Wednesday, December 3, 2014

Email to Author of Article Critical of Peak Oilers

Here an email that I just wrote in response to this article by David Harsanyi.


David,


With all due respect, you misunderstand Peak Oil. Just so you know, I am a Federalist-reading conservative in the oil business.


Nobody says we are going to run out of oil. Rather, people say that oil will become so hard to extract that the economic consequences of the cost of a marginal barrel will be catastrophic. These are vastly different things. One other note: we may have a lot of natural gas in the US, but gas is not a perfect substitute for oil in anything but the very long run.


Please bear with me and you may understand what I am talking about.


People are talking a lot about the recent decline in oil. Before we get started, please note that oil is a global commodity, but it is priced in dollars. The decline in oil price also corresponds perfectly to an increase in the dollar. On a PPP basis, global oil has declined by 10% over the last several months, not the 20% in the US. This is important when thinking about global Peak Oil issues. The decline is minimal.


For most of modern history, except for the 70s and today, the real price of oil was very steady at about $20/barrel. See here:


http://inflationdata.com/inflation/images/charts/Oil/Inflation_Adj_Oil_Prices_Chart.htm


So, at $80/barrel, oil today is about $60 over the long-term real average. And this is with oil at a very low price, according to you and others.


Let’s do the math.


We consume 7.3 billion barrels/year in the US.
7.3B X $60 = $438 billion
150 million households in the US
438B/150M = $2,952 per household out of discretionary income.
$3K from the median household in the US is depression-inducing.


Ask yourself why the price of oil is $80 and not $20. Why do we have to frack?




That’s Peak Oil. It’s only going to get worse.


Cheers,


Matt Finlay

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