before. They believe that mankind will find new ways to extend the lifespan of existing oil fields, extract non-conventional oil (e.g. get the oil from the tar sands), find new oil fields in previously infeasible locations (due to technical and economic reasons) and so on.

As usual, we have to cast a skeptical eye on whatever we read. For example, the news article by Leonardo Maugeri is full of optimism with regards to mankind’s ability to pluck the higher hanging fruits. Perhaps he is a little too optimistic? As we read his article, we can’t help but notice that he is using some kind of turkey thinking- mankind’s ability to innovate in the past with regards to oil-related technologies will see that further innovations is the default result for the future (see Failure to understand Black Swan leads to fallacious thinking). For example, he wrote,

But when new exploration technologies do take root, the results are remarkable.

Fifteen years ago, all this was simply unthinkable.

Of course, being an oil industry executive, he has to walk the talk and be optimistic. We are not saying that he is lying or wrong. We are just exercising our skepticism. We certainly hope he is right. If not, this is a BIG problem for mankind.