Peak Oil? what Peak Oil?

[Tarrel]

We are living through peak oil right now. Why else would the shale and tar-sands producers be incurring massive amounts of debt to deploy vast amounts of capital to frack oil out of the ground? Because that's all there is left. If there were more Texas-style gushers to be exploited, you can bet your bottom dollar the oil co's would be doing so. Fracking technology and horizontal drilling are not new, it's just that they didn't make economic sense until the oil price climbed high enough to make them viable.

The current low oil price is probably as a result of two things; demand destruction driven largely by China's growth slowdown and, to a lesser extent, by efficiency-led demand reduction in US / EU and, secondly, short-term supply-manipulation to squeeze out the high-cost producers such as the US and/or to screw Russia.

The problem is not peak oil, but peak cheap oil. The "Triangle of Doom" principle suggests that, as time goes by, the oil price per barrel required to maintain investment in exploration, exploitation and supply goes up (because there's less cheap-to-obtain oil around), while the price per barrel needed for economies not to fall into recession goes down (because said economies are carrying an ever heavier burden of debt). When the first figure meets the second, we have a problem, because the only oil that can be produced will be unaffordable. At that point supply dries up (even though there is plenty of oil left in the ground) and the price skyrockets. But of course there's no financial system left to provide the credit to the oil producers to exploit this new lucrative high price.

Remember, the price of oil is a false construct, affected by speculation, market confidence, currency movements, market manipulation, etc.. But the COST of producing oil is very real and increasing.