This book provides a moderately strong argument that the production of cheap oil is peaking, although it isn’t as conclusive an argument as I’d hoped for, and is only a little bit better than the brief summaries of Hubbert’s ideas that I’d previously seen on the net.
Much of the book consists of marginally relevant stories of his career as a geologist. He occasionally slips in some valuable tidbits, such as that Texas once had an oil cartel.
He does a mediocre job of analyzing the consequences of scarcer oil. He provides a few hints of how natural gas could replace oil, but says much less about the costs of switching than I’d hoped for. His comments on how to protect yourself are misleading:
In the past, a useful way of insuring major producers and consumers against the effect of a price changes was purchasing futures contracts. However, the ordinary futures contracts extend for a year or two. The oil problem extends for 10 years or more. The oil problem extends for 10 years or more. Anyone who agrees to supply oil 10 years from now, for a price agreed on today, very likely will disappear into bankruptcy before the contract matures.
At the time the book was first published (2001), crude oil futures contracts extended about 7 years out. They weren’t liquid enough to hedge a large fraction of consumption, but if a desire to hedge had caused them to say in 2001 that crude would be at $60/barrel in 2008 rather than saying it would be in the low twenties, that would both have signaled a need to react and reduced the risks of doing so. The idea that bankruptcy would threaten such futures reflects his ignorance of the futures markets. An oil producer who sold futures as a hedge will almost certainly not sell more futures than it has oil to deliver on. Speculators might lose their shirts, but futures brokers have the experience needed to ensure that the defaults are small enough for the brokers to absorb (see, for example, what happened in the gold mania of the late 70s).