Peak Oil

“ All the easy oil and gas in the world has pretty much been found. Now comes the harder work in finding and producing oil from more challenging environments and work areas. ”
— William J. Cummings, major oil-company spokesman, December 2005

“ World reserves are confused and in fact inflated. Many of the so called reserves are in fact resources. They’re not delineated, they’re not accessible, they’re not available for production ”
— Sadad I. Al Husseini, former VP of Aramco, October 2007.

Peak oil is the point in time when the maximum rate of global petroleum production is reached, after which the rate of production enters its terminal decline. If global consumption is not mitigated before the peak, a world energy crisis may develop because the availability of conventional oil will drop and prices will rise, perhaps dramatically. M. King Hubbert first used the theory in 1956 to accurately predict that United States oil production would peak between 1965 and 1970. His logistic model, now called Hubbert peak theory, has since been used to predict the peak petroleum production of many other countries, and has also proved useful in other limited-resource production-domains. According to the Hubbert model, the production rate of a limited resource will follow a roughly symmetrical bell-shaped curve based on the limits of exploitability and market pressures.

A bell-shaped production curve, as originally suggested by M. King Hubbert in 1956.

Some observers, such as petroleum industry experts Kenneth S. Deffeyes and Matthew Simmons, believe the high dependence of most modern industrial transport, agricultural and industrial systems on the relative low cost and high availability of oil will cause the post-peak production decline and possible severe increases in the price of oil to have negative implications for the global economy. Although predictions as to what exactly these negative effects will be vary greatly, "a growing number of oil-industry chieftains are endorsing an idea long deemed fringe: The world is approaching a practical limit to the number of barrels of crude oil that can be pumped every day."

If political and economic change only occur in reaction to high prices and shortages rather than in reaction to the threat of a peak, then the degree of economic damage to importing countries will largely depend on how rapidly oil imports decline post-peak. The Export Land Model shows that the amount of oil available internationally drops much more quickly than production in exporting countries because the exporting countries maintain an internal growth in demand. Shortfalls in production (and therefore supply) would cause extreme price inflation, unless demand is mitigated with planned conservation measures and use of alternatives, which would need to be implemented 20 years before the peak.

Optimistic estimations of peak production forecast a peak will happen in the 2020s or 2030s and assume major investments in alternatives will occur before a crisis, obviating the need for major changes in the lifestyle of developed nations. These models show the price of oil at first escalating and then retreating as other types of fuel and energy sources are used.

Pessimistic predictions of future oil production operate on the thesis that the peak has already occurred or will occur shortly and, as proactive mitigation may no longer be an option, predict a global depression, perhaps even initiating a chain reaction of the various feedback mechanisms in the global market which might stimulate a collapse of global industrial civilization. Throughout the first two quarters of 2008, there were signs that a possible recession was being made worse by a series of record oil prices.