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Saturday, September 10, 2005

NYT Tackles Oil Supply Debate

NYT's Joseph Nocera compares the arguments on world oil supplies in "On Oil Supply, Opinion Aren't Scarce". The "peakists" like T. Boone Pickens believe the world's oil supply has peaked or reached the "halfway mark." In general, peakists consist of geologists. The opposite view, that we are nowhere near the halfway mark of oil supplies, is held by economists.

Nocera lays out both sides' arguments.

I side with the economists. What is under the ground is unknown. Incentives to locate and extract it increase as the price makes it profitable to invest in such methods. The Saudis have never allowed its reserves to be estimated. Canada is beginning to pursue the costly extraction of oil from their Alberta oil sands. Other sources are in the Caspian Sea and in Brazil.

On the consumption end, the higher price motivates us to drive less and to consider buying hybrid cars and other alternatives. Government control of pricing does not motivate investors to pursue these developments. If things are allowed to freely develop, many of us will drive our gas guzzlers for years to come with relatively affordable gas. Refineries will be constructed. New fuels will be discovered. The Middle East will become less important and the dictatorships will be starved.

I agree with Nocera:

What I do know - what we all know - is that oil is a finite resource. Surely, the peakists are right about that. What I also know is historically, the economists have generally been right about how the price of oil has wound up fixing the problem.

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