Hubbard's Peak Oil Theory - When Will we Reach Peak Oil Production?
Simply put, peak oil is a term that reminds us that our world oil reserves are nonrenewable. Doomsday proponents have long been warning us that we’ve reached peak oil and we will wake up one day and find that there is no more oil left in the world. How far is this day and how will it affect us? Are we doing anything to delay it?
What is peak oil? Peak oil is the maximum level of oil production that can be achieved globally, after which oil production will begin its gradual decline to the end. Before you begin to panic, let me explain this further. Yes, the Earth contains only a finite quantity of accessible oil. And yes, there doesn’t seem to be any indication of a significant decline in oil demand in the near future. However, we cannot simply, suddenly run out of oil. The most pessimistic analysis gives us 2030 as the year when the world is likely to see peak oil production. This timeframe could probably be stretched to 2050. So, we still have time not only to innovate more fuel efficient mechanisms, but also to build technology around alternate sources of energy.
M. King Hubbard was the first to note that oil production follows a bell shaped curve. This means that from the beginning of oil drilling to peak oil will be a period characterized by increasing oil output globally. This will be followed by a period of peak oil production, which rapidly deteriorates to declining oil output across the world. So the moment demand begins to significantly outpace supply, we are in trouble. The world as we know it could very well end because the world today is addicted to fossil fuels. The transport, residential, industrial and commercial sectors are all totally dependent on oil. This is more than evident in the fact that demand for oil has not been affected in the least by the record high oil prices seen this year, with crude oil prices crossing $147 per barrel on July 11, 2008.
Most analysts expect oil production to decline by 2%-4% in the years following peak oil. This figure could rise substantially due to geopolitical reasons. The 9/11 terror attacks made it very clear to the US that extreme dependence on other nations for one’s own energy needs could prove disastrous. Consequently, there has been a concerted effort to lower demand and provide incentives for the use of renewable fuel sources. This, of course, is easier said than done, with the emerging economies, such as India and China, contributing substantially to increased demand.
The problem of peak oil was brought home by the devastation caused to oil producing areas by Hurricane Katrina in 2005. Oil and gasoline prices saw a sudden spike and there was large scale concern regarding the continuing availability of oil. The debate about peak oil has since then led to many conflicting theories. Some believe that the Middle East and OPEC have already crossed peak oil and we need to seriously begin thinking of alternatives to fossil fuels and the conservation of existing resources. Peak oil specialist Clifford Wirth believes that the world has already reached peak oil. This means that it would not be possible to raise the production of oil beyond the current levels of approximately 85 million barrels per day. In other words, discovering will be lower than what has already been discovered and total reserves will begin depleting. However, most analysts today have faith in Hubbard’s theory of a bell curve of production, which gives us some breathing time.
So, what does peak oil mean to the common man? The first to be hit by peak oil would be the transport sector. This means that most other industries would be indirectly affected, since almost all goods and food items are dependent on the transport industry to reach the markets. It, therefore, seems safe to assume that prices of commodities would skyrocket but food shortages could be the order of the day. People would begin to find it difficult to travel to work. This would lead to a preference for housing close to the work place rather than in the suburbs. So peak oil would then lead to turmoil in the housing sector, with the suburban residential markets collapsing. Of course, the political, social and economic consequences of peak oil would be devastating.
It is high time that the world focuses on risk management. The first thing that governments across the world need to do is to spread awareness of the depleting oil resources and promote conservation of fuel. The oil industry needs to focus of technology that will allow for improved oil recovery to increase available resources at the existing reservoirs. Lower grade oil from the oil sands of Canada and Venezuela can significantly boost production levels. Coal liquefaction and natural gas are also viable substitutes worth focusing on.
More importantly, the technology to translate renewable energy sources into everyday use fuels is the need of the day. Biofuels have long been researched and found to be a viable alternative to fossil fuels. What is lacking is the implementation of techniques for the acceptance of biofuels by the common man for use in cars and for heating and various other needs. The industrial and commercial sectors also need to be given incentives to increase the use of biofuels rather than the current petroleum-based fuels. Biofuels would also mean that the agricultural sector gets a boost and government policy to support farmers involved in the production of corn and soy, the primary raw materials for biofuel, could go a long way in this endeavor.
Most importantly, population control could have a huge positive impact on conservation of existing resources. The growing population translates into rising demand for oil. Government efforts once again are required in this arena to alert citizens of the need to curb the current rapid growth in population.
Investors in the oil sector need not panic just yet. As things stand, the oil sector is likely to see high oil prices and demand-supply balance for many years to come. However, this also might be a good time to promote research into alternate fuel sources by investing in companies involved in the development of such technology.