Michael Giberson
Vaclav Smil wonders, now that 2012 appears to have yielded a new record level of global oil output, will “some catastrophists and peak-oil cultists” have to back off their gloomy outlooks? See Smil, “Memories of Peak Oil,” in The American.
Here is my prediction: No peak oiler will find 2012 oil production data as reason to move away from peak oil gloom.
We can even operationalize my prediction by adding some parameters: I predict that no blogger at The Oil Drum who is on record as believing world oil production peaked sometime between 2004 and 2010 will post on that site within one year an updated claim concluding peak oil will not happen until after 2030.
A safe prediction.
The whole debate about the moment of the oil production “peak” leads to pointless back and forth debate about definitions of what constitutes “oil” etc.
If we want to stick to economically important matters, we should be focusing on the relative elasticity of oil supply and demand.
Relatively elastic oil supply leads to stable oil prices even in the face of growing demand, allowing economic growth which is relatively unconstrained by the availability of oil. Relatively inelastic oil supply means that the price mechanism will force oil consumption to fall in some locations to compensate for increases in demand elsewhere. This demand destruction is a drag on economic growth.
As I showed at the start of last year (http://www.forbes.com/sites/tomkonrad/2012/01/26/the-end-of-elastic-oil/), the elasticity of oil supply declined significantly between the end of the 20th century and the start of this one. Oil production may not have peaked (supply may be relatively inelastic, but it still responds (a little, with a lag) to higher prices), but demand has been doing the heavy lifting in balancing the oil market for over a decade now. The tiny increase in production in 2012 in the face of the massive increase in price over the last few years just re-emphasizes the inelasticity of oil supply.
We don’t need to “worry” about when oil production will peak. We need to acknowledge that oil supply elasticity peaked a long time ago, and take actions to ensure that oil demand is as elastic as possible, in order to lessen the pain of the demand destruction in the US which continues to result as oil demand continues to grow in the emerging world.
Stop worrying about supply side oil economics, and start thinking about demand side oil economics.