Okay, so oil is over $100 a barrel, diesel is $4 a gallon and the Chinese are buying BMWs like there was a tomorrow. Is the sky falling or is it all just marketing hype? In the interest of unearthing some truth, we will visit the topic of “peak oil”. What is it? How do we predict it? How do we avoid it?
Economists tell us that we never “run out” of a resource, it just gets too expensive to be used the way we might have gotten used to. Consider whale oil, which used to be a pretty valuable and increasingly hard to find resource. When’s the last time you felt the pinch of not being able to find good cheap whale oil? This is an example of “substitutability”, which says that expensive goods will be replaced by alternatives. Indeed, while good intentions will put a few hybrids on the road and make some people choose lower life styles closer to work, $10 per gallon gas will really incentivise (!sorry!) the masses. Let oil prices rise! (more…)