Yergin on Oil, II

Michael Giberson

I second Lynne’s recommendation of Yergin’s column in the Saturday Wall Street Journal.

On the topic of Hubbert’s peak and peak oil generally, I particularly recommend these two paragraphs:

Hubbert insisted that price didn’t matter. Economics—the forces of supply and demand—were, he maintained, irrelevant to the finite physical cache of oil in the earth. But why would price—with all the messages that it sends to people about allocating resources and developing new technologies—apply in so many other realms but not in oil and gas production? Activity goes up when prices go up; activity goes down when prices go down. Higher prices stimulate innovation and encourage people to figure out ingenious new ways to increase supply.

The idea of “proved reserves” of oil isn’t just a physical concept, accounting for a fixed amount in the “storehouse.” It’s also an economic concept: how much can be recovered at prevailing prices. And it’s a technological concept, because advances in technology take resources that were not physically accessible and turn them into recoverable reserves.

Yergin’s proposed alternative to thinking in terms of “peak oil” is to think in terms of a plateau in production, you might call it a long-drawn out peak, which will be limited more by price and demand than by exhaustion of supplies.

The WSJ article is accompanied by a 20-minute video interview, mostly about Yergin’s new book, The Quest, to hit the stores tomorrow.

2 thoughts on “Yergin on Oil, II

  1. The timing of the post just happened to coincide with some notes I made earlier today on the general topic of sustainability. I think my notes are quite consistent with the parapgraphs you highlighted.

    The absolute limits of resources is very different from the economically exploitable limits of resources. With higher prices, larger amounts of resources are economically recoverable or producible. Peak oil has been delayed by many decades since the concept was first developed (in the 1956 by M. King Hubbert) by advancing technology and increasing real prices. All such Malthusian predictions to date have been similarly wrong since they do not reflect increased supplies made possible by advancing technology and higher prices, or the substitution effects driven by the same higher prices. (See Levers of Riches by Joel Moykr for insights on the trajectory of technological advance.) Resources in this use are not limited to Natural Resources. In fact, Julian Simon called people “The Ultimate Resource”.

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