(originally posted here∞)

In addition to the great points raised by nhMike and DrStink, has anyone else noticed that TomatoPie's argument contradicts itself? Here is my understanding; correct me if I'm wrong.

(1) High prices are what lend opportunity to alternative petroleum extraction techniques.
(2) Prices are high.
(3) Because 1 & 2 are true, we can reasonably count shale, tar sands, etc. among our known reserves.
(4) More reserves means more supply (in the economic sense).
(5) Meanwhile, factor #2 will reduce demand.
(6) According to classical economic theory, 4 & 5 imply that prices will go down.

Assuming this is a fair summary of what TomatoPie has to say, here are my objections:
(a) Point #5 is flat-out wrong. You are confusing the economic concept of demand (commonly represented as the shape of a curve) with quantity demanded (the Y coordinate of a point on that curve). Barring a worldwide depression / nuclear war / famine, there is basically no chance that the demand for energy will decrease in the next few centuries even if the QD drops due to price pressure.

(b) Point #3 is simply not supported by the geology and chemistry of alternative petroleum reserves. See the posts above for greater detail. If you want to naively include things tar sands into a monolithic "total reserves" figure, you must weight it according to the inefficiencies and externalities imposed...and when you do so, the numbers don't look nearly so rosy.

(c) Even if we accept your conclusion #6, it contradicts point #2, on which the rest of your logic relies! Plainly: if we start building infrastructure that depends on $X/barrel oil for sustainability, then $X/barrel becomes an effective price floor. Surely that's obvious? The only hope for your side of the gamble is that inflation slowly outpaces the pain of $X. I don't find that outcome likely, but even if it comes to pass, inflation is hardly a good medicine for economic maladies.

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