Thursday, January 7, 2010

Peak Production versus Peak Demand

Peak Production versus Peak Demand

Those who refused to accept that the world was near the peak of oil production (Peak Oil) have started to talk about reaching peak demand for oil. Well it is true that demand always equals supply at the current price. But for oil this is not a reasonable way to look at it, it is just a way of refusing to acknowledge the accuracy of the people who predicted the peak of production.

A few years ago we saw the peak of production and of demand for 35mm film cartridges. In that case it is clear that technology moved on to something better. This was clearly a case of peak demand, with production being forced to comply. By contrast there is nothing better than oil. It is energy in a highly concentrated liquid form. The reason we are being driven to less convenient alternatives, like natural gas and electricity, and to simply doing without, is because of price increases for oil. This price increase is because the easy cheap oil has gone. In a case like this where there is a forced move to less convenient product then this is only naturally described as peak production.

We can look at Peak Oil in a simpler way that doesn't involve markets or money at all. The real cost, in labour and other resources, to produce a given quantity of oil is going up, because naturally we extracted the easy cheap oil first. As that real cost rises, then the range of things that you can sensibly do with that oil contracts. If you look at it that way then all the talk about the oil still in the ground is irrelevant. However it is nice to know that we'll never run out and there will always be enough oil for uses of high value.