“The End of Cheap Oil,” by Campbell and Laherrere – compared to – “Risks of the Oil Transition,” by Farrel and Brandt

“The End of Cheap Oil,” by Campbell and Laherrere

• diminishing oil supplies will lead to severe economic and geopolitical consequences by 2010

This article, written in 1998, brings the reader’s attention to the supply of global conventional crude oil and predicts that by 2010 the demand will begin to outpace supply leading to severe economic and geopolitical consequences. They base this claim on the Hubbert Curve which states that the unrestrained extraction of any finite resource will rise along a bell shaped curve that peaks when about half the resource is gone. Using estimates of global crude oil reserves they go on to make their point that extraction rates in 1998 were approaching the peak of the curve and would soon start to decline. They go on to say that unconventional oil reserves (heavy oil, tar sand, and shale) will not be able to fill the gap in demand because the industry will not be able to ramp up production quickly enough.

“Risks of the Oil Transition,” by Farrel and Brandt

• Peak oil is coming soon: Substitutes are plentiful but come with high risk to the environment.

Farrel and Brandt agree that conventional oil production will inevitably peak, but this paper focuses on the long range implications of the transition to substitutes. Their main argument is that substitutes for conventional petroleum (SCP’s) are plentiful enough to meet the excess demand from peak oil scenarios, but these fuels are associated with higher production costs, higher emissions of green house gases (GHG’s) and geopolitical concerns. They say that in managing this transition period we must take an integrated approach and consider the environmental, economic, and strategic risks. Of these factors the biggest risk is to the environment because people are more likely to put a higher priority on security and economics. They conclude that the first principle of energy security is diversification of supply which must include a significant investment in SCP’s as well as non-fossil fuel renewable energies.

Comparison of above articles
Both of these articles agree that peak oil is a real scenario. The main difference is in their explanations of what happens beyond peak oil. Campbell and Laherrere are more pessimistic about the industry’s ability to meet demand with substitutes. Farrel and Brandt explore the transition process beyond peak oil and see an abundance of SCP’s filling in and bringing along huge risks to the environment. With respect to future energy prices, there is agreement that as we transition beyond peak oil prices will go up. However, because Campbell and Laherrere do not see SCP’s coming into play soon enough, there will be a more dramatic (perhaps economically devastating) price increase. It seems that both scenarios lead to less energy security as OPEC’c proportion of the world oil reserves increases steadily. This is because we will become increasingly dependent on OPEC countries like Iran, Iraq, Libya, Saudi Arabia, and Venezuela, countries that are increasingly hostile to US interests. Farrel and Brandt go on to warn that increases in SCP production comes with high environmental risks because they lead to higher GHG emissions, while it is feasible to see that the Campbell and Laherrere scenario could lead to reduced GHG emissions as a result of a global economic depression.

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