Why You Should Still Be Worried about Peak Oil

Aaron Task

With oil prices down more than 50% from their 2008 highs and inventories at or near record levels, you don't hear much about peak oil anymore. But it's a mistake to be complacent about the world's energy supplies, says Peter Maass, author of Crude World.

Unlike some peak oil adherents, Maass doesn't believe this phenomenon will lead to the end of civilization as we know it, but says a return to $100-plus oil in the not-too-distant future is likely. "I can't see [oil] staying at this level if economies keep growing," he says.

The point of peak oil is not that the world is going to run out of oil, as many mistakenly believe. Rather, the concern is oil production is not going to be able to keep up with demand, especially if and as the global economy continues to grow. That will lead to sharply higher prices as demand for oil eclipses supply.

Maass compares major oil fields to a runner reaching top speed: "Just as the runner cannot increase her pace beyond a certain point, and must slow down after reaching top speed, so does the output of an oil field reach its peak and then decline," he writes.

Given the declining production rates of Mexico's Cantarell and other major oil fields around the world, there's a big question over whether Saudi Arabia's Ghawar field is going to suffer a similar fate - or perhaps already is.

"Cases where there are fields where we can verify," such as in Mexico and the North Sea "they're having a very hard time keeping up" production levels, Maass says. So "we have to be concerned about even larger, more important fields where we don't know what's going on."

As Maass describes in the book and the accompanying video, the Saudis won't share data on their oil reserves and production data. Their attitude is: "Trust us, that's the only choice you have," he says.


Popular posts from this blog

Do you want to get into Goldman Sachs?

Warren Buffett’s favorite market metric suggests investors are ‘playing with fire’