22nd August 2019

Oil Prices Fall Due to Technology Advances

Classic car at petrol pump

by Enza Ferreri

A few years ago nobody believed that petrol prices were going to decrease.

Nevertheless, this was the likely prediction that derived from a June 2012 study by one of the world's top experts on oil, gas, and energy, Leonardo Maugeri, entitled "Oil: The Next Revolution: The Unprecedented Upsurge of Oil Production Capacity and What It Means for the World" and published by the prestigious Harvard University Belfer Center for Science and International Affairs in America. Sometimes people should actually listen to experts, despite what Brexiteer Michael Gove famously (or infamously, depending on your viewpoint) claimed.

Maugeri's 2012 paper said that we expected a global growth in oil production "from 93 million barrels per day today to 110 million barrels per day by 2020", an increase of almost 20 percent, the largest increase in a single decade since the 1980s.

The surge by 2020, though, was only part of the picture: it represented not even 40 percent of the new oil production under development all over the world, so the remaining 60 percent will reach the market after 2020.

This increase was going to be mainly due to discoveries and developments of new fields.

The growth in oil production capacity, the prediction went, would take place almost everywhere, but the largest increases would be predominantly, beside Iraq, in the American continent: the United States and Canada in North America; Brazil and Venezuela in South America.

The consequent, reduced reliance on the Middle East for oil was going to be of momentous positive importance strategically, as the study observed.

The other obvious happy consequence that was plausible and legitimate to predict was the reduction, and even collapse, in oil prices, similarly to what happened in the 1980s. Then that oil price decrease was a powerful factor driving economic recovery and growth. It may indeed happen again.

These predictions have turned out to be true. The popular theory of "peak oil" has thus been refuted, at least in its crudest (no pun intended) form. This theory has as its central concept that of finite resource, and postulates that any finite resource, including oil, will have a beginning, middle, and end of production, and at some point in time we reach the "peak", namely the level of maximum exploitation of that resource, in our case the extraction of crude oil, and after that point the rate of extraction will start to decline forever.

What has actually happened is very different from what the peak oil theory predicted. No peak, no maximum level of production has been reached, because what occurred instead is this: the laws of the market intervened, as they do when a good is scarce and demand exceeds supply. Oil price climbed so steeply that operators in the fuel sectors began to look for alternatives, especially alternative ways to find it and extract it, the major of which is fracking.

With the exception of a surge in price in 2012, due to the tensions in Iran and the weak pound, the price of petrol has constantly decreased for several years now.

Apart from temporary drops, for example when supermarket wars at big shopping times like Christmas cause large supermarket chains to reduce their petrol prices to encourage shopping at their stores, there is a consistent downward trend which has been fairly consistent.

There are few things whose cost is affected by international geopolitics as much as crude oil and, in consequence, car fuel.

Fracking has brought the price of oil and petrol down.

For millions of people in Britain fuel prices are the biggest household bill concern, it will be a great relief if car petrol and other fuel prices go down.

That we would run out of oil sooner rather than later is one of the myriad wrong predictions inspired by the environmentalist "doom and gloom" movement. That is where the environmentalist movement got it wrong: it didn't understand the laws of the market or human technological ingenuity, a mistake that is still making - almost inevitably, as it starts from the wrong premises, like, in the example of the peak oil theory, its focus on "finite" resources. M. King Hubbert, the creator of the theory, was not strictly speaking part of the environmentalist movement, but his way of thinking in this case was, and his views were quickly adopted by it and he is considered a pioneer of the environmental movement.

Although what for practically everybody else is good news, for the greens it is bad: more oil, more fossil fuels consumption, more carbon emissions, more "global warming", even though the anthropogenic climate change theory gets more discredited by the day.

George Monbiot, the Guardian journalist who is one of the greatest supporters of the man-made global warming hypothesis, mourns the loss of the peak oil belief. Peak oil is defined as the moment when the maximum rate of oil extraction is reached, after which the rate of production is expected to enter terminal decline.

He says:

"Some of us made vague predictions, others were more specific. In all cases we were wrong... Peak oil hasn't happened, and it's unlikely to happen for a very long time.
"A report by the oil executive Leonardo Maugeri, published by Harvard University, provides compelling evidence that a new oil boom has begun. The constraints on oil supply over the past 10 years appear to have had more to do with money than geology. The low prices before 2003 had discouraged investors from developing difficult fields. The high prices of the past few years have changed that...
"So this is where we are. The automatic correction – resource depletion destroying the machine that was driving it – that many environmentalists foresaw is not going to happen. The problem we face is not that there is too little oil, but that there is too much." [Emphasis added]

In other words, the laws of the market dictated the production. I wonder if anyone has ever calculated what percentage of the environmentalists' various predictions over the decades have actually materialized. I suspect a very, very low proportion.



Enza FerreriEnza Ferreri is an Italian web author, Philosophy graduate and former journalist living in London.




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