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BP CEO: Three Oil Myths

It is likely that Supply and Demand will solve the peak oil problem, if it is a problem, just as it has since the dawn of time. Higher prices will drive a thousand subsitutions made by 5 billion people all over the world for the next 500 years. Smaller, cheaper cars and mass transit are two examples. When we experienced "peak whale oil" at the turn of the 19th century, did civilization end? Supply will be spurred by a thousand ways to make money by creating supplies of energy. "Depleted" fields with still half their oil untouched will be reopened. Oil sands and shale EACH containing more hydrocarbons than all the Middle East will be tapped. Sands are already profitable with oil at $80/barrel (which is cheaper on an inflation-adjusted basis than in 1974!). Nuclear, conservation, solar, geo, wind, yes, yes, yes, yes, yes. [Ethanol, only if you are getting money under the table.[

The only thing really that we as a nation have to fear is the United States Congress. Because they have a monopoly on power, Congress has the unique ability to frustrate Energy progress. Congress may well add to the energy crisis they created and engineer a genuine catastrophy. [NOTE: Other catastrophies Congress created include primary education (teachers union protection), public housing ($1T spent to build crime/drug incubators), college tuition inflation (tidal subsidies), health uninsured (tax laws), tort mafia barons (tort law driven), confiscatory taxation (we, you, pay >50% counting all direct and indirect taxes), race relations (quotas), Iraq (maybe), forclosures (Negative interest rates--Humphrey Hawkins driven), Torture Porn/Hollywood (legal "protection"), Border Non-control (accusations of 'racist'), overpaid CEOs (ironically, compensation limit tax laws) and so on. Congress creates most of the biggest problems, headaches, and indignities we face. The ingenuity and common decency of most Americans then helps to address, if not solve, them.

The best we can hope for from Congress, is that they will limit their damage. If they spend less than, say, half a $ trillion on subsidies & pork, and don't frustrate or tax to death the ability and willingness of Engineers, Entrepreneurs, and Investors to create new sources of energy, we will be OK. We can be sure Supply and Demand, and Adam Smith's "invisible hand" will work their magic.

Tax policy matters. Replacing bad taxes with less damaging taxes is a promising idea. Unfortunately, knowning Congress, they will likely pass big new taxes, and keep the former taxes, too. This is what they are trying to do with Cap & Trade, a massive new Tax & Spend regime being debated today.

On the hopeful side, if Congress will only huff and puff, but do no serious regulatory damage, we have a chance. As mentioned, an Entrepreneurial, Pro Growth tax policy would help. The best example would be an energy or carbon tax to replace taxes on growth, employment, and investment--helpful, but not indispensable.

Good Luck!