The Oil Drum

A very interesting post, as usual.  Some thoughts.

I don't see how substituting flow for reserves changes anything at this time.  It isn't certain at this time what flow will do in the future.  Many are predicting over 100 mbpd in 15 years.  In my opinion if the flow tops out, there will be a quick revision on the reserves to show they aren't as large as predicted.  Either measure will show we are at peak, but neither are accepted now by non peakers.

A second point is that even if people (oil insiders) know oil is a scarce resource there doesn't seem to be any incentive to stop producing if price isn't rising very quickly.  They want their money NOW.  Even if oil peaks the money can be used in some other technology at better return.  

I liken oil extraction to logging of old growth forests, trees larger than 36" in diameter.  This industry was clearly finite in the U.S. and was near peak in the 1980's.  There were not going to be anymore trees to feed into the mills in a few years at the rate they were being cut.  Theoretically, a very low harvest rate would have sustained some of the industry indefinately if replacement of trees equalled harvest.  But this is on a scale of hundreds of years and many would be out of business.  

So clearly the price of U.S. virgin forest wood should have gone through the roof, but it didn't.  Essentially all the available trees have now been cut. A few remain in protected areas but it is not enough to sustain an industry.  The mills that could only handle big trees went out of business or had to retool for small plantation trees or invested in Brazillian wood.  People did not behave rationally, with respect to price, when faced with a finite resource.  Even when the trees could be surveyed from the air there was no economic incentive to save them.  Many people who work with wood say that the old growth wood can't be replaced with tropical wood or plantation wood for many uses.  That wood was incredibly valuable for large beams and structures but much was turned into common 2x4's.

I forsee the same approach in oil.  There won't really be a substitute for high grade oil.  Most will recognize its uniqueness only after it is gone.  Like the Passenger Pigeon they won't value it while it is still here.