As I head down to Washington to speak at the ASPO-USA (Association for the Study of Peak Oil and Gas) 2010 World Oil Conference this week, I can’t help but reflect on how far the peak oil movement has come over the last decade. It’s not too hard to figure out why. There is a very simple litmus test for the credibility of the movement’s central theory of depletion—the price of oil. With oil already trading at over $80 per barrel in the shadow of the world’s deepest-ever postwar recession, I guess there’s not much of a debate anymore.

Of course the world will never run out of oil in the literal sense. There are some 170 billion barrels of the stuff trapped in the Alberta tar sands, and over 500 billion barrels more in the Orinoco tar sands in Venezuela. And if we suck them dry, there are billions more barrels of oil in shale, just as there is natural gas.

But what the global economy has already run out of is the oil it can afford to burn. Depletion isn’t just a geological concept; it’s also an economic one. From a purely geological standpoint, you can always boost production—or at least offset depletion—by accessing increasingly costly and environmentally problematic sources of new supply (such as the tar sands). But as we saw from the recent recession, the global economy can’t afford to run on the prices needed to pull that oil out.

For some people, the fact that oil prices fell to around $40 per barrel during the depths of the recession was proof enough that it had no business being in triple-digit range in the first place. But what those folks forget is that world oil demand fell during the recession for the first time since 1983. Peak oil is not a problem if the economy it’s supposed to power is shrinking—it’s only a problem if we actually want our economies to grow.

The first thing you notice about an economic recovery, even an anemic one, is that the world economy starts consuming more oil. The next thing you notice is that the price of oil starts heading up.

We all might have liked the pump prices that came with $40-per-barrel oil during the recession, but we shouldn’t expect much to be flowing out of the gas pumps at that price. Even deep-water oil, like at BP’s ruptured Macondo well in the Gulf of Mexico, doesn’t work at that price, to say nothing of mining bitumen in Alberta and processing it into synthetic crude.

If you doubt that, just look at what happened in the Alberta tar patch when world oil prices plunged during the recession. Some $50 billion of planned investment was cancelled literally overnight.

No, the world’s not running out of oil. It’s just running out of the oil we can afford to burn.

  • Jez

    I concur 100% Oil is taken for granted. People in Australia still think that Australia is self sufficient with it's own oil production. Thing is Australia now imports 65% of it's oil and hasn't been a net exporter of oil since 2001 … and the gap is ever widening!

  • Dhouston

    Not worried about oil prices in the least. It could spike up again past 100 dollars or so but if the economy can't afford those prices, the economy will slow and we'll be back to 60 dollar oil in no time. Look at the 150 dollar spike, it didn't last very long, and the same will be true if it spikes again. Over the longer term we will have lots of time to switch to more hybrids, more efficiency in the use of existing reserves and moves away from oil altogether.

    China and India are not immune to higher prices either. If prices go up their economy will slow also causing oil to do a quick uturn right back down.

  • Keith

    When oil was priced at 11 dollars per barrel, the cost at the pump was between 60 to 70 cents depending on which part of Canada you live. At 80 dollars per barrel, the cost is around one dollar to one dollar fifteen. The increase is around 40 cents per litre of gasoline.
    I reckon if the price of oil reaches 300 dollars the price per litre, it would cost $2 to $2.50 which is still manageable by many drivers. All drivers have to do is drive less, or buy a more economical car as do Europeans. Even the cost of a bus ride would not increase that much by the higher cost of fuel.

  • Dhouston

    Just to Illustrate the underestimate the inverse relationship of oil and the economic growth, the 150 dollar spike had a great deal to do with pushing the economy into the great recession (in effect a modern day depression) Pundits are missing the point when the attribute. the credit bubble as a cause. IMO the oil price had a greater effect. And it will happen again if oil prices get too out of hand

  • thecavesofaltamira

    Thank you for a thoughtful article. What are you talking about reminds me of the argument James Laxer made in his book Oil and Gas back during the deep recession of 1982-1983. All of those big plans for the Tar Sands were put on hold indefinitely for the very reasons you mention above. It is funny how so much has not changed in thirty years.

  • bobcofbc

    Some questions I have are:
    1) why was oil at $10 a barrel during the Internet Boom of the late nineties when instant millionaires were driving pink tanks down the streets of cities?
    2) how do you account for the endless printing of money and consequence devaluing of the USD – maybe the current value of Oil simply reflects how little the dollar is worth compared to 10yrs ago?

  • Kate Conner

    Hello Jeff,

    I just finished reading your book, and I have a few of questions. I do not know the best way to reach you, so I am positing this here with the hopes that you will see it, and perhaps (fingers tightly crossed) respond.

    1. What if this isn't just your standard run-of-the-mill recession, what if it is more than that?

    Right at the beginning, you make it clear that your conclusions in the book are based on the premise that the current down turn is a recession, not a depression, and that when things return to normal, this is what is going to happen.

    But what if this recession isn't cyclical, but structural. What if this recession is the end result of 30 years of bad policy (including cheap oil), short sightedness, corruption and unsustainable practices? What if this recession is really a depression, and all of the tricks that the central banks have to re-inflate the bubble just aren't going to work this time?

    In short, if this is a depression, and it is going to last much longer than what most experts are telling us, how, if at all, would that change any of your conclusions?

    2. Taxing carbon emissions v. cap and trade.

    In the book you explain how carbon taxes could work, and you give a great argument for why this tax is a competitive advantage for developed economies (not the disadvantage that we are often told that it would be) and that it should be implemented immediately.

    You also mention Cap and Trade as a way to regulate emissions and equalize labor imbalances.

    I am skeptical of cap and trade, but perhaps I shouldn't be. Have you seen this presentation against cap and trade by Annie Leonard?

    Do you agree with her premise and conclusions? If not, (and I know that this is a lot to ask), could you offer a rebuttal?

    3. Implementing carbon emission taxes

    How do we do this? It seems to me that countries aren't going to do this, without knowing, for sure, that the other G20 countries are also doing it, especially the US. With the amount of corruption and dysfunction we see from the US Congress, I don't think we can expect to see any meaningful (or, at this point, even meaningless) legislation coming out of The Cesspool, previously known as Washington, D.C.

    Am I wrong? Are you hopeful that carbon emissions taxes can be a reality soon? What can we (everyday citizens of the world) do to make this happen?

    If you would like to reach me directly, I am available on LinkedIn at

    Thank you for writing your book. I hope that it is widely read, especially among our leaders and policy makers.

    Kate Conner

  • Grey Brother

    For some visual insight into the Tar Sands, check out the pictures here:

    Be warned – some images may shock

  • Andy

    I totally agree with Mr. Rubin and the fact that the Central Banks will do all they can to keep this ponzi economic growth going by debasing their currencies. Everybody who thinks that Oil will be cheaper going forward is living in a “myth”. The fact is that Oil is a finite commodity and the low hanging fruit has already been plucked. As the global consumption grows, the cost of producing additional barrels will only go higher. But what I am concerned is the sustainability of the current world economic system is at risk as oil prices move higher. Everyday the world is using more oil than the day before. Unless, we make some drastic changes to the way we live, our whole society is in for a rude awakening !!

  • Valid

    « From a purely geological standpoint, you can always boost production », but from the energetical point-of-view, EROEI matters. As soon as you need 1 barrel of energy (i.e. the equivalent of the energy contained in 1 barrel of oil) to extract 1 barrel of oil, you stop extracting because it does not even worth the invested energy.
    And, in fine, the real limit is physics : energy efficiency is the key, no matter how big the reserve is and how quick we are able to drain it.

  • Bobsyouruncle

    Everything is going to be just fine. Check out the world in 10 years!

  • rojelio

    Spot on message. The problem is that neither the public nor the politicians seem to have any clue whatsoever about peak oil. Maybe 1 in 100 people that I constantly try to bring up this subject with respond like I'm making any sense at all.

    A few times now, prospective politicians have come to my door. I falsely tell them that I will vote for them if they watch your 2009 Business of Climate Change talk on YouTube and then discuss it with me in a manner that I can tell they watched it.

  • rojelio

    A lot has changed. Global oil production was rising in 1982. It maxed out about 2005 and has been in plateau since then, presumably ready to decline precipitously any month now. The world cannot import oil. We're probably also looking at a collapsing currency, something new since1982. Not to mention that we've lost 40% of the phytoplankton in our oceans recently. Isn't that kind of like the doctor telling you that half your liver has been eaten away?

  • rojelio

    Are you joking? Are you talking about the USA? At $4/gallon in 2008, the consumer and the entire economy was crushed. Poor people were shattered, foreclosures in the suburbs skyrocketed and we haven't recovered barely at all, if any. We cannot tolerate price spikes like this at all without massive changes in behavior, economic models, or severe pain.

  • rojelio

    I think both. Hyperinflation coming soon as well as real declines in oil production, not to mention shortages in virtually every other natural resource.

    Isn't it a fact that the world has never produced more oil than it did in 2005? Why not, we should certainly have better technology. Why did BP go deep ocean? Couldn't they just grab the light sweet crude that we have so much of?

  • rojelio

    I think it's too late to avoid a 2 x 4 across the side of our collective heads at this point. The question is, how bad is this depression going to be?

  • thecavesofaltamira

    I agree that a lot has changed environmentally (and for the worse). What I am referring to is the economics of oil production. The fundamentals of oil production have not changed. The tar sands is only possible because of the high levels of investment that are being put into it. This is the same as 1982. The tar sands were put on hiatus back then because of the dramatic drop in the price of oil during the 1980s. And Alberta was already running out of conventional fields then as well. The difference today is that the Alberta tar sands have become even more appealing to the United States because of the desire for “secure” production outside the Middle East (and the Chinese are also looking closely at guaranteeing their own access to them). But as was the case back in 1982, the tar sands are only productive if a tremendous amount of investment (the majority of it foreign) is brought in because the cost of heavy oil refining is too high if the currency is low or the value of oil per barrel is low. Canada does not have a collapsing currency now but one that actually is tied to commodities that are increasingly in demand like oil, canola, wheat, uranium and potash. But that said, a superheated market for heavy oil is not a cause for rejoicing. And you are absolutely right about the environmental costs. I am against the tar sands so what I lament is how the economic argument has not adapted to meet the needs of the ecological crisis.

  • Rojelio

    I guess that just underscores that there is no good renewable energy substitute for oil (yet) and changing our way of life willingly seems to be out of the question. This doesn't seem to leave a lot of options other than to wait for Mother Nature to reset the equilibrium.

  • thecavesofaltamira

    I don't know what will change minds short of a more economic source of energy. And that is really depressing. Clearly arguments on behalf of preserving the web of life do not convince many people because they seem to be too abstract (even though they really are not). But the loss of coral reefs or the depletion of phytoplankton is not pressing for enough people so that we witness a consumer rebellion against fossil fuels. And in Canada, the centrality of the tar sands in the development of the national economy makes it almost unthinkable that politicians or opinion leaders would begin to seriously press for shutting the tar sands down. And in an era of economic insecurity, the natural world becomes more and more peripheral. Or so it seems.

  • Bobsyouruncle

    Cheer up.

  • Rojelio

    There will be some pipelines apparently running through Idaho. There were some minor protests in response to fleets of giant trucks that are already running through some small towns, but this was not front-page news. Interestingly, polls show that an overwhelming majority of Americans support trying to get energy from solar & wind, while at the same time only 37% of them say they “believe in” climate change. American politicians, including Obama, won't even dare utter the word climate anymore.

  • Zekeput

    Appreciate your article. Right on as far as I'm concerned.