As oil becomes scarcer, and as the Laws of Demand tell us, the price of oil will continue to rise. To combat this, on the demand side, we can try to find substitutes to use instead of oil. While on the supply side, we can either try to find more reserve or come up with more substitutes. We would only run out of it if there was no demand left for the fossil fuel.
Economic Theory Disproving Peak Oil
1. Horizontal Sum of Demand
Using arbitrary numbers, this graph implies that future generations’ demand for the fossil fuel has already been accounted for. In the above graph, at $5 Da (today’s generation) will consume 20 units. While Db (tomorrow’s generation) will consume 10 units. Their total demand is 30 units.
2. Present value of future demand
3. Sum of Present Value
P1 represents the future price of oil that D1 will pay. The vertical line represents the limited supply of petroleum, hence this graph implies that it is inexhaustible, i.e. that we can never run out.
After combining the two concepts, we can see that future demand for oil has already been met in today’s price and that we would never really run out. And if people did think we could run out of it, then they would save it and sell it after “oil ran out”. And everyone would do that to the point that we would never actually run out.