Every time the price of oil drops, the oil ostriches claim that the price drop “proves” that Peak oil does not exist. However, just like gravity which exists no matter what we want to “believe”, peak oil is a reality.
Peak oil can easily demonstrated by these questions:
- Q: How much new crude is being made (not “discovered”) MADE?
A: 0 — no plants being buried, compressed, and converted to oil (at least not at a very fast rate)
- Q: What is the replacement rate of new production to old production?
A: Negative. Most “new” production is just squeeze more drops out of old well-known fields.
- Q: What is the growth on demand?
A: Exponentially increasing as China and India start buying more cars.
- Q: What does the SHORT-term price have to do with increasing the amount of crude that the world contains?
A: Nothing. The planet Earth doesn’t look at the price and decide that it is going to convert more of its carbon into oil.
- Q: What does the LONG-term price have to do with increasing the amount of crude that the world contains?
A: Nothing. (See previous question).
- Q: What is the price of oil based on?
A: Price is based on the BELIEF about the VALUE that OTHERS place (not just scarcity) on the item and has nothing to do with its ACTUAL availability. If the world doesn’t believe something is valuable then the price might be quite low even though the available of that good is quite low.
For example, how many native Navajo speakers are out there? Probably a few hundred. What is the PRICE that a Navajo speaker can charge because of that scarcity? Not much — because the world doesn’t value that skill.
If aliens were to land tomorrow and it turned out that those 3-eyed creatures spoke Navajo — then of course the PRICE for a Navajo speaker would skyrocket.
- Q: What is the price of a passenger pigeon? (Hint: they are extinct)
A: $0 — The price of something that does not exist is $0. If something does not exist, then the price is $0. The price of oil can be priced at $5/barrel until the last barrel is sold. And then the price is $0. But price is not the same as scarcity.
I will make a pricing prediction for you. In 2075 the price of oil will be $0…. because
There will be no price because you can’t set a price on something that does not exist!
Price = PERCEIVED-VALUE / AVAILABILITY
If the availability is zero then the price is not infinite, the price is ZERO.
If the PERCEIVED-VALUE is zero then the availability doesn’t matter and the price is once again …. ZERO.
Value only increases availability when there is an infinite supply of the good.
Crude oil is not infinite.