Canadian Oil Renaissance From High Prices and New Technology, or Why Peak Oil is Peak Idiocy

From an article by

in the Calgary Herald:

"We are happy to report that the fundamental principles of economics are working well in the Canadian oil and gas industry, and the results are remarkable. We are witnessing an event that will change the way we think about oil, with many weighty consequences for corporate leaders, investors, policy makers, and purveyors of competitive energy sources. 

After 20 years of steady decline, light and medium oil production is now conclusively trending upward in Alberta. Take a look at the chart above, which could heighten the blood pressure of a few peak oil theorists.

The grey, dashed trend line shows how Alberta's light and medium oil production was declining by an almost perfectly linear rate of 16,000 B/d every year up until late 2009. This predictable line extends back to the early-1990s, and more generally as far back as the peak of production in the 1970s. Extending the trend line past the recent turning point, I infer that production should have been 284,000 B/d in October 2011, the time of the most recent data point available. However, rather than declining, actual production has jumped up to 375,000 B/d, an increase of 91,000 B/d off the 20-year status quo.

In early 2011, common wisdom among industry veterans was that light and medium quality oil production would rise gently, reaching 375,000 B/d by 2017. The latest data shows the target was achieved six years early. High levels of capital expenditures targeting plays like the Viking and Cardium, along with innovation in drilling and completion techniques, suggest that Alberta's light oil surge will continue.

I could stop this discussion right here and just file the chart above as an important factoid. Yet a broader interpretation is in order, because the ability to rejuvenate the tired oil-bearing rocks of a 100-year-old basin – a renaissance event that has long been assumed unthinkable by many industry veterans – is a terse validation of basic economic theory that goes back 120 years to Alfred Marshall.

For at least 20 years, highly coveted light oil had been written off as a declining resource in North America, as if the fundamental principles of economics had been violated. They have not. Abruptly rising light oil production in Alberta is a microcosmic event, also occurring in other continental locales, that is likely to have far reaching implications to the energy complex, those who invest in it, and even society at large."

"Human ingenuity in resource development has a long history of exerting "power over nature," just when we think the limits have been reached. New technology in tandem with a high commodity price has historically been a compelling recipe for disruptive changes in supply development. Today's oil renaissance is no exception."

As Julian Simon taught us, the ultimate resource is human ingenuity and the human imagination coupled to the human spirit, which is infinite and will therefore never reach a finite peak.  Or in the words of Mike Munger "Peak oil is peak idiocy."

HT: Christopher Jones