Peak Oil - All downhill from here?
The term “Peak Oil” initially described the tendency of oil production from a well to reach maximum output then fall steeply. The first models describing peak oil were used by M King Hubbert in 1956, accurately predicting that US oil production would peak between 1965 and 1970. The same pattern of peak, followed by gradual decline, is also observed in entire oil fields and is now used to describe the overall pattern of oil supplies. There was a great deal of controversy about when global production peaks would be reached and the effects of output being outstripped by demand. In 2011 it's become very clear that supplies have been peaking for some time and the resulting high price of fuel is one of the factors behind current global economic problems
Peak oil doesn't mean "oil is going to run out". It's a case of current levels of production being unable to grow because new discoveries are not keeping pace with consumption. At the moment, one barrel of new oil is being discovered for every 4 used. While production cannot rise significantly, demand is growing rapidly, increasing competition for a declining asset. Governments in particular, have been slow to admit there is an issue. Recently this picture has started to change.
The graph on the left is one of a series presented by Glen Sweetman, (Director of International, Economic and Greenhouse Gas division of the US Department of Energy) at a seminar titled "Meeting the growing demand for liquid fuels" (7/04/2009) held for oil economists in Washington. Despite the pessimistic projections for oil supply, made in 2009, the international community continued to deny peak oil until 2011. At the time of the seminar Sweetman acknowledged "a chance exists that we may experience a decline.... .... if investment is not there"
The problem for the DoE is that investment is not there. Spending on exploration and development has fallen dramatically, there is little likelihood of large unknown reserves on a Saudi scale being discovered, and the lead time for the development of new fields is at least 5 years. US government projections include bio-ethanol and development of oil shales as part of the "unidentified projects" area of the graph. Oil shales take 15 years to come on stream, and are extremely environmentally harmful while the production of bio-ethanol is limited by land availability, has a high carbon cost, and adverse environmental impacts.
The reality is that there could be a 2% per year decline in production over the next 5 years, at time of rising demand from rapid growth economies like India and China. These factors will put a permanent end to the age of cheap oil, so essential to G7 economies.
In February 2010 a group supported by major British industries, the UK Industry Task Force on Peak Oil and Energy Security's (ITPOES) Peak Oil Group produced its Second Report. The report cited many well qualified sources, among them,The UK Energy Research Council report “Global Oil Depletion” (Oct 2009) that maintains existing oil field output is declining by approximately 4% per year; a decline that would require the equivalent of a new Saudi Arabia coming on-stream every 3 years to maintain current output.
ITPOES principle concerns are for stability of oil supplies, price volatility and high oil costs creating strong recessionary pressures. In one of the concluding statements Dr Robert Faulkner (LSE - Department of International Relations) warns:
"As the world begins to feel the consequences of tightening supply conditions, the UK may have to deal with a toxic mix of greater oil import dependence, rising yet volatile oil prices, inflationary pressures and the risk of sudden disruptions to the transport system."
The report concludes that oil is holding its already high price of around 80 dollars a barrel (in spring 2010) only because demand has fallen in the developed world due to recession. It projects that as demand from the west starts to climb, oil prices will return to 2008 levels, with potentially far more damage to western economies that evolved in a world of cheap oil than to emerging economies that grew in a high oil cost environment.
The UK economy is seen as being especially vulnerable due to a double whammy of falling North Sea oil production and rising oil prices that will hit the value of Sterling and the UK balance of payments. ITPOES advocate systematic investments in renewables, both as a way of reinvigorating the UK economy and to mitigate the worst effects of high cost oil from 2015 onwards.
For an insightful view of the impacts of Peak Oil read "What Peak Oil Looks Like" by John Michael Greer, author of the "Long Descent".