- Academic Research and Writing Tips / Tutorial





Peak Oil and Global Oil Production




The term peak oil refers to the peak in U.S. oil production that occurred in 1970, which is also known as Hubbert's peak because it was predicted by M. K. Hubbert in 1956. Peak oil currently also refers to the time at which maximum global production in oil is achieved after which the rate of production decreases and cannot recover from the decline. The concept is based on the pattern of extraction of oil from fields with production increasing until a peak point is reach, which is followed by a decrease in production as the field is depleted that produce a bell curve for production (Graefe). The rate of decrease in production depends on factors such as the rate of extraction and the total amount of reserve in the field, but the overall pattern is the same whether the extraction occurs in a single field or in multiple fields in a nation. By extension to the global environment, the peak oil concept suggests that the same production and depletion phenomenon could occur with all oil reserves. The projections for oil production indicate that a global peak will occur in the future while the projections for oil consumption indicate that global demand will steadily rise. The projected discrepancy between production and consumption poses risks for international political, economic, and social stability in the future.

Energy Research

The issue of when oil production will peak remains contentious, with some skeptics suggesting that it will not peak (Graefe). Global crude oil production has increased steadily over the past two decades, with a record high achieved in 2008. The pattern of production also suggests that production decreases occur periodically in response to changes in economic activity influencing demand. The time remaining until peak oil occurs on a global basis largely depends on the amount of oil reserves and the rate of extraction of oil reserves as well as the rate of consumption.

In 2007, global production of oil was approximately 73.8 million barrels per day, which is an annual production rate of 19.5 billion barrels. The U.S. Geological Survey estimates that undiscovered reserves range between .4 trillion and 1.2 trillion barrels. Known conventional reserves, recoverable heavy oil resources and recoverable oil sands resources total approximately 2.04 trillion barrels. When the known reserves and resources are added to the low end of the undiscovered range, the amount of remaining oil is 2.44 trillion barrels or 124 years of consumption at 73.8 billion barrels a day. A problem with this estimate of the supply of oil, however, is the uncertainty concerning the actual amount of reserves and the possibility that reserves considered proved cannot be feasibly accessed. In addition, technology can play a role in increasing the amount of oil that can be recovered from known reserves.

Global consumption is not static, however, with demand for oil increasing steadily over time. Estimates of global demand for energy suggest that it will increase by 45% by 2030, with approximately 20% of this increase in demand met by oil. In addition, most of the increase in demand for energy will come from developing nations rather than the industrialized nations (Graefe). The rate of increase in demand for oil will affect the point at which peak oil occurs.

Holland suggests that the laws of supply and demand can have an effect on petroleum production and consumption through pricing and by providing incentives for alternative energy production. From this perspective, peak oil timing will be controlled by market forces rather than the amount of proven reserves. Because the rate of increase of demand for energy is greater than the rate of production, prices for oil increase creating an incentive to invest in exploration and new extraction technologies that result in higher production. The increase in oil price increases the economic viability of alternative energy forms such as natural gas, coal, or nuclear power. As a result, demand for oil will level off and begin to fall creating the anticipated bell curve associated with peak demand but for reasons other than depletion. This argument implies that peak oil is unlikely to result in a precipitous decline in demand. It overlooks the possibility, however, that the alternative forms of energy will be depleted at faster rate if they replace oil as an energy source, potentially leading to a production bell curve for these resources similar to the peak oil curve (Scott).

The peak oil premise also implies that individual nations will reach peak oil at different rates with some nations experience the post peak decrease in production before other nations. Because of the importance of oil in modern industrialized societies, the different rates of reaching peak production has economic, political and social implications. The industrialized nations reaching peak oil in domestic production will have to increasingly rely on foreign production of oil to meet their needs. This situation is likely to lead to a long-run wealth transfer from the non-oil producing nations to the oil producing nations. The nations that do not have sufficient oil to meet their needs will have a negative balance of trade in oil that must be made up for with other types of exports to reduce the possibility that the standard of living in the nation will erode. As the major oil producing nations that have depended on exporting for income reach peak oil, however, their revenues from global markets will decline (Howard).

Because of the dependency on oil for economic growth in both industrialized and developing nations, peak oil could have political implications if consuming nations attempt to seize oil reserves in other nations (Howard). The increased reliance on foreign sources of oil raises energy security issues for nations with declining oil production and increased demand (Scott). The foreign suppliers of oil could use their ability to control the flow of oil as political leverage to extract concessions from consuming nations as occurred with the politically motivated OPEC oil embargo in the 1970s. Even if direct conflict between nations does not occur, there will be increased competition among consuming nations to place political and economic pressure on producing nations to ensure that they are able to obtain enough oil to meet their needs. This is likely to result in escalating conflict from the division between the nations with an energy surplus and the nations with an energy deficit.

Howard suggests that a social effect of peak oil may be to force producing nations to accept assistance from foreign companies to obtain the technology necessary to bring new oil reserves into production. The increased reliance on foreign assistance may foster internal strife in many oil producing nations with populations resenting foreign influences in their societies. Another social effect from peak oil is the possibility that a scarcity of oil will reduce the standard of living in the nations with an oil production deficit because of the higher cost of oil.

It is likely that the supply of oil is finite and that production will peak at some point in the future. While there remains substantial uncertainty about the amount of oil reserves and the ability to extract the reserves, the rate in increase in global consumption suggests that there will be conflict between nations in the future over the issue of access to oil. Peak oil also implies that the development of sources of energy other than oil to meet future consumption needs will be a significant factor to support future economic growth as well as political and social stability.

Bibliography

How to End Dependence on Oil? Air Ease Leaks: https://aireaseleaks.org/dependence-on-oil

Graefe L. The peak oil debate. Econ Rev 94(2): 1-14.

Holland SP. Modeling peak oil. Energy J 29(2): 61-79.

Howard R. Peak oil and strategic resource wars. Futurist 43(5): 18-21.

Scott S. Climate change and peak oil as threats to international peace and security: is it time for the Security Council to legislate? Melbourne J Int Law, 9(2): 495-514.