Peak oil is the temporal maximum of the world crude oil production rate . The concept of a maximum oil price is based on the observation that the extraction of raw materials from certain deposits will reach a historic maximum long before the final depletion of reserves due to several factors and that production will thereafter irreversibly decline. It draws on the work of the geologist M. King Hubbert back from the year 1949th Hubbert forecast in 1974, the maximum of conventional support for 1995, but he has deliberately exempted the unconventional reserves.
In the early and mid-2000s, the concept received worldwide attention through a series of publications and popular science books. The timing and maximum level of total oil production has been significantly delayed by the inclusion of previously unconventional resources such as shale oil , oil sands or deepwater deposits .
In 1962, Hubbert predicted that world oil production would peak at a rate of 12.5 billion barrels per year, around the year 2000. In 1974, Hubbert predicted that peak oil would occur in 1995 “if current trends continue”. Those predictions proved incorrect. However, a number of industry leaders and analysts believe that world oil production will peak between 2015 and 2030, with a significant chance that the peak will occur before 2020. They consider dates after 2030 implausible. By comparison, a 2014 analysis of production and reserve data predicted a peak in oil production about 2035. Determining a more specific range is difficult due to the lack of certainty over the actual size of world oil reserves. Unconventional oil is not currently predicted to meet the expected shortfall even in a best-case scenario. For unconventional oil to fill the gap without “potentially serious impacts on the global economy”, oil production would have to remain stable after its peak, until 2035 at the earliest.
|Pub.||Made by||Peak year/range||Pub.||Made by||Peak year/range|
|1972||United Nations||By 2000||2000||A. A. Bartlett||2004 or 2019|
|1976||UK Dep. of Energy||About 2000||2000||EIA||2021–2067; 2037 most likely|
|1977||Hubbert||1996||2000||EIA (WEO)||Beyond 2020|
|1977||Ehrlich, et al.||2000||2001||Deffeyes||2003–2008|
|1979||Shell||Plateau by 2004||2001||Goodstein||2007|
|1981||World Bank||Plateau around 2000||2002||Smith||2010–2016|
|1994||L. F. Ivanhoe||OPEC plateau 2000–2050||2003||Greene, et al.||2020–2050|
|1997||Ivanhoe||2010||2003||Lynch||No visible peak|
|1997||J. D. Edwards||2020||2003||Shell||After 2025|
|1998||Campbell & Laherrère||2004||2004||Bakhitari||2006–2007|
|1999||Peter Odell||2060||2004||PFC Energy||2015–2020|
|A selection of estimates of the year of peak world oil production, compiled by the United States Energy Information Administration|
Papers published since 2010 have been relatively pessimistic. A 2010 Kuwait University study predicted production would peak in 2014. A 2010 Oxford University study predicted that production will peak before 2015, but its projection of a change soon “… from a demand-led market to a supply constrained market …” was incorrect. A 2014 validation of a significant 2004 study in the journal Energy proposed that it is likely that conventional oil production peaked, according to various definitions, between 2005 and 2011. A set of models published in a 2014 Ph.D. thesis predicted that a 2012 peak would be followed by a drop in oil prices, which in some scenarios could turn into a rapid rise in prices thereafter. According to energy blogger Ron Patterson, the peak of world oil production was probably around 2010.
Major oil companies hit peak production in 2005. Several sources in 2006 and 2007 predicted that worldwide production was at or past its maximum. Fatih Birol, chief economist at the International Energy Agency, also stated that “crude oil production for the world has already peaked in 2006.” However, in 2013 OPEC’s figures showed that world crude oil production and remaining proven reserves were at record highs. According to Matthew Simmons, former Chairman of Simmons & Company International and author of Twilight in the Desert: The Coming Saudi Oil Shock and the World Economy, “peaking is one of these fuzzy events that you only know clearly when you see it through a rear view mirror, and by then an alternate resolution is generally too late.”
The wide use of fossil fuels has been one of the most important stimuli of economic growth and prosperity since the industrial revolution, allowing humans to participate in takedown, or the consumption of energy at a greater rate than it is being replaced. Some believe that when oil production decreases, human culture and modern technological society will be forced to change drastically. The impact of peak oil will depend heavily on the rate of decline and the development and adoption of effective alternatives.
In 2005, the United States Department of Energy published a report titled Peaking of World Oil Production: Impacts, Mitigation, & Risk Management. Known as the Hirsch report, it stated, “The peaking of world oil production presents the U.S. and the world with an unprecedented risk management problem. As peaking is approached, liquid fuel prices and price volatility will increase dramatically, and, without timely mitigation, the economic, social, and political costs will be unprecedented. Viable mitigation options exist on both the supply and demand sides, but to have substantial impact, they must be initiated more than a decade in advance of peaking.” Some of the information was updated in 2007.
Historical oil prices
Long-term oil prices, 1861–2015 (top line adjusted for inflation)
The oil price historically was comparatively low until the 1973 oil crisis and the 1979 energy crisis when it increased more than tenfold during that six-year timeframe. Even though the oil price dropped significantly in the following years, it has never come back to the previous levels. Oil price began to increase again during the 2000s until it hit historical heights of $143 per barrel (2007 inflation adjusted dollars) on 30 June 2008. As these prices were well above those that caused the 1973 and 1979 energy crises, they contributed to fears of an economic recession similar to that of the early 1980s.
It is generally agreed that the main reason for the price spike in 2005–2008 was strong demand pressure. For example, global consumption of oil rose from 30 billion barrels (4.8×109 m3) in 2004 to 31 billion in 2005. The consumption rates were far above new discoveries in the period, which had fallen to only eight billion barrels of new oil reserves in new accumulations in 2004.
Oil price increases were partially fueled by reports that petroleum production is at or near full capacity. In June 2005, OPEC stated that they would ‘struggle’ to pump enough oil to meet pricing pressures for the fourth quarter of that year. From 2007 to 2008, the decline in the U.S. dollar against other significant currencies was also considered as a significant reason for the oil price increases, as the dollar lost approximately 14% of its value against the Euro from May 2007 to May 2008.
Besides supply and demand pressures, at times security related factors may have contributed to increases in prices, including the War on Terror, missile launches in North Korea, the Crisis between Israel and Lebanon, nuclear brinkmanship between the U.S. and Iran, and reports from the U.S. Department of Energy and others showing a decline in petroleum reserves.
More recently, between 2011 and 2014 the price of crude oil was relatively stable, fluctuating around $US100 per barrel. It dropped sharply in late 2014 to below $US70 where it remained for most of 2015. In early 2016 it traded at a low of $US27. The price drop has been attributed to both oversupply and reduced demand as a result of the slowing global economy, OPEC reluctance to concede market share, and a stronger US dollar. These factors may be exacerbated by a combination of monetary policy and the increased debt of oil producers, who may increase production to maintain liquidity.
This price drop has placed many US tight oil producers under considerable financial pressure. As a result, there has been a reduction by oil companies in capital expenditure of over $US400 billion. It is anticipated that this will have effects on global production in the longer term, leading to statements of concern by the International Energy Agency that governments should not be complacent about energy security. Energy Information Agency projections anticipate market oversupply and prices below $US50 until late 2017.
Effects of historical oil price rises
In the past, sudden increases in the price of oil have led to economic recessions, such as the 1973 and 1979 energy crises. The effect the increased price of oil has on an economy is known as a price shock. In many European countries, which have high taxes on fuels, such price shocks could potentially be mitigated somewhat by temporarily or permanently suspending the taxes as fuel costs rise. This method of softening price shocks is less useful in countries with much lower gas taxes, such as the United States. A baseline scenario for a recent IMF paper found oil production growing at 0.8% (as opposed to a historical average of 1.8%) would result in a small reduction in economic growth of 0.2–0.4%.
Researchers at the Stanford Energy Modeling Forum found that the economy can adjust to steady, gradual increases in the price of crude better than wild lurches.
Some economists predict that a substitution effect will spur demand for alternate energy sources, such as coal or liquefied natural gas. This substitution can be only temporary, as coal and natural gas are finite resources as well.
Prior to the run-up in fuel prices, many motorists opted for larger, less fuel-efficient sport utility vehicles and full-sized pickups in the United States, Canada, and other countries. This trend has been reversing because of sustained high prices of fuel. The September 2005 sales data for all vehicle vendors indicated SUV sales dropped while small cars sales increased. Hybrid and diesel vehicles are also gaining in popularity.
EIA published Household Vehicles Energy Use: Latest Data and Trends in Nov 2005 illustrating the steady increase in disposable income and $20–30 per barrel price of oil in 2004. The report notes “The average household spent $1,520 on fuel purchases for transport.” According to CNBC that expense climbed to $4,155 in 2011.
In 2008, a report by Cambridge Energy Research Associates stated that 2007 had been the year of peak gasoline usage in the United States, and that record energy prices would cause an “enduring shift” in energy consumption practices. The total miles driven in the U.S. peaked in 2006.
The Export Land Model states that after peak oil petroleum exporting countries will be forced to reduce their exports more quickly than their production decreases because of internal demand growth. Countries that rely on imported petroleum will therefore be affected earlier and more dramatically than exporting countries. Mexico is already in this situation. Internal consumption grew by 5.9% in 2006 in the five biggest exporting countries, and their exports declined by over 3%. It was estimated that by 2010 internal demand would decrease worldwide exports by 2,500,000 barrels per day (400,000 m3/d).
Canadian economist Jeff Rubin has stated that high oil prices are likely to result in increased consumption in developed countries through partial manufacturing de-globalisation of trade. Manufacturing production would move closer to the end consumer to minimise transportation network costs, and therefore a demand decoupling from gross domestic product would occur. Higher oil prices would lead to increased freighting costs and consequently, the manufacturing industry would move back to the developed countries since freight costs would outweigh the current economic wage advantage of developing countries. Economic research carried out by the International Monetary Fund puts overall price elasticity of demand for oil at −0.025 short-term and −0.093 long term.
Agricultural effects and population limits
Since supplies of oil and gas are essential to modern agriculture techniques, a fall in global oil supplies could cause spiking food prices and unprecedented famine in the coming decades.[note 1] Geologist Dale Allen Pfeiffer contends that current population levels are unsustainable, and that to achieve a sustainable economy and avert disaster the United States population would have to be reduced by at least one-third, and world population by two-thirds.
The largest consumer of fossil fuels in modern agriculture is ammonia production (for fertilizer) via the Haber process, which is essential to high-yielding intensive agriculture. The specific fossil fuel input to fertilizer production is primarily natural gas, to provide hydrogen via steam reforming. Given sufficient supplies of renewable electricity, hydrogen can be generated without fossil fuels using methods such as electrolysis. For example, the Vemork hydroelectric plant in Norway used its surplus electricity output to generate renewable ammonia from 1911 to 1971.
Iceland currently generates ammonia using the electrical output from its hydroelectric and geothermal power plants, because Iceland has those resources in abundance while having no domestic hydrocarbon resources, and a high cost for importing natural gas.
Long-term effects on lifestyle
A majority of Americans live in suburbs, a type of low-density settlement designed around universal personal automobile use. Commentators such as James Howard Kunstler argue that because over 90% of transportation in the U.S. relies on oil, the suburbs’ reliance on the automobile is an unsustainable living arrangement. Peak oil would leave many Americans unable to afford petroleum based fuel for their cars, and force them to use bicycles or electric vehicles. Additional options include telecommuting, moving to rural areas, or moving to higher density areas, where walking and public transportation are more viable options. In the latter two cases, suburbs may become the “slums of the future.” The issue of petroleum supply and demand is also a concern for growing cities in developing countries (where urban areas are expected to absorb most of the world’s projected 2.3 billion population increase by 2050). Stressing the energy component of future development plans is seen as an important goal.
Rising oil prices, if they occur, would also affect the cost of food, heating, and electricity. A high amount of stress would then be put on current middle to low income families as economies contract from the decline in excess funds, decreasing employment rates. The Hirsch/US DoE Report concludes that “without timely mitigation, world supply/demand balance will be achieved through massive demand destruction (shortages), accompanied by huge oil price increases, both of which would create a long period of significant economic hardship worldwide.”
Methods that have been suggested for mitigating these urban and suburban issues include the use of non-petroleum vehicles such as electric cars, battery electric vehicles, transit-oriented development, carfree cities, bicycles, new trains, new pedestrianism, smart growth, shared space, urban consolidation, urban villages, and New Urbanism.
An extensive 2009 report on the effects of compact development by the United States National Research Council of the Academy of Sciences, commissioned by the United States Congress, stated six main findings. First, that compact development is likely to reduce “Vehicle Miles Traveled” (VMT) throughout the country. Second, that doubling residential density in a given area could reduce VMT by as much as 25% if coupled with measures such as increased employment density and improved public transportation. Third, that higher density, mixed-use developments would produce both direct reductions in CO2 emissions (from less driving), and indirect reductions (such as from lower amounts of materials used per housing unit, higher efficiency climate control, longer vehicle lifespans, and higher efficiency delivery of goods and services). Fourth, that although short term reductions in energy use and CO2 emissions would be modest, that these reductions would become more significant over time. Fifth, that a major obstacle to more compact development in the United States is political resistance from local zoning regulators, which would hamper efforts by state and regional governments to participate in land-use planning. Sixth, the committee agreed that changes in development that would alter driving patterns and building efficiency would have various secondary costs and benefits that are difficult to quantify. The report recommends that policies supporting compact development (and especially its ability to reduce driving, energy use, and CO2 emissions) should be encouraged.
An economic theory that has been proposed as a remedy is the introduction of a steady state economy. Such a system could include a tax shifting from income to depleting natural resources (and pollution), as well as the limitation of advertising that stimulates demand and population growth. It could also include the institution of policies that move away from globalization and toward localization to conserve energy resources, provide local jobs, and maintain local decision-making authority. Zoning policies could be adjusted to promote resource conservation and eliminate sprawl.
Since aviation relies mainly on jet fuels derived from crude oil, commercial aviation has been predicted to go into decline with the global oil production.
To avoid the serious social and economic implications a global decline in oil production could entail, the Hirsch report emphasized the need to find alternatives, at least ten to twenty years before the peak, and to phase out the use of petroleum over that time. This was similar to a plan proposed for Sweden that same year. Such mitigation could include energy conservation, fuel substitution, and the use of unconventional oil. The timing of mitigation responses is critical. Premature initiation would be undesirable, but if initiated too late could be more costly and have more negative economic consequences.
Permaculture sees peak oil as holding tremendous potential for positive change, assuming countries act with foresight. The rebuilding of local food networks, energy production, and the general implementation of “energy descent culture” are argued to be ethical responses to the acknowledgment of finite fossil resources. Majorca is an island currently diversifying its energy supply from fossil fuels to alternative sources and looking back at traditional construction and permaculture methods.
The Transition Towns movement, started in Totnes, Devon and spread internationally by “The Transition Handbook” (Rob Hopkins) and Transition Network, sees the restructuring of society for more local resilience and ecological stewardship as a natural response to the combination of peak oil and climate change.
The theory of peak oil is controversial and became an issue of political debate in the USA and Europe in the mid-2000s. Critics argued that newly found oil reserves forestalled a peak oil event. Some argued that oil production from new oil reserves and existing fields will continue to increase at a rate that outpaces demand, until alternate energy sources for current fossil fuel dependence are found. In 2015, analysts in the petroleum and financial industries claimed that the “age of oil” had already reached a new stage where the excess supply that appeared in late 2014 may continue. A consensus was emerging that parties to an international agreement would introduce measures to constrain the combustion of hydrocarbons in an effort to limit global temperature rise to the nominal 2 °C that scientists predicted would limit environmental harm to tolerable levels.
Another argument against the peak oil theory is reduced demand from various options and technologies substituting oil. US federal funding to develop algae fuels increased since 2000 due to rising fuel prices. Many other projects are being funded in Australia, New Zealand, Europe, the Middle East, and elsewhere and private companies are entering the field.
Oil industry representatives
The president of Royal Dutch Shell’s U.S. operations John Hofmeister, while agreeing that conventional oil production would soon start to decline, criticized the analysis of peak oil theory by Matthew Simmons for being “overly focused on a single country: Saudi Arabia, the world’s largest exporter and OPEC swing producer.” Hofmeister pointed to the large reserves at the US outer continental shelf, which held an estimated 100 billion barrels (16×109 m3) of oil and natural gas. However, only 15% of those reserves were currently exploitable, a good part of that off the coasts of Texas, Louisiana, Mississippi, and Alabama.
Hofmeister also pointed to unconventional sources of oil such as the oil sands of Canada, where Shell was active. The Canadian oil sands—a natural combination of sand, water, and oil found largely in Alberta and Saskatchewan—are believed to contain one trillion barrels of oil. Another trillion barrels are also said to be trapped in rocks in Colorado, Utah, and Wyoming, in the form of oil shale. Environmentalists argue that major environmental, social, and economic obstacles would make extracting oil from these areas excessively difficult. Hofmeister argued that if oil companies were allowed to drill more in the United States enough to produce another 2 million barrels per day (320×103 m3/d), oil and gas prices would not be as high as they were in the late 2000s. He thought in 2008 that high energy prices would cause social unrest similar to the 1992 Rodney King riots.
In 2009, Dr. Christoph Rühl, chief economist of BP, argued against the peak oil hypothesis:
Physical peak oil, which I have no reason to accept as a valid statement either on theoretical, scientific or ideological grounds, would be insensitive to prices. … In fact the whole hypothesis of peak oil – which is that there is a certain amount of oil in the ground, consumed at a certain rate, and then it’s finished – does not react to anything … Therefore there will never be a moment when the world runs out of oil because there will always be a price at which the last drop of oil can clear the market. And you can turn anything into oil into if you are willing to pay the financial and environmental price … (Global Warming) is likely to be more of a natural limit than all these peak oil theories combined. … Peak oil has been predicted for 150 years. It has never happened, and it will stay this way.
— Dr. Christoph Rühl, BP
Rühl argued that the main limitations for oil availability are “above ground” factors such as the availability of staff, expertise, technology, investment security, funds, and global warming, and that the oil question was about price and not the physical availability.
In 2008, Daniel Yergin of CERA suggest that a recent high price phase might add to a future demise of the oil industry, not of complete exhaustion of resources or an apocalyptic shock but the timely and smooth setup of alternatives. Yergin went on to say, “This is the fifth time that the world is said to be running out of oil. Each time-whether it was the ‘gasoline famine’ at the end of WWI or the ‘permanent shortage’ of the 1970s-technology and the opening of new frontier areas have banished the spectre of decline. There’s no reason to think that technology is finished this time.”
In 2006, Clive Mather, CEO of Shell Canada, said the Earth’s supply of bitumen hydrocarbons was “almost infinite”, referring to hydrocarbons in oil sands.
In 2006 attorney and mechanical engineer Peter W. Huber asserted that the world was just running out of “cheap oil,” explaining that as oil prices rise, unconventional sources become economically viable. He predicted that, “he tar sands of Alberta alone contain enough hydrocarbon to fuel the entire planet for over 100 years.”
Environmental journalist George Monbiot responded to a 2012 report by Leonardo Maugeri by suggesting that there is more than enough oil (from unconventional sources) for capitalism to “deep-fry” the world with climate change. Stephen Sorrell, senior lecturer Science and Technology Policy Research, Sussex Energy Group, and lead author of the UKERC Global Oil Depletion report, and Christophe McGlade, doctoral researcher at the UCL Energy Institute have criticized Maugeri’s assumptions about decline rates.
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