Climate Progress freaks out about Peak Oil

Proving that The Oil Drum has no monopoly on Peak Oil fanaticism, Climate Progress freaks out based on an interview with International Energy Agency chief economist Fatih Birol. It's perhaps telling that even The Oil Drum itself doesn't interpret the interview so dramatically.

The crux of the post is this synthesis, apparently extrapolated from the decline in production in existing fields and the IEA quote that current production is "patently unsustainable":

The IEA’s work makes clear that for oil to stay significantly below $200 a barrel (and U.S. gasoline to be significantly below $5 a gallon) by 2020 would take a miracle.

Unfortunately, going through their arguments I can't quite make the logical connection between the IEA work and that conclusion (unless one makes the logical leap that a peak in physical production must necessarily coincide with $200/bbl oil). The Climate Progress argument on Peak Oil is basically that the market can't adjust by itself, so we need the government to help it. I tend to disagree because:

1) High prices have been proven to be a very effective mechanism for "demand destruction", much more so than government measures like fuel efficiency standards in the U.S. - partly because of the Jevons Paradox, partly due to substitution, and partly because the U.S. constitutes a shrinking proportion of global petroleum consumption.

2) While the easy oil is dwindling, known oil reserves are nowhere near exhausted. Canada and Venezuela are both estimated to have reserves in oil sands equal to the entire world's reserves of conventional crude. Brazil recently discovered massive deepwater deposits, and there are likely similar deposits elsewhere in the world's oceans, waiting to be found. The Arctic may hold as much as 20% of undiscovered oil and gas reserves. Yes, these reserves cost more to producer than the archetypal Saudi onshore gusher, but last I checked oil companies were estimating $60-100/bbl breakeven for the Alberta tar sands and $40-60/bbl breakeven for Brazil's pre-salt reserves - nowhere near the $200/bbl doomsday prediction. And no, oil sands aren't that much worse for climate change than other kinds of oil.

Physical oil production may well peak in the next decade, but I don't yet see compelling evidence for such a steep fall-off from that point, and I think some people underestimate the power of the market - unabetted by any beneficent government intervention! - to adjust in response to price signals. So for now I find this degree of hysteria unwarranted.

Update: Tim Haab at Environmental Economics takes a similar position:

In my opinion, prices are the only (and simplest) mechanism powerful enough to provide the incentive for the widespread changes in opinion needed for industrial change of this magnitude. Unfortunately, some might interpret that as a call for governmental manipulation of prices. Please don't interpret it that way. That would be the wrong interpretation of what I'm saying and I might cry.

My position is simple: I'm confident that the market will take care of the prices all on it's own. When prices rise, people will take notice. But I'm just an economist...what do I know?