Andrew, like so many commentators on Peak Oil, you fail to address the real issues.

There would seem to be no doubt that supplies of sweet easily recovered crudes of the type that have provided the petroleum we need for the past 100 or more years have peaked. However, that ignores the fact that there are many sources of hydrocarbon that have not yet been tapped. These include secondary and tertiary recovery from depleted oil fields (some of which has been happening), coal to oil conversion, gas to oil conversion, shale oil, tar sands etc. It can be argued that these resources are large enough to meet demand for hundreds of years.

The issue is actually an economic issue, and it is useful to look at the issue from that viewpoint. As is the case for many other commodities, oil supply responds to stable pricing. The traditional sources (that have now peaked probably) are very low cost and deliver very large profits to the producer. The alternative emerging sources tend to be high cost (compared with past production costs) and also to be capital intensive in nature.

When a supply curve is developed, plotting volume of supply against price, it becomes evident that if, for example, the oil price were USD200 per bbl, there would be more than ample supply, and for a long time. It is useful to develop a "cost curve" ranking the alternative sources of supply in order of cash operating cost per bbl, plus a capital service charge per bbl. That cost curve is effectively a supply curve.

There is also a demand curve. The higher the oil price is, the more pressure there is to reduce demand. The most obvious example of that is the European car industry which, in response to high fuel prices (driven more by tax than oil price) have developed very fuel efficient vehicles. Continued in next post.....

Contd.....

The biggest issue limiting development of the alternative sources is not technology - in general, the technology is known and proven. The main issue is funding the capital intensive projects needed to provide the alternative supply. As indicated above, these projects can be very capital intensive, resulting in a full cash cost (opex plus a capital service charge) that could approach USD$100 per bbl.

Such projects are almost impossible to finance unless they are to be developed by an oil major from their balance sheet resources. Non-oil major projects could be financed, but only if a guaranteed price of, say USD$100 per bbl, could be provided by offtakers for the financing life of the project, say 20 years. It is likely that countries concerned about energy security (like the US) could easily structure an offtake guarantee of this type.

The last time that non-majors sought to develop such projects (in the late 1980s/1990s) the oil price dropped as low as $10 per bbl and there were financial failures. Financiers remember this.

My argument then is that Peak Oil is primarily an economic issue, and should be discussed in such terms. Guarantee a US$100 oil price for 20 years for qualifying projects, and you will soon see abundant supply emerging.

The geological view expects that physical constraints will dominate the future evolution of oil output and prices. It is supported by the fact that world oil production has plateaued since 2005 despite historically high prices, and that spare capacity has been near historic lows.

The technological view of oil expects that higher oil prices must eventually have a decisive effect on oil output, by encouraging technological solutions. It is supported by the fact that high prices have, since 2003, led to upward revisions in production forecasts based on a purely geological view.

The Pollyannas say, “not to worry,” since the world has an endless supply of affordable oil available for centuries.

It is a race between declining conventional oil and increasing unconventional oil. Can unconventional liquid fuels fill this gap soon?
Professor Aleklett has just completed a comprehensive study of both sides of the peak oil argument. He uses the standard IEA definitions of “unconventional”: Bitumen and extra heavy oil from Canada’s oil sands, extra heavy oil from Venezuela’s Orinoco belt, oil produced from shale, coal-to-liquids, gas-to-liquids, ”refinery additives,” etc.

After a painstaking, detailed analysis, he concludes that the maximum, incremental production increase from all unconventional sources, combined, is about 8 million bpd during the next 25 years. Since the total flow from fields already producing is decreasing 4 million bpd every year, unconventional output gains during the next 25 years can only compensate for a two-year decline in conventional production. More importantly, even if he has underestimated the possible, unconventional oil increases by 100%, this would still only compensate for four years of decline.

There is further a concern, their analysis show an estimate that worldwide conventional oil production could begin declining significantly within five years. Unconventional oil is expensive to develop and has long lead times.

Food for thought!

I look on the bright side of this in that finally some progress is being made in peak oilers accepting that oil itself is not going to run out. Andrew says only the fringers have ever argued that. I beg to differ, but no matter. He even admits that fracking is a factor, albeit not as large as analysts have supposed, and makes some useful points. Finally some one in this area at least aware of major developments.

Once we get past those welcome concessions, we get to the issue of weather the conventional easy-lift oil is running out. Its true that production has not expanded in that area, but Andrew leaves out a major "myth". Economists have pointed out that the OPEC nations have not spent nearly as much as they should have on production or exploration, and the levelling off is just the result of existing production facilities running down.

OPEC has very good reasons for doing this, but as all figures and statements they produce are regarded as highly suspect no one is really sure. However, its the best guess there is, which Andrew will have to get busy and "debunk" if he wants to be taken seriously.

The vast fields now being discovered off the coast of Brazil guarantee supplies for decades to come, but it will be more expensive oil unless, of course, OPEC does something..

Economics does not trump geology or physics.

While oil demand is flat or declining in most OECD nations, total world oil demand is still increasing every year, driven by China, India and the rest of the world. One does not need a PhD in economics to recognise that continually increasing oil demand, combined with flat or even decreasing supply, is a recipe for higher prices, price volatility and never-ending crises. This is the problem facing the world in the near future. The world may be awash in hydrocarbon resources, but none can quickly replace the reliable conventional oil.

For example, Canada produces about 1.7m bpd from oil sands, but it has taken the Canadians 40 years to achieve this output level, thus even if money was no object, and environmental and institutional constraints were minimal, there simply may not be enough time to develop all of these purported and sufficient quantities of unconventional oil resources.

World energy markets and economies will begin to face a rough period ahead as conventional and unconventional oil supplies fail to keep pace with world demand.

To deny this is to ignore reality

Anyone driving a motor vehicle is driving on algae; albeit, laid down and metamorphosed millions of years ago. I've heard all the arguments, that include the usual blurb, that only already existing oil cartels have the economic clout to develop alternative sources capable of replacing conventional oil. What? You jest surely?
Obviously some don't realise Dutch scientists are already growing algae under glass and have reportedly already produced commercial quantities of jet fuel, since 2010?
A Q'ld coal-fired power station is already growing algae nearby, with the intent to eventually completely offset, their entire carbon emission.
Coal-fired power stations produce around 50% of our emission; and given this emission is converted to hydrocarbon via very easily grown algae, we will have replaced all the fuel we currently use, which BTW, produces the other 50% of carbon emission.
Growing algae as very low water use farming, in say the Murray/Darling, will absorb even that, all while entirely restoring prosperity for just one or two percent of current irrigation water use! Closed cycle systems is found to be the most efficacious for year round production, the water preferred; is entirely, recycled waste water!
Some algae are up to 60% oil, which is child's play to extract.
The cost of an on farm bio-diesel refinery, is just $15,000.00, and they are manufactured locally.
Alternatively, we/Gatton Uni, have developed a diesel tree which produces up to 5 tons of bio-diesel annually.
The oil industry "earns" over 4 trillions annually; and, that is a huge market and economic control, and anxious to preserve market share; and or, completely control the emergence of the many very much cheaper alternatives!
Algae absorb 2.5 times their weight in Co2 emission; and under optimised conditions double that body weight every twenty four hours.
So if we are bumping up against peak oil; or if climate change is real; and or, responsible for the very worrying acidification of our oceans?
Then this is the very doable, very cheap means already at our disposal; is able alone to effectively address all of it. All that's missing is the political will? Rhrosty.