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Thomas Homer-Dixon is director of the Waterloo Institute for Complexity and Innovation and CIGI Chair of Global Systems at the Balsillie School of International Affairs in Waterloo, Ont.
Peak oil – it’s history, right? Everything has changed so fast.
Two years ago, the world was facing an intractable oil crisis. “By 2012, surplus oil production capacity could entirely disappear,” the U.S. Defence Department declared in a major report. “A severe energy crunch is inevitable without a massive expansion of production and refining capacity.”
But now we’re told that the world is awash in oil. Deepwater production from the Gulf of Mexico and offshore Brazil is soaring. New “elephant” fields have been discovered off Ghana and possibly Angola. Meanwhile, hydrofracking technology is liberating hundreds of thousands of barrels a day from “tight” shale oil formations in North Dakota and Texas, with more coming on line from Colorado, Wyoming and even Ohio.
In his new book The Quest: Energy, Security and the Remaking of the Modern World, Pulitzer-winning energy analyst Daniel Yergin declares that the latest version of the peak oil thesis is just more handwringing by long-discredited Malthusians.
Higher prices and new technologies will bring vast quantities of new oil to market. “The world has decades of further production growth before flattening out into a plateau – perhaps some time around mid-century.”
Whew, that was close. Glad we don’t have to worry about that problem any more!
But there’s a nagging issue: Oil prices remain stubbornly high. The North American benchmark price of West Texas Intermediate is hovering around $100 a barrel. The world benchmark price for Brent crude is currently about $110. Sure, the possibility of war with Iran has created a risk premium that explains a portion of this high price. But the fact remains that oil has been trading around $100 a barrel for about a year, despite chronic weakness in the world economy and on-again, off-again concerns about Iran.
In fact, as University of California energy economist James Hamilton shows in a new paper, except for brief periods in the late 1970s, early 1980s and in 2008, oil is far costlier in constant dollars today than at any time since the beginning of the modern oil age in the 19th century.
Last week, in a commentary in the scientific journal Nature, James Murray of the University of Washington and David King, former chief scientific adviser to the British government, showed how slack in global oil markets has largely vanished. Since 2005, when oil was about $50 a barrel, global conventional crude production, which is about 80 per cent of total crude supply, has stayed roughly constant at around 74 million barrels a day – despite average annual gains of 15 per cent in price.
For the rest of this article, please go to the Globe and Mail website: http://www.theglobeandmail.com/news/opinions/opinion/our-peak-oil-premium/article2321815/