Oil: Caveat empty

Without any press conferences, grand announcements, or hyperbolic advertising campaigns, the Exxon Mobil Corporation, one of the world's largest publicly owned petroleum companies, has quietly joined the ranks of those who are predicting an impending plateau in non-OPEC oil production.

Their report, The Outlook for Energy: A 2030 View, forecasts a peak in just five years.

In the past, many who expressed such concerns were dismissed as eager catastrophists, peddling the latest Malthusian prophecy of the impending collapse of fossil-fueled civilization. Their reliance on private oil-reserve data that is unverifiable by other analysts, and their use of models that ignore political and economic factors, have led to frequent erroneous pronouncements. They were countered by the extreme optimists, who believed that we would never need to think about such problems and that the markets would take care of everything. Up to now, those who worried about limited petroleum supplies have been at best ignored, and at worst openly ridiculed.

Meanwhile, average consumers have taken their cue from the market, where rising prices have always been followed by falling prices, leading to the assumption that this pattern will continue forever.

In truth, the market price of crude oil is completely decoupled from and independent of production costs, which average about $6 per barrel for non-OPEC producers and $1.50 per barrel for OPEC producers. This situation has nothing to do with a free market, and everything to do with what OPEC believes will be accepted or tolerated by the United States. The completely affordable market price--what consumers pay at the gasoline pump--provides magisterial profits to the owners of the resource and gives no warning of impending shortages.

All the more reason that the public should heed the silent alarm sounded by the ExxonMobil report, which is more credible than other predictions for several reasons. First and foremost is that the source is ExxonMobil.

No oil company, much less one with so much managerial, scientific, and engineering talent, has ever discussed peak oil production before. Given the profound implications of this forecast, it must have been published only after a thorough review.

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Oil: Caveat empty