Oil Crisis

World Oil Crisis: Driving forces, Impact and Effects

Current Oil Price (per barrel) 



World peak oil

Peak oil refers to the point in time when the maximum rate of global petroleum extraction is reached, after which the rate of oil production enters terminal decline. The concept is based on the observed production rates of individual oil wells, and the combined production rate of a field of related oil wells. The aggregate production rate from an oil field over time appears to grow exponentially until the rate peaks and then declines, sometimes rapidly, until the field is depleted. Oil Crisis - EarthIt has been shown to be applicable to the sum of a nation’s domestic production rate, and is similarly applied to the global rate of petroleum production. Peak oil is not about running out of oil, but the peaking and subsequent decline of the production rate of oil.

M. King Hubbert created and first used this theory in 1956 to accurately predict that United States oil production would peak between 1965 and 1970. His logistic model, now called Hubbert peak theory, and its variants have been shown to be descriptive with reasonable accuracy of the peak and decline of production from oil wells, fields, regions, and countries, and has also proved useful in other limited-resource production-domains.

Some observers, such as petroleum industry experts Kenneth S. Deffeyes and Matthew Simmons, believe the high dependence of most modern industrial transport, agricultural and industrial systems on the relative low cost and high availability of oil will cause the post-peak production decline and possible severe increases in the price of oil to have negative implications for the global economy. Predictions vary greatly as to what exactly these negative effects would be.

Oil Crisis - Oil ExtractionIf political and economic changes only occur in reaction to high prices and shortages rather than in reaction to the threat of a peak, then the degree of economic damage to importing countries will largely depend on how rapidly oil imports decline post-peak. According to the Export Land Model, oil exports drop much more quickly than production drops due to domestic consumption increases in exporting countries. Supply shortfalls would cause extreme price inflation, unless demand is mitigated with planned conservation measures and use of alternatives.

Optimistic estimations of peak production forecast the global decline will begin by 2020 or later, and assume major investments in alternatives will occur before the oil crisis begins, without requiring major changes in the lifestyle of heavily oil-consuming nations. These models show the price of oil at first escalating and then retreating as other types of fuel and energy sources are used.

Pessimistic predictions of future oil production operate on the thesis that either the peak has already occurred, the global system is on the cusp of the peak, or that it will occur shortly and, as proactive mitigation may no longer be an option, predict a global depression, perhaps even initiating a chain reaction of the various feedback mechanisms in the global market which might stimulate a collapse of global industrial civilization, potentially leading to large population declines within a short period. Throughout the first two quarters of 2008, there were signs that a possible US recession was being made worse by a series of record oil prices.

Oil demand

The demand side of Peak oil is concerned with the consumption of oil over time, and the growth of this demand. Oil Crisis - US ProductionWorld crude oil demand grew an average of 1.76% per year from 1994 to 2006, with a high of 3.4% in 2003-2004. World demand for oil is projected to increase 37% over 2006 levels by 2030 (118 million barrels per day from 86 million barrels), due in large part to increases in demand from the transportation sector.

Energy demand is distributed amongst four broad sectors: transportation, residential, commercial, and industrial. In terms of oil use, transportation is the largest sector and the one that has seen the largest growth in demand in recent decades. This growth has largely come from new demand for personal-use vehicles powered by internal combustion engines. This sector also has the highest consumption rates, accounting for approximately 68.9% of the oil used in the United States in 2006, and 55% of oil use worldwide as documented in the Hirsch report. Transportation is therefore of particular interest to those seeking to mitigate the effects of Peak oil.

With the demand growth at its highest level in the developing world, the United States is the world's largest consumer of petroleum. Between 1995 and 2005, US consumption grew from 17.7 million barrels a day to 20.7 million barrels a day, a 3 million barrel a day increase. China, by comparison, increased consumption from 3.4 million barrels a day to 7 million barrels a day, an increase of 3.6 million barrels a day, in the same time frame.

As countries develop, industry, rapid urbanization and higher living standards drive up energy use, most often of oil. Thriving economies such as China and India are quickly becoming large oil consumers. China has seen oil consumption grow by 8% a year since 2002, doubling from 1996-2006 levels. In 2008, auto sales in China were expected to grow by as much as 15-20 percent, resulting in part from economic growth rates of over 10 percent for 5 years in a row. Although swift continued growth in China is often predicted, others predict that China's export dominated economy will not continue such growth trends due to wage and price inflation and reduced demand from the US. India's oil imports are expected to more than triple from 2005 levels by 2020, rising to 5 million barrels per day.

Another significant factor on petroleum demand has been human population growth. Oil production per capita peaked in the 1970s. The world’s population in 2030 is expected to be double that of 1980. Author Matt Savinar predicts that oil production in 2030 will have declined back to 1980 levels as worldwide demand for oil significantly out-paces production. Physicist Albert Bartlett claims that the rate of oil production per capita is falling, and that the decline has gone undiscussed because a politically incorrect form of population control may be implied by mitigation. Oil production per capita has declined from 5.26 barrels per year in 1980 to 4.44 barrels per year in 1993, but then increased to 4.79 barrels per year in 2005. In 2006, the world oil production took a downturn from 84.631 to 84.597 million barrels per day, although population has continued to increase. This has caused the oil production per capita to drop again to 4.73 barrels per year.

One factor that has so far helped ameliorate the effect of population growth on demand is the decline of population growth rate since the 1970s, although this is offset to a degree by increasing average longevity in developed nations. In 1970, the population grew at the rate of 2.1%. By 2007, the growth rate had declined to 1.167%. However, oil production is still outpacing population growth to meet demand. World population grew by 6.2% from 6.07 billion in 2000 to 6.45 billion in 2005, whereas according to BP, global oil production during that same period increased from 74.9 to 81.1 million barrels (by 8.2%) or according to EIA, from 77.762 to 84.631 million barrels (by 8.8%).

Oil Supply

- Oil discoveries

In order to pump oil, it first needs to be discovered. The peak of world oilfield discoveries occurred in 1965 at around 55 billion barrels a year. The rate of oil discoveries has been falling steadily ever since. Less than 10 billion barrels of oil were discovered every year between 2002-2007.

- World oil reserves

Conventional crude oil reserves include all crude oil that is technically possible to produce from reservoirs through a well bore, using primary, secondary, improved, enhanced, or tertiary methods. This does not include liquids extracted from mined solids or gasses including tar sands, oil shales, gas-to-liquid processes and coal-to-liquid processes.

Oil reserves are classified as proven, probable and possible. Proven reserves are generally intended to have at least 90% to 95% certainty of containing the amount specified. Probable reserves have an intended probability of 50%, and the possible reserves - an intended probability of 5% or 10%. Current technology is capable of extracting about 40% of the oil from most wells. Some speculate that future technology will make further extraction possible, but to some, this future technology is already considered in proven and probable reserve numbers.

In many major producing countries, the majority of reserves claims have not been subject to outside audit or examination. Most of the easy-to-extract oil has been found. Recent price increases have led to oil exploration in areas where extraction is much more expensive, such as in extremely deep wells with extreme downhole temperatures, and environmentally sensitive areas or where high technology will be required to extract the oil. A lower rate of discoveries per explorations has led to a shortage of drilling rigs, increases in steel prices, and overall increases in costs due to complexity.

Reserves in effect peaked in 1980, when production first surpassed new discoveries, though creative methods of recalculating reserves has made this difficult to establish exactly.

- Concerns over stated oil reserves

According to former vice president of Aramco, Sadad I. Al Husseini, ‘world reserves are confused and in fact inflated. Many of the so-called reserves are in fact resources. They’re not delineated, they’re not accessible, they’re not available for production.’

By Al-Husseini's estimate, 300 billion of the world’s 1,200 billion barrels of proven reserves should be re-categorized as speculative resources.

One difficulty in forecasting the date of peak oil is the opacity surrounding the oil reserves classified as 'proven'. Many worrying signs concerning the depletion of 'proven reserves' have emerged in recent years. This was best exemplified by the 2004 scandal surrounding the 'evaporation' of 20% of Shell's reserves.

For the most part, 'proven reserves' are stated by the oil companies, the producer states and the consumer states. All three have reasons to overstate their proven reserves:

•  Oil companies may look to increase their potential worth.
•  Producer countries are bestowed a stronger international stature.
•  Governments of consumer countries may seek a means to foster sentiments of security and stability within their economies and among consumers.

The Energy Watch Group (EWG) 2007 report shows total world proven (P95) and probable (P50) reserves to be between 854 and 1,255 billion barrels which means 30 to 40 years of supply if demand growth were to stop immediately. Major discrepancies arise from accuracy issues with OPEC's self-reported numbers. Besides the possibility that these nations have overstated their reserves for political reasons during periods of no substantial discoveries, over 70 nations also follow a practice of not reducing their reserves to account for yearly production, therefore 1,255 billion barrels is a best-case scenario in this situation. Analysts have suggested that OPEC member nations have economic incentives to exaggerate their reserves, as the OPEC quota system allows greater output for countries with greater reserves.

On the other hand investigative journalist Greg Palast has argued that oil companies have an interest in making oil look more rare than it is in order to justify higher prices. Other analysts in 2003 argued that oil producing countries understated the extent of their reserves in order to drive up the price of oil.

- Unconventional sources of oil

Unconventional sources of oil, such as heavy crude oil, tar sands, and oil shale are not counted as part of oil reserves. However, oil companies can book them as proven reserves after opening a strip mine or thermal facility for extraction.

Oil industry sources such as Rigzone have stated that these unconventional sources are not as efficient to produce, however, requiring extra energy to refine, resulting in higher production costs and up to three times more greenhouse gas emissions per barrel or barrel equivalent). While the energy used, resources needed, and environmental effects of extracting unconventional sources has traditionally been prohibitively high, the three major unconventional oil sources are being considered for large scale production including the extra heavy oil in the Orinoco Belt of Venezuela, the Athabasca oil sands in the Western Canadian Sedimentary Basin, and the oil shales of the Green River Formation in Colorado, Utah and Wyoming in the United States.

Chuck Masters of the USGS estimates that, "Taken together, these resource occurrences, in the Western Hemisphere, are approximately equal to the Identified Reserves of conventional crude oil accredited to the Middle East." Authorities familiar with the resources believe that the world's ultimate reserves of non-conventional oil are several times as large as those of conventional oil and will be highly profitable for companies as a result of higher prices in the 21st century.

Despite the large quantities of oil available in non-conventional sources, Matthew Simmons argues that limitations on production prevent them from becoming an effective substitute for conventional crude oil. Simmons states that "these are high energy intensity projects that can never reach high volumes" to offset significant losses from other sources. Another study claims that even under highly optimistic assumptions, "Canada's oil sands will not prevent peak oil," although production could reach 5 million barrels a day by 2030 in a "crash program" development effort.

Moreover, oil extracted from these sources typically contains contaminants such as sulfur, heavy metals and carbon that are energy-intensive to extract and leave highly toxic tailings. The same applies to much of the Middle East's undeveloped conventional oil reserves, much of which is heavy, viscous and contaminated with sulfur and metals to the point of being unusable. However, recent high oil prices make these sources more financially appealing. A study by Wood Mackenzie suggests that within 15 years all the world’s extra oil supply will likely come from unconventional sources.

A 2003 article in Discover magazine claimed that thermal depolymerization could be used to manufacture oil indefinitely, out of garbage, sewage, and agricultural waste. The article claimed that the cost of the process was $15 per barrel. A follow-up article in 2006 stated that the cost was actually $80 per barrel because the feedstock which had previously been considered as hazardous waste now had market value.

- Oil production

World oil production has followed a typical Hubbert curve, rising over the past century with only a few dips. The 1970 oil production peak in the U.S. caused many people to begin to question when the world oil production peak known as Peak oil would occur. By the mid-2000s, all of the world's major oil producing countries except Saudi Arabia were producing at maximum capacity with many having peaked in production, and some experts such as Matthew Simmons were questioning whether even Saudi Arabia had any reserve capacity left.

Industry observers have pointed to the similarities between the global oil production curve in mid-2000s and that of the United States in the 1970s.

•  The oil price increases since 2003 were preceded by a decade of production cutbacks in OPEC countries in an attempt to keep prices high despite an oil glut. This is similar to production cutbacks in Texas and other states to maintain prices despite an oil glut in the decade prior to the 1973 oil crisis.

•  World oil prices reached record inflation adjusted highs beginning in 2008, but new oil did not appear on the market, as the theory of supply and demand would predict. This is reminiscent of price increases in the United States in the 1970s when U.S. oil production started to decline despite record high prices and record drilling by oil companies.

•  There are serious doubts about whether OPEC countries really have the oil reserves they claim. This is similar to the illusionary oil reserves that U.S. oil companies claimed to have in the decade prior to the 1973 and 1979 oil crisis. In the 1970s, those companies were unable to produce as much oil as they had predicted, and production went down instead of up.

The point in time when peak global oil production occurs is the measure which defines Peak oil. This is because production capacity is the main limitation of supply. Therefore, when production decreases, it becomes the main bottleneck to the petroleum supply/demand equation.

Worldwide oil discoveries have been less than annual production since 1980. According to several sources, worldwide production is past or near its maximum.

World oil production growth trends were flat from 2005 to 2008. According to a January 2007 International Energy Agency report, global supply which includes biofuels, non-crude sources of petroleum, and use of strategic oil reserves, in addition to crude production averaged 85.24 million barrels per day in 2006, up 0.76 million barrels per day from 2005. Average yearly gains in global supply from 1987 to 2005 were 1.2 million barrels per day.

Of the largest 21 fields, at least 9 are in decline. In April, 2006, a Saudi Aramco spokesman admitted that its mature fields are now declining at a rate of 8% per year with a national composite decline of about 2%. This information has been used to argue that Ghawar, which is the largest oil field in the world and responsible for approximately half of Saudi Arabia's oil production over the last 50 years, has peaked. The world's second largest oil field, the Burgan field in Kuwait, entered decline in November, 2005.

According to a study of the largest 811 oilfields conducted in early 2008 by CERA, the average rate of field decline is 4.5% per year. There are also projects expected to begin production within the next decade which are hoped to offset these declines. The CERA report projects a production level of over 100 million barrels per day by year 2017. Kjell Aleklett of the Association for the Study of Peak Oil & Gas agrees with their decline rates, but considers the rate of new fields coming online -- 100% of all projects in development, but with 30% of them experiencing delays, plus a mix of new small fields and field expansions -- overly optimistic. A more rapid annual rate of decline of 5.1% in 800 of the world's largest oil fields was reported by the IEA in their World Energy Outlook 2008.

Mexico announced that its giant Cantarell Field entered depletion in March, 2006, due to past overproduction. In 2000, PEMEX built the largest nitrogen plant in the world in an attempt to maintain production through nitrogen injection into the formation, however by 2006, Cantarell was declining at a rate of 13% per year.

OPEC had vowed in 2000 to maintain a production level sufficient to keep oil prices between $22–28 a barrel, but did not prove possible. In its 2007 annual report, OPEC projected that it could maintain a production level which would stabilize the price of oil at around $50–60 per barrel until 2030. On November 18, 2007, with oil above $98 a barrel, King Abdullah of Saudi Arabia, a long-time advocate of stabilized oil prices, announced that his country would not increase production in order to lower prices.

Saudi Arabia's inability, as the world's largest supplier, to stabilize prices through increased production during that period suggests that no nation or organization had the spare production capacity to lower oil prices. The implication is that those major suppliers who had not yet peaked were operating at or near full capacity.

Some commentators point to the Jack 2 deep water test well in the Gulf of Mexico, announced September 5, 2006, as evidence that there is no imminent peak in global oil production. According to one estimate, the field could account for up to 11% of US production within seven years. However, even though oil discoveries are expected after the peak oil of production is reached, the new reserves of oil will be harder to find and extract. The Jack 2 field, for instance, is more than 20,000 feet (6,100 m) under the sea floor in 7,000 feet (2,100 m) of water, requiring 8.5 kilometers of pipe to reach. Additionally, even the maximum estimate of 15 billion barrels represents slightly less than 2 years of U.S. consumption at present levels.

The increasing investment in harder-to-reach oil is a sign of oil companies' belief in the end of easy oil. In addition, while it is widely believed that increased oil prices spur an increase in production, an increasing number of oil industry insiders are now coming to believe that even with higher prices, oil production is unlikely to increase significantly beyond its current level. Among the reasons cited are both geological factors as well as "above ground" factors that are likely to see oil production plateau near its current level.

Because world population grew faster than oil production, oil production per capita peaked in 1979 preceded by a plateau during the period of 1973-1979.

- Control over oil supply

Entities such as governments or cartels can artificially reduce oil supply to the world market by limiting access to the supply through nationalizing oil, cutting back on oil production, limiting drilling rights, imposing taxes, etc. International sanctions, corruption, and military conflicts can also reduce oil supply.

Oil supplies nationalization

Another factor affecting global oil supply is the nationalization of oil reserves by producing nations. The nationalization of oil occurs as countries begin to deprivatize oil production and withhold exports. Kate Dourian, Platts' Middle East editor, points out that while estimates of oil reserves may vary, politics have now entered the equation of oil supply. "Some countries are becoming off limits. Major oil companies operating in Venezuela find themselves in a difficult position because of the growing nationalization of that resource. These countries are now reluctant to share their reserves."

According to consulting firm PFC Energy, only 7% of the world's estimated oil and gas reserves are in countries that allow companies such as ExxonMobil free rein. Fully 65% are in the hands of state-owned companies such as Saudi Aramco, with the rest in countries such as Russia and Venezuela, where access by Western companies is difficult. The PFC study implies political factors are limiting capacity increases in Mexico, Venezuela, Iran, Iraq, Kuwait and Russia. Saudi Arabia is also limiting capacity expansion, but because of a self-imposed cap, unlike the other oil producing countries. As a result of not having access to countries amenable to oil exploration, ExxonMobil is not making nearly the investment in finding new oil that it did in 1981.

Monopolies and cartel influence on oil supply

OPEC is an alliance between 12 diverse oil producing countries including Algeria, Angola, Ecuador, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, the United Arab Emirates, and Venezuela to control the oil supply. OPEC's power was consolidated as various countries nationalized their oil holdings, and wrested decision-making away from the "Seven Sisters," which is comprised of Anglo-Iranian, Socony-Vacuum, Royal Dutch Shell, Gulf, Esso, Texaco, and Socal. Instead they created their own oil companies to control the oil supply. OPEC tries to influence prices by restricting oil production. It does this by allocating each member country a quota for oil production. All 12 members agree to keep prices high by producing at lower levels than they otherwise would. There is no way to verify adherence to the quota, so every member faces the same incentive to ‘cheat’ the cartel. Washington kept the oil flowing and gained favorable OPEC policies mainly by arming, and propping up Saudi regimes. According to some analysts, the purpose for the second Iraq war is to break the back of OPEC and return control of the oil fields to western oil companies.
Alternately, commodities trader Raymond Learsy, author of Over a Barrel: Breaking the Middle East Oil Cartel, contends that OPEC has trained consumers to believe that oil is a much more finite resource than it is. To back his argument, he points to past false alarms and apparent collaboration. He also believes that Peak Oil analysts are conspiring with OPEC and the oil companies to create a "fabricated drama of peak oil" in order to drive up oil prices and profits.

Price of oil

In terms of 2007 inflation adjusted dollars, the price of oil peaked on 30 June 2008 at over $143 a barrel. Before this period, the maximum inflation adjusted price was the equivalent of $95-100, in 1980. Crude oil prices in the last several years have steadily risen from about $25 a barrel in August 2003 to over $130 a barrel in May 2008, with the most significant increases happening within the last year. These prices are well above those which caused the 1973 and 1979 energy crises. This has contributed to fears of an economic recession similar to that of the early 1980s. One important indicator which supported the possibility that the price of oil had begun to have an effect on economies was that in the United States, gasoline consumption dropped by .5% in the first two months of 2008, compared to a drop of .4% total in 2007.

However some claim the decline in the US dollar against other significant currencies from 2007 to 2008 is a significant part of oil's price increases from $66 to $130. Oil Crisis - Oil PricesThe dollar lost approximately 14% of its value against the Euro from May 2007 to May 2008, and the price of oil rose 96% in the same time period.

Helping to fuel these price increases were reports that petroleum production is at or near full capacity. In June 2005, OPEC admitted that they would 'struggle' to pump enough oil to meet pricing pressures for the fourth quarter of that year.

Besides oil supply and demand pressures, at times security related factors may have contributed to increases in oil prices, including the "War on Terror," missile launches in North Korea, the Crisis between Israel and Lebanon, nuclear brinkmanship between the US and Iran, and reports from the U.S. Department of Energy and others showing a decline in petroleum reserves.

Another factor in oil price is the cost of extracting crude. As the extraction of oil has become more difficult, oil's historically high ratio of Energy Returned on Energy Invested has seen a significant decline. The increased price of oil makes non-conventional sources of oil retrieval more attractive. For example, the so-called "tar sands" are actually a reserve of bitumen, a heavier, lower value oil compared to conventional crude. It only became attractive to production companies when oil prices exceeded about $25/bbl, high enough to cover the costs of production and upgrading to synthetic crude.

Peak oil projections

M. King Hubbert initially predicted in 1974 that peak oil would occur in 1995 "if current trends continue." However, in the late 1970s and early 1980s, global oil consumption actually dropped due to the shift to energy-efficient cars, the shift to electricity and natural gas for heating, and other factors, then rebounded to a lower level of growth in the mid 1980s. Thus oil production did not peak in 1995, and has climbed to more than double the rate initially projected. This underscores the fact that the only reliable way to identify the timing of peak oil will be in retrospect. However, predictions have been refined through the years as up-to-date information becomes more readily available, such as new reserve growth data. Predictions of the timing of peak oil include the possibilities that it has recently occurred, that it will occur shortly, or that a plateau of oil production will sustain supply for up to 100 years. None of these predictions dispute the peaking of oil production, but disagree only on when it will occur.

- Timing of Peak Oil in different countries

Peak Oil as a concept applies globally, but it is based on the summation of individual nations experiencing peak oil. In State of the World 2005, Worldwatch Institute observes that oil production is in decline in 33 of the 48 largest oil-producing countries. Other countries have also passed their individual oil production peaks.

The following list shows significant oil-producing nations and their approximate peak oil production years, organized by chronologically:

•  Japan: 1932
•  Germany: 1966
•  Libya: 1970
•  Venezuela: 1970
•  USA: 1970
•  Iran: 1974
•  Nigeria: 1979
•  Tobago: 1981
•  Egypt: 1987
•  Australia: 2004; 2001
•  France: 1988
•  Indonesia: 1991
•  Syria: 1996
•  India: 1997
•  New Zealand: 1997
•  UK: 1999
•  Norway: 2000
•  Oman: 2000
•  Mexico: 2004
•  Russia: an artificial peak occurred in 1987 shortly before the Collapse of the Soviet Union, but production subsequently recovered, making Russia the second largest oil exporter in the world. Figures from early 2008, statements by officials, and analysis suggest that production may have peaked in 2006/2007. Lukoil vice president Leonid Fedun has said $1 trillion would have to be spent on developing new reserves if current production levels were to be maintained.

Peak oil production has not been reached in the following nations (these numbers are estimates and subject to revision):

• Iraq: 2018
• Kuwait: 2013
• Saudi Arabia: 2014

In addition, the most recent International Energy Agency and US Energy Information Administration production data show record and rising production in Canada and China.

Peak Oil: possible consequences and effects

The widespread 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. If alternatives are not forthcoming, the products produced with oil including fertilizers, detergents, solvents, adhesives, and most plastics would become scarce and expensive. At the very least this could lower living standards in developed and developing countries alike, and in the worst case lead to worldwide economic collapse. With increased tension between countries over dwindling oil supplies, political situations may change dramatically and inequalities between countries and regions may become exacerbated.

- The Hirsch Report: conclusions and scenarios

In 2005, the US 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 oil supply and oil demand sides, but to have substantial impact, they must be initiated more than a decade in advance of peaking."

Conclusions from the report:

•  World oil peaking is going to happen, and it will be abrupt and revolutionary.

•  Oil peaking will adversely affect global economies, particularly those most dependent on oil.

•  Oil peaking presents a unique challenge as “it will be abrupt and revolutionary”.

•  The problem is liquid fuels due to growth in demand mainly from the transportation sector.

•  Mitigation efforts will require substantial time.

•  20 years is required to transition without substantial impacts

•  A 10 year rush transition with moderate impacts is possible with extraordinary efforts from governments, industry, and consumers

•  Late initiation of mitigation may result in severe consequences.

•  Both oil supply and demand will require attention.

•  It is a matter of risk management because mitigating action must come before the peak oil.

•  Government intervention will be required.

•  Economic upheaval is not inevitable - “given enough lead-time, the problems can be solved with existing technologies.”

•  More information is needed to more precisely determine the peak oil time frame.

Possible Scenarios:

•  Waiting until world oil production peaks before taking crash program action leaves the world with a significant liquid fuel deficit for more than two decades.

•  Initiating a mitigation crash program 10 years before world oil peaking helps considerably but still leaves a liquid fuels shortfall roughly a decade after the time that oil would have peaked.

•  Initiating a mitigation crash program 20 years before peaking appears to offer the possibility of avoiding a world liquid fuels shortfall for the forecast period.


- Recession in the world economy

A more modest scenario of the world peak oil, assuming a slower rate of depletion and a smooth transition to alternative energy sources could cause substantial economic hardship such as a recession or depression due to higher energy prices. Historically, there is a close correlation in the timing of oil price spikes and economic downturns. Inflation has also been linked to oil price spikes. However, economists disagree on the strength and causes of this association. The world economy may be less dependent on oil than during earlier oil crises. Conversely, the recessions of the early 1970s and early 1980s were associated with a relatively brief period of somewhat dwindling energy availability; the possible future increase in oil prices might be much higher and last longer.

- World collapse

Economic growth and prosperity since the industrial revolution have, in large part, been due to increased efficiencies in the use of better and higher concentrations of energy in fossil fuels. The use of fossil fuels allows humans to participate in takedown, which is the consumption of energy at a greater rate than it is being replaced. Some believe that decreasing oil production portends a drastic impact on human culture and modern technological society, which is currently heavily dependent on oil as a fuel and chemical feedstock. For example, over 90% of transportation in the United States relies on oil.

Some envisage a Malthusian catastrophe occurring as oil becomes increasingly inefficient to produce, others have learned from the examples demonstrated in mature basins and applied those operational procedures to these basins to preserve their operational tempo. Since the 1940s, agriculture has dramatically increased its productivity, due largely to the use of chemical pesticides, fertilizers, and increased mechanization. This process has been called the Green Revolution. The increase in food production has allowed world population to grow dramatically over the last 50 years. Pesticides rely upon oil as a critical ingredient, and fertilizers require natural gas. Farm machinery also requires oil.

Arguing that in today's world every joule one eats requires 5–15 joules to produce and deliver, some have speculated that decreasing supply of oil will cause modern industrial agriculture to collapse, leading to a drastic decline in food production, food shortages and possibly even mass starvation. However, most or all of the uses of fossil fuels in agriculture can be replaced with alternatives. For example, by far the biggest fossil fuel input to agriculture is the use of natural gas as a hydrogen source for the Haber-Bosch fertilizer-creation process. Natural gas is used simply because it is the cheapest currently-available source of hydrogen; were that to change, other sources, such as electrolysis powered by solar energy, could be used to provide the hydrogen for creating fertilizer without relying on fossil fuels.

Oil shortages may force a move to lower input "organic agriculture" methods, which may be more labor-intensive and require a population shift from urban to rural areas, reversing the trend towards urbanisation which has predominated in industrial societies; however, some organic farmers using modern organic-farming methods have reported yields as high as those available from conventional farming, but without the use of fossil-fuel-intensive artificial fertilizers or pesticides.

Another possible effect of peak oil would derive from America's transportation and housing infrastructure. A majority of Americans live in suburbs, a type of low-density settlement designed with the automobile in mind. Current EV technology would allow these living arrangements to continue well into the next millennia but some commentators such as James Howard Kunstler argue that because of its reliance on the automobile, the suburb is an unsustainable living arrangement; the implications of peak oil would leave many Americans unable to afford fuel for their cars, and force them to move to higher density, more walkable areas. In effect, surburbia would comprise the "slums of the future." A movement to deal with this problem early, called "New Urbanism," seeks to develop the suburbs into higher density neighborhoods and use high density, mixed-use forms for new building projects.

- Other consequences of world peak oil

A peak in oil production could result in a worldwide oil shortage, or it could not even be noticed as oil demand decreases in conjunction with increased oil prices. While past shortages stemmed from a temporary insufficiency of oil supply, crossing Hubbert's Peak would mean that the production of oil would continue to decline, and that demand for oil-based products must be reduced to meet oil supply. The effects of such a shortage would depend on the rate of decline and the development and adoption of effective alternatives. If alternatives were not forthcoming, it has been speculated that the numerous products produced with oil would become scarcer, leading to at the very least lower living standards in developed and developing countries alike, and possibly in the worst case to the collapse of the entire international banking system, which could not likely sustain itself without the prospect of growth. The political situation may change dramatically, with potential wars between countries over access to dwindling oil supplies. Accordingly, inequalities between various countries and regions of the world may become exacerbated.

- Possible positive effects of peak oil

There are those who believe that peak oil should be viewed as a positive event. Many of these critics reason that if the price of oil rises high enough, the use of alternative clean fuels could help control the pollution of fossil fuel use as well as mitigate global warming.


This article uses material from the Wikipedia article "Peak Oil"