Peak Oil and Oil Depletion Theory

Peak Oil, a concept proposed by M. King Hubbert in 1956 (1), is the term used to describe the maximum production of oil, which declines after this point. From a common sense point of view, Peak Oil is an indisputable reality. Any finite resource will eventually deplete if it is continually utilized and not replenished. As the world has exploited oil at an ever-increasing rate, it is just a matter of time before this point occurs. Many in the oil industry have disputed the concept of Peak Oil. More recently, however, even the most conservative voices in the oil industry such as the International Energy Agency have described scenarios in which it will occur before 2020 (2). Other appraisals have predicted before 2015 or earlier, and some in the industry claim it has already occurred (3-6). A middle-of-the-road assessment might be sometime between 2010 and 2015.

New technologies and renewable energy could theoretically solve many of these problems, but the issue is complicated. For example, coal can be converted to liquid hydrocarbons fuels but with much reduced energy return and greatly increased costs. Such technologies would have huge carbon footprints and, therefore, may be unacceptable in a world increasingly regulating carbon emissions. There is also the difficulty is changing to a new fuel when the resources to do so are also diminishing.

Economies require growth and consumption for full employment, and the new reality will be one of scarcity. This is the “transition economy” which will bring much social unrest for decades to come. If conditions become too severe, it may permanently threaten industrial economies. Sometime in the next 5 years the world will have to start to confront this problem, which has more dire and immediate consequences for human society than global warming. The challenge is to make this transition as smooth as possible.

For a more detailed analysis of these problems and their mitigation, readers are referred to Robert Hirsch's excellent seminal 2005 report for the US Department of Energy entitled Peaking of World Oil Production: Impacts, Mitigation and Risk Management which is freely available for download.

1. M. K. Hubbert, Drilling and Producton Practise 95, (1956).
2. T. Whipple, Peak Oil Review 3, (2008).
3. R. A. Kerr, Science 310, 1106 (Nov 18, 2005).
4. R. A. Kerr, Science 317, 437 (Jul 27, 2007).
5. R. A. Kerr, Science 322, 1178 (Nov 21, 2008).
6. A. Witze, Nature 445, 14 (Jan 4, 2007).

This is not an issue of just academic interest as it will have enormous consequences for human society. The problem is mainly one of economics: on the up-side of the growth curve there is ever-increasing demand which is being met by increasing oil production; on the down-side there is unmet demand attempting to cope with ever-decreasing oil production. Unfortunately, liquid hydrocarbons are a fuel which, for much of our agricultural and industrial production, cannot be currently substituted. For example, the heavy machinery required for farm production cannot currently be powered by other means. The energy inputs into agricultural production are unsustainable. For every calorie we consume, 10 other calories, mainly derived fossil fuels, are required (http://www.fromthewilderness.com/free/ww3/100303_eating_oil.html). This is one of the most disturbing aspects of the problem. In addition, many industries are dependent on heavy machinery and on labour having access to cheap personal transportation.

The result is that once oil production peaks, the differential between demand and supply will lead to higher oil prices. Higher oil prices will most likely take the form of price spikes as speculators and others drive the market. This will accelerate until increased costs force the global economy into recession. The oil price will eventually lower again. Recoveries from these recessions will be difficult or slow due to declining oil production, which is ultimately the driver of growth. Therefore, the likely outcome is a series of prices spikes (5) followed by a series of subsequent recessions. Modern free-market economies as we know them, which can only function with growth, will have trouble coping will prolonged recession and may stall. This is the future until a suitable energy substitute can be found.