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 longbets.org.

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'.

CB