Pondering Post-Peak Fossil Oil Theory

Although I would see myself to last inwards wide understanding with "Peak Oil" theory, I am less certain close some of the recent approaches to it. The Oil Drum was the go-to site for pinnacle fossil oil analysis, together with I am unaware of whatever comparable replacement. My diagnosis is that Peak Oil theory developed a world relations work afterward the 2009 Financial Crisis - many believed that fossil oil prices would maintain going on upwards to $300/barrel (or whatever), together with at that spot was a daze when fossil oil prices collapsed. My feeling is that many inwards the Peak Oil army camp over-reacted to that event.

Gail Tverberg was a regular contributor to the Oil Drum. She lately published an article "Deflationary Collapse Ahead?" In it, she argues that low fossil oil somehow betoken that nosotros are close resources limits. This article was a followup from an before i published inwards January, inwards which she pose out a representative for depression fossil oil prices.

The logic is that reward are stagnating (due to resources limits?), together with thus people cannot afford to purchase oil. This causes fossil oil prices to fall, together with thus it tin no longer last profitably produced. This agency that fossil oil production would fall, which accentuates the work creates past times resources limits.

There is no uncertainty that need has been weak globally due to weak wage increment (and financial austerity). I neglect to run into how that reflects resources limitations, instead of a deflationary structural backdrop. To me, this is merely an endeavor to blame obvious economical problems on a pet theory (resource limitations).

To me, the proper "Peak Oil" mental attitude is the following: sure, nosotros tin gain a surplus of fossil oil now, but how many fossil oil producers are going to instruct bust inwards the coming years? It was never reasonable to await that fossil oil prices would ascent inwards a right away draw forever, rather that they would oscillate unopen to an upward tendency line. Since policy errors receive got basically destroyed increment inwards the developed world, constraints to increment are unlikely to last a major concern. However, i mightiness await that some novel leadership (President Sanders? Trump?) could let economies to showtime growing again. At which point, nosotros would crash into those resources limits.

The electrical load alongside Peak Oil analysts was that economists did non sympathise the importance of energy; but this somewhat mirrored past times over-simplified views that release energy determines all economical together with financial outcomes. The crux of Tverberg's declaration is that the "our chances of avoiding [financial] collapse are slim." Since finance is critical for the surgical physical care for of the economy, the collapse of the financial sector would allegedly imply existent economical activeness would too collapse.

I am highly skeptical close that diagnosis. Firstly, at that spot is express bear witness that the credit arrangement is equally over-extended equally it was inwards 2008. Sure, at that spot are pockets of raw stupidity to last found, but it does non appear equally generalised equally it was then. Secondly, it is genuinely non that hard to avoid a financial collapse. We tin re-discover the fact that governments with free-floating currencies gain non aspect upwards debt constraints, together with bail out the banking arrangement (again). Or governments tin cram downwards depository financial establishment equity holders and/or those asset subordinated debt. Either way, the banking arrangement remains opened upwards for business, perchance with a depository financial establishment vacation or two. We mightiness instruct a recession, but the inwardness surgical physical care for of the economic scheme would continue.

In summary, I recall Peak Oil theory tin tell us a lot close the long-term trends inwards the existent economy, but it is non going to last useful for forecasting the cycle.

Postscript: The Grid

Gail Tverberg's article too throws inwards scare stories close the electrical grid. When Montréal together with the surroundings got disconnected from the grid for a few weeks inwards the winter, the province of affairs was pretty bad. However, getting to that terra firma required taking out most of the long-distance transmission lines inwards the province.

H5N1 financial crisis is non going to halt deliveries of fuel to regulated utilities, together with thus it is non a root of peril to the grid. Although it provides morbid amusement to ponder what mechanisms volition accept downwards the electrical grid (EMP? hackers?), a depository financial establishment vacation would non brand my Top Ten Risks list.

(c) Brian Romanchuk 2015