Wednesday, March 31, 2010

Peak Oil - or not

I blogged before about the peak oil scenario here.

But it's by no means certain what's going to happen to the oil price over the coming years. Here's two possible scenarios:

1. The failure of the G20 Copenhagen summit to agree limits on CO2 emissions remains unaddressed. The developing economies, Brazil, Russia, India and China among them, continue expanding. Car ownership, air travel and domestic consumption in those countries increases, creating worldwide demand for oil that outstrips supply. The oil price rises above $200/barrel.

2. The world somehow gets its act together and agrees binding limits on CO2 emissions. As economies decarbonize, demand for oil drops, and with it the oil price, perhaps to $20/barrel.

You'll notice that in either of these scenarios, the availability of oil to the UK becomes restricted, in the first case by market forces, and in the second by regulation. Therefore, dependence on ready availability of oil at the current price is very risky in economic terms. That's a fact, and it doesn't matter if you're an environmentalist or a climate-change sceptic. Of course, the oil price could remain as it is today, if supply and demand remain in lock-step, but that doesn't seem likely. If we don't stop binge-drinking oil we'll have a massive hangover in a few years time...

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