The Death of Peak Oil

The Death of Peak Oil

Peak oil is a hotly contested topic within the global oil industry. It refers to the point at which the maximum rate of oil extraction occurs, which is followed by a steady and permanent depletion of oil reserves. It is an attempt to forecast when oil reserves will run out, but the legitimacy of an oil peak event has been consistently questioned due to inaccurate predictions.

 

What is Peak Oil?

The term “peak oil” describes the event wherein the maximum rate of petroleum extraction has been reached, after which the rate enters terminal decline. It is the point of maximum oil production; oil depletion is the period of declining supply and reserves that follows. The Hubbert peak theory, named after American geophysicist M. King Hubbert, has been extremely influential in the peak oil debate and features a method for estimating the future production curve of fossil fuels based on past observations. The theory assumes that oil is a finite resource, and as a result basic laws can be used to describe future depletion. The theory states:

  • Production begins at zero
  • Production rises to a peak which will never be surpassed
  • The peak is passed and production declines until the resource has been depleted

In a 1956 theory paper on the topic, Hubbert suggested two possible scenarios for the production of U.S. crude oil:

  • A peak in production rates in 1965
  • A peak in production rates in 1970

Hubbert’s second prediction seemed correct for a number of years, as for twenty years between 1974 and 1994 U.S. crude oil production rates declined, staying within 10% of his predicted value. However, production rates have been significantly greater than predicted since 1994, due to global demand and the development of new extraction technologies. The rise in anticipated rates has in part ‘killed’ concerns over peak oil and when, or if, it will occur.

 

What Killed Peak Oil?

There are a wide range of factors that have led to a rise in oil production rates, which in turn has resulted in unforeseen developments and the absence of a peak oil event:

  • Demand: global demand for crude oil grew an average of 1.76% annually between 1994-2006, and is projected to increase by 0.8% annually by 2030, when the world’s population is expected to be twice that of 1980.
  • Supply: oil can now be extracted from conventional (using standard techniques) and unconventional (oil shales, tight oil etc.) sources, enabling producers to access far more resources than previously possible.
  • Technologies: new and improved oil extraction technologies enable producers to extract the maximum amount of oil from a resource. These technologies are also helping producers discover new reserves within existing fields.

The above are just some of the many factors influencing the global oil industry and the possibility of a peak oil event occurring. Other factors include the rise of green and renewable energy, the nationalization of oil resources and the Organization of the Petroleum Exporting Countries’ influence on production and supply rates.

 

Will it Ever Peak?

Hubbert wasn’t the first person to predict a peak oil event, and concerns over the sustainability of petroleum have been voiced as early as the 1880s. Many people expected production to peak in the 1920s following World War I, but new drilling techniques ensured a strong and steady supply. The scenarios devised by Hubbert weren’t his only predictions, and he revised his calculations a number of times since 1956, although none proved to be a reality.

Since the 2000s numerous oil producers, industry observers and geology professors have made predictions as to when the event will occur. Some have claimed that the peak has already happened, while others suggest it won’t occur for a number of decades. A number of more optimistic commentators have claimed that we won’t see a peak at all due to factors such as technological advancements, the abiotic regeneration of resources and an adequate reserve of undiscovered conventional and unconventional resources.

 

Conclusion

While peak oil is a valid concern, it is proving difficult to predict when oil reserves could reach maximum extraction rates. M. King Hubbert’s peak oil theory correctly predicted the production rate of U.S. crude oil for over 20 years, but an increasing global population, technological advances and new sources have resulted in conflicting opinions as to when this peak will actually be reached. Some say it has already happened, while others claim there will be no peak. Indeed, recent developments in the green and alternative energy fields may greatly reduce our dependence on oil, ensuring that the oil peak event never occurs.

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Published by Research and Markets

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