Tribute to Tiber: “Oil is Found in the Minds of Men”

[This piece, which originally appeared in the (Canadian) National Post, can be read in conjunction with MasterResource posts on “peak oil” here and here. A brief bio of Mr. Foster appears at the end of this post.]

The great petroleum geologist Wallace Pratt famously said that “Oil is found in the minds of men.” Discoveries depend on visionary theory, technical innovation and commitment to risky drilling. Plus luck. Peak Oil theory, by contrast -which asserts that global oil production has, or soon will, peak, and that this has powerful policy implications — is found in the limitations of the minds of men. It is less geological theory than unevolved intellectual shortcoming, although it certainly has its political uses.

The fruits of the “greatest resource,” as economist Julian Simon dubbed the human mind, appeared yet again this week with the announcement by BP that it had found a “giant” field at unprecedented depth in the Gulf of Mexico, an area that twenty years ago was regarded as played out. By contrast, the limitations and conceits that characterize Peak Oil were nicely summed up by a report on BP’s find in the leftist British newspaper, The Guardian.

According to that report, BP’s Tiber well, and another recent huge find in Iran, “have encouraged skeptics of theories which say that peak production has been reached, or soon will be, to hail a new golden age of exploration and supply.”

Note how the use of the term “skeptics” suggests that Peak Oil is the mainstream view, which it is not. The word also links unbelievers to beyond-the-pale climate change “skeptics.” Finally, the report suggests that these people are suggesting a “golden age of exploration and supply” although in fact the only relevant quote is from Peter Odell, professor emeritus of international energy studies at Erasmus University in Rotterdam, who merely says, “It’s an amazing turnaround from the gloom of the last 10 years. All these finds will take a long time to bring on stream, but it shows the industry is capable of finding more oil than it uses and shows we have not come to any peak.”

Peak Oil theory represents a combination of economic ignorance and moral rejection of markets as greed-driven and shortsighted. These all-too common attitudes usually go with a profound faith in effective government policy, despite the monumental weight of evidence to the contrary.

The seminal image for depletionists -as for apocalyptic climate change theorists — is that of the photo of the Earth taken from Apollo 17; seemingly dramatic confirmation of finite resources on a “small planet.” In fact, the interpretation of the Apollo picture is symptomatic of how far technology has outstripped our primitive assumptions about the way the world works. But then people don’t have to think about the vast, natural “extended order” of the economy any more than they have to worry about how their spleens work.

Debate between economists and Peak Oilsters tends to be a dialogue of the deaf. Economists often seem to imagine that they are explaining a technical issue. They note that the alleged failure to “replace” production is in fact due to the way reserves are reported. They stress that startling new technologies –such as the ability to drill in thousands of metres of water to depths of more than 10,000 metres (as at Tiber), or 3-D computer seismic imaging, or horizontal drilling –are constantly finding new oil and gas, and producing more from old reservoirs.

Again, citing how often alarms over “the end of oil” have been sounded since 1880 holds no sway with Peaksters. Since they see oil supply as essentially “fixed” and economists as deluded and morally deficient, delays in the projected “crunch” will only make it all the more painful when it –inevitably –comes.

Peak Oilsters do not so much refute economics and history as simply ignore them. They are victims of the “psychology of taboo,” which prevents them from assessing markets objectively.

For example, leading Peakster Matt Simmons has described the market as a “500-pound wrecking ball” and Adam Smith’s invisible hand as an instrument of strangulation!

Meanwhile it is not just The Guardian that has an unconscious depletionist slant. One tic that has crept into reporting new finds, or prospects, is to claim that they will “only” supply the world for so many days, or weeks, or months. Even The Wall Street Journal noted that Tiber, if it yielded a billion barrels of oil, would “only” supply the world for two weeks.

So does this mean that BP shouldn’t bother to proceed? Yet another way of playing on the limitations of human thinking is to note that “four new Saudi Arabias” will be needed to meet projected global demand in 2030, as if supply and demand were independent phenomena, or such a projection’s sheer inconceivability should reflect on the projection rather than on the limits of what most ordinary humans can conceive.

Yet another revealing Peak Oil trope is that the “easy” oil has been found, as if it was easier to drill in a remote, muddy areas of Pennsylvania with rigs brought in by donkeys 150 years ago than it is to drill from a high-tech drill ship (although it certainly is more expensive. A single Gulf well can cost US$200 million).

There are indeed major supply issues. Much of global supply is controlled by governments. Emerging economies, in particular China, have caused a surge in demand. Meanwhile the whole world is engaged in policy hysteria over climate change (which suggests that oil can’t run out soon enough). But a free market will provide all the incentive needed to entrepreneurs and innovators to promote energy innovation. More important, there simply is no alternative. The record of government-guided technology — outside war — is overwhelmingly disastrous, from Jimmy Carter’s Synfuels to the current wind, solar and ethanol boondoggles.

The oil industry, by contrast, is constantly producing new wonders. In a piece in the latest Foreign Policy magazine, oil historian and consultant Daniel Yergin notes that, “Again and again, in researching oil’s history, I was struck by how seemingly insurmountable barriers and obstacles were overcome by technological progress, often unanticipated.”

With regard to Peak Oil, Mr. Yergin points out that his own firm’s analysis of 800 of the world’s largest oil fields “indicates that the resource endowment of the planet is sufficient to keep up with demand for decades to come.”

Only governments can stand in the way. Supported by our misconceptions.

Peter Foster was born and educated in England. He studied economics at Cambridge and worked for the Financial Times of London before emigrating to Canada in 1976. He has written eight books including Self Serve: How Petro-Canada Pumped Canadians Dry, which won Canada’s National Business Book Award. His magazine journalism has won awards for topics as diverse as Moscow’s McDonald’s and oil exploration in the Beaufort Sea.

Since 1998, he has been writing a twice-weekly editorial column for the National Post. He is just finishing a book provisionally titled Why We Bite the Invisible Hand.