I’m still going through The End of Growth by Richard Heinberg. His central thesis is that in 2011 the world economy completely changed and we can expect no real economic growth happening after that year. He furthermore discusses Peak Oil and how it’s the key to understanding the end of growth. Here’s his first prognostication on oil:

The US had been the world’s primary oil producer, but by 1971 its oil production peaked and began to decline

This was a very defensible position in 2011. Not so today when we’ve seen US oil production skyrocket once again and far outstrip the highs of 1971. Even in the absolute depths of the Coronavirus pandemic, when oil prices briefly dipped below zero dollars and producers had to pay to get excess oil shipped out, oil production was higher than the “peak” of 1971.

An aside: how can oil prices dip below zero but oil wells still afford to pump? Well the coronavirus pandemic was temporary, we all knew it was temporary, and oil wells kept pumping in expectation of the good times just around the corner. Those good times have indeed come to pass, and the price of oil has rocketed back up again along with new production to feed this demand. The price was below zero, but that doesn’t mean you could get oil for “free,” it was only below zero if you showed up to an oil well with the proper equipment and container vehicles to ship oil off the property.

Anyway, Richard Heinberg goes on to sketch out the Peak Oil scenario that he believed in 2011 was an inevitable future. I don’t want to just quote his book verbatim but I’ll summarize it here:

• Around the year 2010 oil production inevitably stagnates, leading to oil prices skyrocketing. This causes an economic crash
• The economic crash leads to economic contraction, meaning oil demand slackens and oil prices fall
• Oil prices falling means demand can pick back up
• …but then oil prices also go up, leading to yet another economic crash
• We repeat theses steps ad infinitum, each boom/bust cycle happening quicker and quicker and causing more and more social chaos
• No force is able to stop this cycle, price volatility precludes oil investment which means supply remains constricted

He goes on further to state that this scenario isn’t actually a prediction of the future, it’s a description of the past

• This Peak Oil cataclysm began in 2008, led in part to the Financial Crisis, and continues to the present time (2011 when Heinberg wrote his book)

This is all very interesting, especially the key feature of his theory that new supply will never be be able to be produced in quantities that will keep up with demand. He claims that rising and falling prices will ensure that there is too much volatility to make the investment sound, and that in part is his theory for why this cycle can’t be escaped with oil. It’s an elegant theory, but it’s a theory that’s been proven false since he wrote it, oil supply did increase and volatility wasn’t an impassible barrier for new production.

Even without the benefit of hindsight it would be unreasonable to believe his theory in the first place as it assumes no one has any sort of agency during this crisis, everyone can only watch helplessly as the price of oil rockets up and down. Let’s discuss the story of Joseph in the bible for a second: The Pharaoh foresaw that 7 years of good harvests would be followed by 7 years of famine and asked Joseph what he could do to prevent calamity. Joseph explained to him the simple principle of storage and rationing: store food during the good times and hand it out during the bad. Instead of a boom/bust cycle leading to massive death and destruction, Egypt under the Pharaoh and Joseph had a smoothed-out supply allowing them to weather the storm and continue living and farming. I bring this up not as a bible lesson but to explain that we have known for thousands of years how to prevent the exact cycle described by Heinberg’s theory from occurring. If we can predict something like this then we can prevent it using even the simplest of economic activities such as storing and rationing.

The United States even has an entire system dedicated storing and rationing oil: the Strategic Petroleum Reserve. When prices are low, the US buys oil and fills the reserve, which keeps the price high and encourages producers to keep producing and investing. When prices are high (such as 2022), we empty the reserve, selling the oil and alleviating the worst effects of the shortage. And the US government isn’t the only one engaged in this, from OPEC to Exxon-Mobile, nearly every oil-producing entity has or pays for a way to store oil during the glut and sell it during the dearth, to mothball unneeded production but then turn it back on when prices spike. The Peak oil cycle never happened, Heinberg theorized that oil supply would stay relatively constant as the volatility precluded investment but instead the volatility was mostly smoothed out by both market and government forces and investment (and production) have continued to rise.

As I said, the cycle sketched out by Heinberg isn’t just theoretically unsound it was disproven by history. He suspected that low oil prices would allow economic growth, leading to high oil prices and another crash. But while oil prices did dip not long after his book came out, they dipped because of sky-high supply from the US and OPEC not contracted demand due to an economic crash. Let me state that again: falling demand did not cause oil prices to crash, rising supply did, which runs completely contrary to Heinberg’s Peak Oil theory. Oil investment has continued and oil production has increased, the US currently produces around 12 million barrels of oil a day, more than any time in the 1970s and more than double as much as was produced when Heinberg’s book was published. I wonder what he would think about that.