Friday, 16 September 2011

Peak Oil and Economics - Chris Skrebowski

Just received a great article in this week's ODAC newsletter, written by Chris Skrebowski. In it he argues that we are now reaching the point where the cost of new oil supplies is more than most countries' economies can afford.

The reason is that new oil supplies are invariably in difficult to access places, as we (naturally) took the easy stuff first. But every economy has a price point at which growth grinds to a halt. We saw this happen in 2007-8, and we've seen it start to happen again in 2011. The price is higher in some countries than others - it comes down to how dependent the existing infrastructure is on oil, what the benefit of using more oil brings, and how quickly the infrastructure can be changed to adapt. On all of these counts countries like China and India do better than the USA or Europe.

Skrebowski sums his article up by saying:

Unless and until adaptive responses are large and fast enough to constrain the upward trend of oil prices, the primary adaptive response will be periodic economic crashes of a magnitude that depresses oil consumption and oil prices. These have the effect of shifting consumption from incumbent consumers - the advanced economies - to the new consumers in the developing economies.

This is exactly what happened in the last recession when between the start of the recession in January 2007 and its effective end in 1Q 2011 demand rose by 4.3 million b/d in the non-OECD area and fell by 4 million b/d in the OECD area.

You can read the full article at ODAC.


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