The Other Kind Of Optimist

A few days ago, Lynne Kiesling passed along a Disinterested Party piece on why oil prices were about to go down, placing Stephen Ayer squarely in the minority of analysts who believe this will be the case so far. Even Thursday, as oil prices dipped below $50/bbl, speculators kicked in the afterburners on oil prices, based on long-term supply worries. Translated, depletion haunts the traders, whose future depends on translating those calls and puts into crude oil.

For myself -- and this blog -- I accept the consequences of peak oil production, that is, the cheap stuff's just about out. We might be able, with advanced recovery methods, to get more out of the ground in places we've already drilled. Likewise, some new fields exist that remain yet undeveloped, possibly even in the United States and Canada, but mostly in places that are either technically difficult (such as deepwater offshore in the Gulf of Mexico or off the coast of Africa), or are in countries with iffy political/legal stability, such as Russia, Nigeria, and Venezuela. Unconventional oil sources, such as oil sands, oil shale, ultraheavy crude (e.g. from the Venezuelan tar belt), fuel synthesis from other sources (Fischer-Tropsch processes derived from gasified coal or natural gas feedstocks) may offset some of this, but how much is still an open question. However, there are some who do not accept these as legitimate constraints, and have recently come out and said so.

One of the most astonishing of these is, of course, the new book from Peter Huber and Mark Mills, The Bottomless Well: The Twilight of Fuel, the Virtue of Waste, and Why We Will Never Run Out of Energy. As the review post on Marginal Revolution concludes,

The authors do not quite connect their premises to their conclusions, but it makes for interesting reading. I took away the lesson that our energy consumption will rise indefinitely (and why), at least until our civilization falls.

It is this latter I am chiefly concerned about; twenty years or so of relatively cheap oil has befogged the thinking of some on this subject. With that in mind, I forward an article appearing in Canada's National Post (hat tip: peakoil.com) by Peter Foster. The concept of peak oil as a force to dismember industrial civilization, he declares, is a humbug foisted upon us by economic illiterates:

We are allegedly on the point of reaching the highest possible level of global output, whereupon economics will cease to function and our societies will be in danger of collapsing like the stone head cultists of Easter Island.

That oil production will peak some day appears obvious. That we are there, or almost there, is highly unlikely. The U.S. Geological Survey and the IEA put the likely peak production points between 15 and 25 years away, but whatever the precise date, markets will provide signals for the development of alternatives in good time. Indeed, they are already doing so.

The comment about Easter Island directly refers to Jared Diamond's recent book, Collapse: How Societies Choose to Fail or Succeed. While I haven't read his book yet, the urge to dismiss Collapse as so much academic wanking is strong. Anyone who can conclude that agriculture amounts to "the worst mistake in the history of the human race" deserves a double dose of skepticism at least, and perhaps a boot to his gluteus maximus into a slow boat to one of the primitivist idylls philosphers of his ilk seem so unnaturally (not to mention hypocritically) fond of.

But I digress. I certainly agree with Foster on the flexibility of markets; indeed, it's the only thing that's likely to save the world. But ugly shocks along the way are a near-certainty. If world oil production were to peak within the next few years -- a very likely possibility, considering the scenarios clandestinely leaking from Saudi Arabia -- the world would certainly adjust, although the economic consequences would depend heavily on how fast production declined. Markets can do a lot of things; heedless brutality is one of their great features. That brutality now works its magic against notorious SUV-dependents General Motors and Ford, both of whom had their corporate bonds dropped to junk status, something Foster alluded to when he wrote

But hang on, isn't Detroit in "crisis?" Doesn't that mean the market is telling it something? (And it surely isn't telling it to build more ecologically fashionable, deathtrap Smart wristwatch/cars, which are costing Daimler Chrysler a bundle.)

He might sneer, but the breathtaking sales successes of Japanese marques with heavy investment in hybrid technology stand in appalling contrast to Detroit's failure to comprehend the changed market; the near-collapse of SUV sales doesn't seem to have registered. As recently as April 19, GM CEO Rick Wagoner actually went on record projecting oil steady at $40-$50 a barrel -- a range it hasn't actually been in all year. Ecologically fashionable the Prius and its sister cars might be, but selling they are.

But here, I pick at nits; his big moment is to come. Foster unholsters his big gun and aims it at the environmentalists.

The first priority for U.S. energy policy-makers, notes the WSJ, should be to remove the anti-energy fifth columnists. The Sierra Club is similarly a threat to natural gas development in Canada, most particularly in its role as aboriginal puppet master in holding up the Mackenzie Valley pipeline, which was recently put on ice by its frustrated promoters.

The peak and decline we should most eagerly seek is that of the power of anti-energy, anti-development, anti-human radicals. When it comes to the global arena, the best defence against disruption is surely to unleash human ingenuity via free markets while promoting policies of stout defence against mad mullahs, and democratization for the regimes of nouveau czars, disco sheiks and Bolivarian dingbats.

Given the virulent commentary I've received on this site previously, the temptation is to simply spit on my hands, agree and walk off. Certainly, human ingenuity will help in the coming crisis, and may -- I am tempted to say should, but things are tenuous -- prevent civilization from falling into total collapse. Therefore do we agree broadly on this point. But the magnitude of the prevarications from everyone involved -- governments and oil companies alike -- make an adequate assessment of the problem's scope difficult. Certainly, once world oil production passes its peak, the downside's slope won't be known save by the straining oil pumps themselves. Besides, once the lights go out, it won't take the Sierra Club's membership long to come a-roaring after the Mackenzie Pipeline, and even demand to assist in its construction.

No, the problem ultimately is not the Greens on that score; the problem is the madness of crowds still gripped by the belief that high oil prices result from some conspiracy of the sheikhs, or because of speculators. So long as the majority believes cheap oil extends just beyond that majority's expiration date, so long will the proper responses to this exigency be delayed.

Finally, Foster apparently sees no irony in his conclusion: why should we have to gird ourselves against the czars, sheikhs, and dingbats? Aside from the occaisional nutty outburst from, say, a Hugo Chavez or a Saudi Supreme Court justice, the chances of these countries seriously harming the U.S. by military action is slim. Wanting to keep his ideological powder dry, Foster leaves himself an escape clause in case the free markets, free minds trick doesn't do it: civilize the brutes, starting with the brutes in oil-producing countries. But governments committed to a retro, Kipling-esque foreign policy, especially one motivated by securing energy supplies, make it increasingly likely that, no matter how much we'd prefer a peaceable settlement, events will conspire against it. It assures the country of more and broader wars, ill-will, and increases of the state's warmaking machinery at the expense of peaceable pursuits, all of which will hobble the ability of the markets to function. Even if such a foreign policy succeeds, it will put the country on a treadmill of continued dependence on fossil fuels. That dependence will only serve to delay the transition to whatever energy sources come along next.