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March 1, 2008

Peak Oil

Burning oil to produce work is the most effective large scale means we have now. The entire economy is underpinned by massive consumption of petroleum. Of course it has major negative side effects, namely pollution, political instability and national security threats, and economic problems of supply and demand.

However, what is almost certain is demand will outpace supply capability over time. This would cause the price of oil to rise substantially, hampering (reversing?) economic growth.

Between all the scientific unknowns and political spin, the possibility of peak oil adds up to uncertainty of gigantic proportions. No one is certain if it will happen, and if it does then when it will occur.

But if there is a finite supply of oil, and I’ll venture a guess that there is, the likelihood that there’s a finite amount we can economically (i.e. afford) to extract is even greater. Meanwhile, the greater the demand becomes, and the faster it grows, the sooner demand will outstrip supply, causing price escalation and shortages.

I think the market is beginning to factor that risk into the price of oil, resulting in the increases we’ve seen over the last few years.

The conclusion one arrives at then is that the odds are likely that peak oil will happen, and the faster petroleum demand increases the more overwhelming the odds become that it’s only a matter of time before there is a crisis - unless significant portions of the world wean themselves off of it. In a word, the current trends of oil consumption are unsustainable.

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