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The smart choice: opportunity from uncertainty

“You could say it protects shareholders,” says Pike. “It opens up a whole range of information they feel uncomfortable with, opening up a range of secrets. But there’s a balance there to be struck.”

Pike first raised the issue in 2006, and the reaction has been intriguing.

“There’s a subterranean dialog going on on the internet – there are literally now thousands of websites carrying this discussion. On the blogs, there are a lot of engineers who agree.”

Yet the reaction is very different amongst the policy-making elite.

“I’ve talked to some senior civil servants who said they were completely unaware of this probabilistic effect - so we’re intrigued there’s all this stuff going on at the more intellectual level, but at the higher level there’s absolutely nothing at all.

“For the most part, it’s been seen as a mathematical or scientific story, not so much a business or or social, or socio-economic issue.”

Or maybe, we wondered, some people prefer the End Times thrill of discussing Peak Oil, with its undercurrents of cataclysmic social upheaval. A good time to head for the bunker, and see what Pike thought of the Peak Oil debate.

Oiling the Peak

Peak Oil refers to the moment when oil reserves “peak”, and from which point on, less will be extracted. Dr Pike isn’t impressed with the numerical calculations.

“There’s a lot of ill-informed discussion about it. You see books where people say the oil ‘has half gone’. There hasn’t been enough analysis to say where economically the Peak will be. There has to be Peak at some stage, but it’s ill informed.”

“Well, so far 1 trillion barrels has been produced in history, and using the conventional accounting of reserves, you have 1.2 trillion barrels left. So that’s the reason for saying it’s half gone. What I’m arguing is that there’s probably 2 to 2.5 trillion left, then there will be other reserves from things called “resources” which are probably not economic at this stage. So rather than being half gone it could be just a quarter gone.”

The Peak Oil doomsayers have underestimated the capacity constraints.

“You can relax the constraints. Oil is finite, but there’s this balance between how much you spend, and the flow.”

How so?

“You can buy your way out of capacity constraints. If you’ve got a big tank of oil, and you’ve got one tap, then the tap is the constraint. If you add more taps, then you slowly discover whether there’s something in that tank that’s a constraint. It’s the same with Peak Oil – if you buy your way out of the surface constraints – the number of wells you’ve got, or gas/oil separators, or pipelines, or storage tanks or jetties - all those are constraints and you can buy your way out of that problem.

“The rough rule of thumb that applied three or four years ago was that to get 1m barrels of oil a day extra, you needed to spend in the order of $10bn, very approximately.

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