Peak Oil, Revisited

In May 2006, I reported in reason that global oil reserves were ample to supply humanity's needs for liquid fuels until at least 2030, despite headline-grabbing predictions that our supply had already peaked. Afterwards, the world experienced an unprecedented run-up in oil prices topping out at $147 per barrel in July 2008, which led some negative prognosticators to get a little cocky. One of the leading doomsters, Houston investment banker Matthew Simmons, told CNBC in July 2008, "The idea that it's a bubble is all poppycock." He confidently added that the price of oil "is not going to collapse." Simmons advised Americans to move into villages and to buy locally produced foods and goods.

Following the July 2008 peak, the price of oil dropped to $33 per barrel; it has since leveled out at $60. Meanwhile, official estimates of proven oil reserves have increased slightly from 1.292 trillion barrels in 2006 to 1.342 trillion barrels in 2009.

So why are people still worried about a petroleum crunch? Two words: resource nationalism. As I noted three years ago, the sad fact is that nearly 80 percent of the world's oil reserves are in the hands of government-owned companies. Even though there are no geological or economic reasons to expect imminent peak oil, the world could easily experience "political peak oil."

Most of the government-owned oil companies are badly run, technologically backward, and being systematically looted by corrupt politicians. Under the direction of the Castro wannabe Hugo Chavez, for example, Venezuelan oil production has dropped from 3.3 million to 2.4 million barrels per day. Iran, which has the world's second highest proven oil reserves, produced 6 million barrels of crude per day in 1974; a 2007 U.S. National Academy of Sciences study estimated that Iran's oil exports could fall to zero by 2015. Mexico's national oil company, Pemex, has seen steep production declines, and some analysts believe that Mexico will stop exporting oil by the middle of the coming decade. Russia, the world's second biggest producer of oil, has nationalized its oil industry, and now production is falling. And the political and economic stability of such oil exporters as Nigeria, Chad, Iraq, and Ecuador is far from assured.

"The challenges the world faces in growing supplies to meet future demand are not below ground, they are above ground," BP chief executive Tony Hayward wrote in June. "They are human, not geological." If peak oil comes, it will be the result of human folly, not of the world suddenly running out of crude.