Peak oil is the point in time where global oil production reaches its maximum point and then declines. Whilst there can be no reasonable doubt that there will be a day when oil production is higher than on any other, there is a lot of doubt, speculation, and controversy about when this point in time will occur, why it will occur, and what it's occurring will actually mean for us. In this article (written June 2010) I am going to present my thoughts on peak oil and attempt to describe the situation as I see it, but first I'd like to look at the two of the most common opinions about peak oil that are out there.
View 1. The market fundamentalist view,
At the extremely optimistic end of the spectrum lies what I'd call the market fundamentalist view, the idea that we'll always be able to access as much oil as we want. Usually, this idea is the result of a free market fundamentalist view of economics. The thinking goes something like this –
1. There is more oil in the earth than we could ever use, it's just that some of it costs a lot of money to extract and extracting it isn't economical with today's technology at today's prices.
2. If we ever experience a temporary shortage (or even low stocks of oil) the price will rise, this price rise will make extracting oil from some of the previously uneconomical sources become economical and the resulting increase in supply will be enough to fill any shortage.
3. Conclusion. There is therefore no need to worry or indeed do anything about peak oil, just leave it to the market and the market's freely floating pricing mechanism will take care of everything, ensuring that we always have access to as much oil as we want. Whilst there obviously will be a day when more oil is produced than on any other we won't noticed that day for many years afterwards and nor will that day matter – the reason for any fall in oil production will be falling demand which will only happen when we have more energy efficient technologies and alternative fuel sources.
As the recent global financial crisis has shown, market fundamentalism (often known as neo-liberalism) is an extremely flawed concept – markets are far from perfect and don't always do the things society needs them to do. Markets often break down, markets cannot always correct themselves, and markets certainly do not make sure that resources are distributed in a socially acceptable way. With peak oil theory - as with almost everything else - I certainly do not agree with the market fundamentalists, for a number of reasons.
Firstly, despite all the attempts to do so, we still don't have a suitable alternative to oil and gas (except perhaps coal). Nuclear power, wind, solar energy etc, etc... simply don't produce enough energy to replace oil and gas. Bio-fuels are also a very bad idea; bio-fuel is essentially using farmland to grow plants to burn, this is very bad for the environment and causes a huge increase in food prices, which hurts people in the developing world.
Secondly, the world has no, or almost no, spare oil production capacity left. All oil wells eventually reach a peak point in their rate of production long before they run out of oil. When this happens the well's production starts to decline and nothing we can do can reverse the decline, at least not for long. All oil fields are just a finite number of oil wells, so these too reach their peak point in production and inevitably start to decline; and when an oil producing country's main oil fields are in decline, so to will the country's production. The USA hit it's peak in oil production in 1970, the UK hit it's peak in 1999, Norway hit it's peak in 2001, and despite much higher prices in recent years Mexico has experienced a sharp decline in oil production. In fact, oil production in most major oil producing nations is now in decline. This decline, and the increased demand, can only be made up by massive increases from the few countries (such as Iraq and Russia) that can still increase their production. There is evidence that now even Saudi Arabia's oil production has peaked although this is hard to be sure of since Saudi Arabia, like most OPEC countries, treats certain oil reserve data as a state secret. But all the evidence I see points to the fact that despite all their best efforts and a massive increase in the price of oil since 1999, one after another, key fields in oil producing nations are falling into decline. Once again the market fundamentalists don't appear to have a good grasp on reality.
View 2. The future's gonna look like something out of the Mad Max movies,
At the extremely negative end of the spectrum we have the apocalyptic 'Mad Max' predictions about peak oil. Some of these ideas seem every bit as delusional as the nonsense spouted by the market fundamentalists. Often when I look into it I find that the people spouting these ideas are religious fundamentalists longing for the end of the world (such groups seem to be consistently wrong with their doomsday predictions), or sometimes the person making the peak oil doomsday prediction just turns out to be an alarmist author selling 'peak oil survival kits' and other garbage.
I believe the peak oil doomsday crowd are wrong because hitting peak oil doesn't mean there is no oil left, it just means that world oil production enters a decline (most likely a decline of around several percent per year). The USA for example is still producing large quantities of oil 40 years after hitting its peak in oil production. The result of a decline in world oil production would be increased energy prices and less use. Whilst I can see a decline in oil supplies resulting in global recession, people driving less, a reduction in the use of air travel, and it no longer being economical to ship containers filled with crappy plastic trinkets made in Chinese sweatshops to the West I can't see it going much beyond that, at least not for people living in the Western World – I certainly can't see the break down of law and order and mass out breaks of cannibalism because we're using 2% less oil than we did last year now that the stuff costs over $200 per barrel.
View 3. Peak oil: the situation as I see it,
I believe world oil production has probably already peaked and that the next decade or two will be very challenging as a result. I think 2008 will prove to be the year where world oil production was higher than any other and if it's not then that year of maximum production isn't very far away (probably before 2015). The U.S Energy Information Administration provides some excellent independent statistics and analysis and lists world crude oil production since 1960 to 2008. World crude oil production increased in the decade from 1995 to 2005 from 62.38 million barrels per day in 1995 to a record high of 73.74 million barrels per day in 2005. In 2006 world crude oil production fell slightly from it's 2005 high to 73.46 million barrels a day and then fell again in 2007 to 73.01 million barrels a day. In 2008 when oil prices rose to their all time highs of over $100 per barrel production rose slightly above its previous record in 2005 to 73.78 million barrels per day. Despite these record oil prices, world oil production only managed to rise by 40,000 barrels per day on its record 3 years earlier. This tells me that we may look back at 2008 several years from now and acknowledge it as the year when world crude oil production peaked. It also exposes the free market fundamentalist's nonsense for what it is – if the market fundamentalist dogma were true then the spike in prices would have been followed by a huge increase in production but it wasn't, this tells me that the oil producers of the world simply weren't able to increase their production in line with the rapidly increasing oil prices.
Predicting what exactly will happen in the decades after a peak in world crude oil production is somewhat harder but I think it's reasonable to conclude that now that almost all the 'easy oil' in the world appears to have been found and be approaching it's peak in production, energy prices will rise sharply. Whilst a sharp rise in energy prices will no-doubt result in a search for alternative fuels and increase the demand for ultra energy efficient technologies it will also harm the economy. Energy prices affect everything and act like a tax on economic growth as the production and transportation costs of everything are forced to rise. These increases on transportation costs might even have a rather profound effect on the way the global economy is structured, for example, in the future the high transportation costs caused by high oil prices may mean that it is no longer economical for consumers in the west to have cheap clothes and cheap plastic trinkets made in sweatshops in the Far East – these manufacturing industries may have to be moved back closer to home.
I don't imagine that any of these changes and problems will result in any of the doomsday scenarios that are often associated with predictions about peak oil though as I see no reason why recession, an increase in energy prices and a decrease in energy use should result in the total breakdown of law and order although we may come to see the 2003 invasion of Iraq as the first of many 'oil wars'. Wars over control of the developing world's oilfields (especially in the African countries) and famine in the developing world as a result of increased food costs are the biggest threats from peak oil.
Eventually, I'm sure we will find an alternative to fossil fuels, human beings are very creative and as the saying goes, 'necessity is the mother of all invention'. When a cheap and sustainable alternative to oil is discovered there will be a new economic boom and we'll look back at these recent years as the beginning of the end of the oil age. In short, apart from recession and a decline in living standards we in the West will most likely be OK – it's the threat of 'oil wars' and famine in the developing world that we really need to be concerned about. That's the situation regarding peak oil as I see it today, only time will tell if I'm right.
