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Is oil peaking today?

Posted By Jerome R. Corsi On 12/02/2005 @ 1:00 am In Commentary | Comments Disabled

A key argument to “Black Gold Stranglehold: The Myth of Scarcity and the Politics of Oil,” is that energy resources are infinite, not finite. Craig Smith and I acknowledge that the argument is counter-intuitive. We are fighting the “Peak-Production” oil theorists who proclaim the common wisdom that we are running out of oil. Yet the argument we are making is not without precedent.

We refer to the work done by economist Julian Simon, who was a professor of business administration at the University of Maryland until his death in 1998. He was a noted population expert who frequently took on the theme of energy. Like Craig Smith and me, Julian Simon argued that we would never exhaust energy resources. In his 1996 book, “The Ultimate Resource 2,” he wrote, “Energy trends toward exhaustion. It seems impossible to keep using energy and still never begin to run out – that is, never reach a point of increasing scarcity.” Yet that is exactly what Simon argued would happen:

The historical facts entirely contradict the commonsensical Malthusian theory that the more we use, the less there is left to use and hence the greater the scarcity. Through the centuries, the prices of energy – coal, oil, and electricity – have been decreasing rather than increasing, relative to the cost of labor and even relative to the price of consumer goods, just as with all other natural resources. And nuclear energy, which at present costs much the same as coal and oil, guarantees an inexhaustible supply of energy at declining cost as technology improves. [page 180]

Biologist Paul Ehrlich was Julian Simon’s modern-day Malthus. In 1968, Ehrlich published his best-selling book “The Population Bomb,” a book notoriously wrong in its doomsday predictions. In the prelude to the book titled “Too Many People,” Ehrlich wrote:

Americans are beginning to realize that the underdeveloped countries of the world face an inevitable population-food crisis. Each year, food production in these countries falls a bit further behind burgeoning population growth, and people go to bed a little bit hungrier. While there are temporary or local reversals of this trend, it now seems inevitable that it will continue to its logical conclusion: mass starvation.

The rich may continue to get richer, but the more numerous poor are going to get poorer. Of these poor, a minimum of 10 million people, most of them children, will starve to death during each year of the 1970s. But this is a mere handful compared to the numbers that will be starving before the end of the century. And it is now too late to take action to save many of these people.

Since 1968, world population has grown by more than 50 percent and food production even faster, due to technological advances, exactly as Julian Simon predicted.

To test the resource exhaustion thesis, Simon and Ehrlich bet in 1980 on what the 1990 price would be of any five metals Ehrlich picked would be. Ehrlich chose copper, chrome, nickel, tin, and tungsten. The bet was to see if the 1990 value, adjusted for inflation, exceeded the metal’s value in 1980. Ehrlich bet that the metals would become scarcer in the decade and the prices would go up. Simon predictably bet that despite anticipations that the use of each metal would increase in the decade, each metal would be cheaper in 1990 than it had been 10 years earlier. Simon won the bet. All five metals cost relatively less in 1990 than they had in 1980.

Julian Simon argued the same case for oil and natural gas. He documented that as early as 1885, the U.S. Geological Survey was saying we would run out of oil soon. Even 120 years ago, “peak-oil” Malthusians held center stage, just as they do today. This year, in 2005, oil-industry investment banker Matt Simmons published his best-seller, “Twilight in the Desert,” claiming that Saudi oil production has “peaked.” In 2005, Kenneth Deffeyes published “Beyond Oil: The View from Hubbert’s Peak,” claiming that world oil production would peak on Thanksgiving Day, Nov. 24, 2005.

The Saudis dismiss Simmons’ pessimism, claiming they will increase production to over 13 million barrels a day, stating that their reserves properly measured are over 1 trillion barrels. The Energy Information Administration of the U.S. Department of Energy estimates that world reserves of oil equal 1.28 trillion barrels, more than ever in recorded human history, despite world oil consumption nearly doubling since the 1970s. While these responses do not sound like we are running out of oil, the press attention will remain strongly on these Ehrlich-like “oil experts” who continue to proclaim energy “doom-and-gloom.”

The economic evidence, however, differs. As of Thanksgiving Day 2005, the refineries damaged by Hurricane Katrina are coming back to full production, and world oil prices have dropped, not increased. Again, the Malthusians have lost the debate on the price of resources. The truth is that world oil markets are awash in oil, not depleting, as the “peak-oil” experts would have you believe. Can anyone name any resource the world has ever exhausted? Why should oil and natural gas be any different?

“Bad news makes good press” is an old adage that applies here. As 2005 comes to an end, America remains locked into the mindset we have been taught as children, believing that oil is “fossil fuel.” “Peak production” is inherent to the concept of “fossil fuel.” If oil is “fossil fuel,” we are bound to run out, simply because the number of dinosaurs and the quantity of ancient forests were finite. No matter how much oil and natural gas we find worldwide, “fossil-fuel” theorists will still argue that oil and gas production must “peak,” simply because their conclusion is built into their logic of how oil and gas are formed.

This Thanksgiving, Craig Smith and I are thankful that oil and natural gas remain plentiful. We have argued in “Black Gold Stranglehold” that oil companies must apply their record profits to build more refineries. Without new refining capacity, the “stranglehold” at the gas pump and in home heating oil will continue. We have argued that America must move away from foreign oil dependency, both for the strength of our domestic economy and for our national security.

As Julian Simon predicted, new technologies are permitting energy companies to find oil and gas resources deep within the Earth, at levels we believe validate the abiotic theory of the origin of oil that we have championed. We are also diversifying our energy mix with increased use of natural gas, a resource which only a few years ago was burned off as worthless. In the 7-point plan we outline for America to return to oil independence, we urge more offshore drilling and increased exploration of Alaska, which we believe can be done in an environmentally-sound manner.

Julian Simon asked a though question: “Why do Americans believe so much false bad news about the environment, resources and population?” Much of what he wrote was devoted to fighting the politically correct conventional wisdom of his day. In writing “Black Gold Stranglehold,” Craig Smith and I have resolved to continue fighting that battle.


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