by Jon Sanders
Research Editor and Senior Fellow, Regulatory Studies, John Locke Foundation
James Pethokoukis writes about the implications of the “Peak Oil” blog The Oil Drum having to “convert … to a static archive of previously published material.” Pethokoukis writes that what happened is that
reality intruded. While global production was flat to down from 2005 through 2009, it has risen to record highs every year since. And in the United States, oil production is at its highest level in a generation thanks to advances in exploration and drilling technology, including hydraulic fracturing.
Indeed, the head of oil markets for the International Energy Agency recently told the BBC, “Just a few years ago, everybody thought US production was in permanent decline, that the nation had to face the prospect of continuously rising imports — and now the country is moving towards self-sufficiency.”And concerns about peak oil are now “on the back burner,” he added. (My colleague Mark Perry has noted Google searches for “fracking” have soared, while those for “peak oil” have plunged.)
What do we believe?
We all see the petroleum economy as the fundamental lynchpin of our present democratic society. As cheap oil/energy/gas quietly fades into history, lives around the world will indeed change.
This real and tangible crisis of supply and demand is now inevitable. Whether the coming crisis arrives in six months or in four years, whether the crisis arrives in a slow, secular fashion or as a cataclysmic “shock,” our purpose is the same: we are here to raise awareness of the reality of the current problem and to attempt to address the real issues that are often hidden by political pandering.
Too bad they didn’t know the history of energy crises and entrepreneurs’ responses, as did the late, great economist Julian Simon — who decades ago wrote “When Will We Run Out of Oil? Never!” In another work Simon explained how looming energy crises in coal and whale oil “provided incentive for enterprising people to discover substitutes,” which led to the world-changing discovery of oil, and which is the same process that led to the world-changing discovery of cost-effective hydraulic fracturing and horizontal drilling:
in the mid-1800’s the English came to worry about an impending coal crisis. The great English economist, Jevons, calculated that a shortage of coal would bring England’s industry to a standstill by 1900; he carefully assessed that oil could never make a decisive difference. … Another element in the story: Because of increased demand due to population growth and increased income, the price of whale oil for lamps jumped in the 1840’s, and the U.S. Civil War pushed it even higher, leading to a whale oil “crisis.” This provided incentive for enterprising people to discover and produce substitutes. First came oil from rapeseed, olives, linseed, and camphene oil from pine trees. Then inventors learned how to get coal oil from coal. Other ingenious persons produced kerosene from the rock oil that seeped to the surface, a product so desirable that its price then rose from $.75 a gallon to $2.00. This high price stimulated enterprisers to focus on the supply of oil.
Simon’s reasoning is echoed in Pethokoukis’ conclusion, which does contain a warning, as I’ve highlighted:
For more than 200 years, betting against the wonder-working power of technological innovation has been a losing wager as society began to reward and respect entrepreneurs — and the creative destruction they unleashed.
How will America and the West end its New Normal period of slow growth? Economist Deirdre McCloskey calls it the “Bourgeois Deal”: “You let me engage in innovation and creative destruction, and I will make you rich.” As long as that bargain remains intact, as it has for more two centuries, then America’s prospects are far from bleak.