Wednesday, February 20, 2008

Why 'peak oil' is a red herring

[liquid fuels from coal] could be economic if oil prices stay consistently above US$25-40 a barrel. Oil currently costs double that, and briefly touched $100 a barrel last month...

Of the 30 or so large-scale coal-to-liquids plants being worked on around the world, only one in Australia plans to conduct a carbon capture trial.

Even capturing the carbon may not solve the problem. An analysis by the [US DOE] last year said that liquid fuels from coal, even with carbon capture and storage employed, would still produce at least 20% more carbon dioxide than petrol and diesel made from oil.
-- from Alarm over new oil-from-coal plans.

But Krugman is sceptical: things like coal-to-oil "always fall short of expectations", he thinks. Really?

1 comment:

Clive Bates said...

I think Peak Oil is a red herring. I even have a bet with Jeremy Leggett, one of the proponents of peak oil, that it wont happen by 2010. See

There might be a dip in oil production at some point, caused by recession, rising prices and/or insufficient infrastructure (and there was a false peak in 1979 that was not passed until 1994). The Peak Oil-ers often see the issue as one of geology and reservoirs. But it isn't really... it is about the behaviour of a system of demand, supply, prices, investment behaviour and technology innovation and the complicated feedbacks and lags between them.

I was struck by the example for the Canadian oil sands (a good article in this month's Prospect: Alberta's Oil Rush.) A few years ago it cost $35/bbl to convert these bitumen sands to crude oil. Then the oil price was $20-ish and the threat of oil sand exploitation seemed a distant prospect. Now new processes have got the conversion cost down to $15/bbl, and of course the oil price at $90/bbl makes it worth it and so there is an oil boom in Alberta. The high prices opens up reserves previously not counted and is promoting a boom in deepwater offshore exploration. Expect more big finds now that it is possible to get this oil out of the ground cost-effectively.

There will be a peak at some point - but I can't see it happening for many years and we certainly shouldn't rely on it to keep the lid on greenhouse gas emissions.

I sort of know what Krugman is getting at: that substitutes are often a disappointment - is he thinking of instant coffee or Kraft cheese slices perhaps? But I'm not sure there are too many examples to compare with oil distilled from coal to justify the word 'usually'.