The Fuss about Peak Oil

Oil is a finite natural resource. The process of production of oil from human and animal fossils takes several thousand years. Therefore, the whole ecosystem that we have built around oil is definitely not sustainable. We are definitely consuming much more oil than we are producing in any given year. As such there are fears that we might run out of oil. This is a doom and gloom prediction to say the least.

The modern world runs on oil. Without oil, the world around us would change dramatically and we would go back several years in terms of progress. However, these predictions are exaggerated and scarier than they need to be.

It is true that the oil reserves of the world are under pressure. However, it is also true that humans are incredibly resourceful and have always found out a way to survive. This was true when they were fighting with saber toothed elephants and dinosaurs. This is equally true today when they are fighting the scarcity of oil.

What Is Peak Oil ?

Oil was first discovered in Titusville Pennsylvania in 1859. It quickly became the most important and traded commodity in the world. Empires were made out of oil. The world’s first billionaire was an oilman who made his fortune riding on the wave of increasing consumption of oil. Alternate uses for oil were soon developed. Instead of being a light source, oil soon became the fuel that powered motor vehicles.

The consumption of oil has gone up rapidly ever since. The consumption of oil has been growing at an exponential rate ever since. Critics believe that at the moment, the world is consuming the maximum quantity of oil possible. Hence the term peak oil is used to denote this phenomenon.

Critics are of the opinion that if consumption continues at this speed, the world will run out of oil in the next couple of decades or so. This would be catastrophic given the fact that the dependence on oil is increasing everyday and the supply of oil is about to run out!

Why The Peak Oil Debate Borders On Scaremongering

The speed at which the world is consuming oil seriously is an area of concern. However, the prophecies of doom are nothing but expressions of paranoia and border on scaremongering. Now, first let’s clarify. The world is indeed going to run out of oil sometime in the next century or so. However, that event is not nearly as near or as catastrophic as the predictions.

At the present moment, the world is indeed about to run out of a cheap and easily available source of oil. However, as we have seen in the past, scarcity gives rise to innovation and humans somehow figure a way out.

Consider the fact that horizontal drilling is becoming a reality now. Hence, oil that was not previously extractable can now actually be extracted easily. This will help to prop up the diminishing supply of oil for some time. However, the quantity of oil extracted is not nearly enough to meet the increasing human needs.

Hydraulic fracturing or fracking is a technique that can help extract oil from shale rock. This technique is growing in popularity and is likely to double the production of oil. The growth of fracking has seriously diminished the concerns of peak oil. This can be seen from the price of oil in the market which is currently hovering at around one third of where it originally was. Oil fields are pumping out more oil than ever both in absolute terms as well as on percentage basis!

Investing and Peak Oil

As an investor, one needs to ignore the doom and gloom predictions. This is because it may be at least twenty years before any such prediction materializes. The probability of the world running into an energy crisis in twenty years is next to zero. Therefore, most likely scenario is that peak oil scares will actually turn out to be a hoax.

Panic is not a good investment strategy! The concept of peak oil borders around panic. Instead, investors should focus their attention on the fundamentals. They must take into account alternate technologies which are likely to become main stream in the near future.

Geopolitical Crisis

Peak oil, at the present moment is a far off possibility. It does not threaten to disturb the supply chain of oil. The more urgent crisis right now is the geopolitical tensions that are prevalent in the Middle East. The United States now rules Iraq. However, there is increasing chaos in the country. Burning of oil wells is commonplace and supply is usually disrupted unless there are heavy military deployments to protect it. The situation could get even worse as Iran is falling on the path of delinquency. An Iran Israel conflict seems to be right on the cards. If such a conflict takes place, the Strait of Hormuz will become a war zone and hence supply lines all over the world will be affected!

This should concern the average investor much more than some distant possibility of running out of oil. We have enough oil to last for the next two decades and will certainly figure out an alternative way within that time period.

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The article is Written By “Prachi Juneja” and Reviewed By Management Study Guide Content Team. MSG Content Team comprises experienced Faculty Member, Professionals and Subject Matter Experts. To Know more, click on About Us. The use of this material is free for learning and education purpose. Please reference authorship of content used, including link(s) to and the content page url.