Peak Oil

Because of my job, I have to be fairly well informed on economic conditions. Also, because of my job, I am sort of inherently earlier informed about economic conditions, because immigrant workers tend to function as something of the canary in the coal mine. For example, it was in November that we remarked on a substantial increase in immigrants relocated from Ontario to Calgary, having been laid off from auto parts jobs.

This being Alberta, I have, reluctantly, become much better informed about the oil biz. Once again, along the canary theory, we adapted and shifted from training immigrants to working on drilling rigs, as drilling stopped, to training immigrants to work on service rigs, oh, about a year or so ago. Pretty much all of the easy to tap oil in Alberta has been tapped now, but oil companies are making substantial investments in new tech to squeeze more oil and gas out of old wells. This actually creates a lot of employment. And very recent economic catastrophes appear not to have affected this industry one bit; at a minimum, it isn't particularly capital intensive.

Last post, I got a comment asking about Peak Oil. Peak Oil is a very reasonable sounding theory that is just a tiny bit short on actual evidence. Very reasonable sounding indeed though: oil is not a renewable resource, there is a finite amount of it. As we keep on drilling, eventually we will hit a point where there is no more left to find. Eventually, logically, we will get to a place where global oil production will peak, the theory says, and after that, it will decline, with catastrophic results. We are at or pretty near that point now, it goes. Which, among other things, depending on your ideological tinge, means that either we have to go green very hard, or that we have to start drilling in protected lands in Alaska or elsewhere.

Catastrophic results are fun things of course, and great for promoting whatever agenda.

But the facts are otherwise. There are actually oceans and oceans of oil left out there, staggering amounts in fact. It is just expensive to very expensive oil. Depending on how much we are willing to pay for it, it is unlikely that we are going to run out of oil any time soon. Between the oil sands in Canada and Venezuela alone, there is a frightening amount of petrochemical material available, if we care to spend enough to extract it.

The whole problem is that a single statistic, that of "proven reserves," is a) shaky to start with, b) subject to change with changes in price (aka the successful efforts to extract more oil from what had previously been thought of as tapped out wells), and c) given far too much weight.

I have it on good authority that right now the world has more oil in storage or transit than it has had for 20+ years, over a full day's supply in fact.

What the Serious oil boys are frantically trying to figure out right now, has nothing to do with peak oil theories. What they are trying to figure out is what the real demand for oil actually is. As a globally fungible product, oil had long been thought to be about as close to an actual, market priced commodity as there was. Turns out that recent financial market shenanigans made a mockery of that too: for a couple of years now, oil prices have had very little to do with actual demand, and a lot to do with speculation, complex financial instruments, CDOs, and all the rest of the financial alphabet.

I for one thought so; when I saw $140/barrel oil a year ago, I simply didn't believe it. I was right about that. On the other hand, when I saw $50/sq ft commercial real estate, I didn't believe that, but I probably should have.