The New York Times published an Op Ed piece by a Mr. Michael Lynch arguing that the inability of oil supply to meet demand between 2005 and 2008 is nothing to be concerned about.
I agree with Mr. Lynch that alarmism helps nobody, but his solution is to stick our heads in the sand and ignore reality.
The reality is that global oil production will eventually decline. Oil is a depleting, non-renewable resource. Why shouldn't we plan and prepare for a world of declining oil supply? To do otherwise would be foolish.
Lynch argument: 1a. Oil discoveries are not declining and are keeping pace with consumption.
Rebuttal: 1a. The discovery records from almost all sources show a declining pattern of discoveries since the early 1960s, particularly after adjusting for reserve revisions. I don't know Mr. Lynch and don't know if he has access to global oilfield databases which tend to be quite expensive.
Lynch argument: 1b. Oil is not becoming more expensive or difficult to find and produce.
Rebuttal: 1b. The easy oil has already been found and produced. How do we know this? The resources (energy and funding) required to find and develop incremental oil today have been steadily increasing. This is why the breakeven price of oil for producers has been rising.
Lynch argument: 1c. Advanced production techniques increase oil production rates without reducing total oil produced.
Rebuttal: 1c. Advanced production techniques can increase the daily rate at which oil is produced from a field, but often this comes at the expense of a shorter production lifespan and less total oil produced.
Lynch argument: 2. The politics of the 1970s and '80s is being blindly replayed.
Rebuttal: 2. Mr. Lynch tries to tie the current debate to the oil embargoes from 40 years ago - but tellingly doesn't mention one person, other than himself, making such connections.
The disruptions to oil supply in 1973-74 and the early 1980s were political. What is so disturbing today is that disruptions are not coming from temporary political sources, but an unusually protracted inability of the industry to find sufficient inexpensive oil anywhere.
Lynch argument: 3. Consensus among geologists is that 2.5 trillion barrels of economically recoverable oil is available out of a total remaining endowment of 10 trillion barrels.
Rebuttal: 3. Mr. Lynch's final argument about total resources available being enormous mentions "some geologists" and "consensus". Again, he tellingly doesn't mention one name or organization to substantiate his claims.
There is no such consensus of geologists.
As you know from reading Oil 101 (see chapter 14: reserves), the most commonly cited numbers from BP, 'World Oil' and 'Oil and Gas Journal' put global reserves at around the 1 trillion barrel level. This 1 trillion number is itself comprised of questionably inflated figures, but it is still less than half Mr. Lynch's "consensus" of 2.5 trillion.
Lynch price forecast: Oil will settle below $30 due to offshore oil and other high cost oils.
My view: Mr. Lynch ends with a prediction of US$30 per barrel oil due to increased supply, but then tries to back this up with deep offshore and other high cost sources of oil.
US$30 is not out of the question for brief periods of time such as we saw at the beginning of 2009 when demand collapsed; but when the required price for global marginal oil production is more than US$60 per barrel and increasing, how can US$30 be sustained?
A strange article indeed.