We’re told that there’s a serious possibility that Europe will run out of oil – and before we run out of the desire to have oil by switching to renewables. This is then taken as a reason as to why we’ve got to spend even more money on subsidising the roll out of renewables again. It is also a particularly stupid argument for we now have fracking.
The claim is here:
Europe could face a shortage of oil within the next decade, making the move to increase the use of low carbon energy even more urgent, according to a new report.
The study has warned that oil production may fall faster than the EU’s reliance on fossil fuels, raising the risk of a looming oil supply crisis and severe market price shock.
The report by the Shift Project, a French climate thinktank, said the risk of reaching “peak oil supply” before major economies have transitioned to cleaner energy sources is “an additional compelling reason for designing a world without oil”.
This is, of course, just “peak oil” lightly warmed over for the current political state of play. It’s also as stupid as the peak oil argument itself.
Unwrapping it the real claim is that the places and reservoirs we currently get oil from might run dry before we’re finished using it. Further, that no one really wants to go out and spend $10 billion and up to open up new conventional reservoirs. Because they’ll not be used for long enough to make it worthwhile making that investment. So, spend, spend, spend, on our mates over in the birdchopper business.
Which is to entirely misunderstand what has happened in the oil business. We’re not – ever – going to have vast peaks in oil prices. The global price is set – in the end at least – by the production cost of the marginal barrel. Fracking is an entirely different economic model than conventional. Instead of spending tens of billions to open up a reservoir that then produces for decades on end we now spend a few million on drilling and fracking a hole that produces in volume for about 18 months, then produces a dribble for years after that.
This entirely changes the economics. No longer do we face a largely static – at any one time – and thus inelastic with respect to price supply. Instead, the moment the oil price hits $50 those rigs emerge all over Texas and start blasting holes in the rock. Within 6 months we’ve a flood of oil again.
The marginal barrel produced is now a fracked barrel. The price at which those barrels get fracked is around the $50 mark. Therefore we’re never going to see – lasting more than a few months at least – the global oil prices significantly above, oooh, say, $60. Which also means that we’re not going to see any significant shortages as such would mean the price would spike above that level for substantial amounts of time.
We could, perhaps, say that regulation means many possible fields won’t get fracked. Not something that can be supported if we imagine people maintaining that regulation if the oil price goes over $200, just as an example.
We’ve changed the technology and therefore the economic model of oil production. We simply are not in a system with a largely inelastic supply any more and never will be again. Models that assume we are will be wrong.
Oh, and that also means that whether we subsidise renewables more or not depends upon the intrinsic value – ie, the carbon cost – of not doing so. And nothing else. The truth here being that as we’ve already seen off the worst possible outcomes – RCP 8.5 simply is never going to happen – the argument in favour of further subsidy has a validity of zero.