"Peak Oil" refers the moment when world oil production begins to decline. This Peak Oil event is likely to prove to be the pivotal economic issue of our time, with enormous public policy, investment, and military repercussions.
A Peak Oil Overview
Over the past 150 years worldwide consumption of oil-based energy has increased every year. Energy from liquid fossil fuels have been a key driver underlying world industrial growth.
Worldwide discovery of new reserves has been in decline for decades. In the chart below you see new discoveries peaking in the 1960s, followed by a general declining trend. We have been living off the pool of past discovery, which is not being replaced nearly fast enough to cope with increasing annual consumption demand.
Putting the two trends together obviously at some point there will be a collision, and consumption will not be able to increase.
It needs to be stressed very strongly that this has never happened before -- the modern world has never experienced an environment of declining fossil fuel consumption. We are quickly moving toward a completely new scenario that is profoundly different from our current realities.
What happens to the world's economies at this moment is the subject of increasing debate and research.
The decline in new discoveries projected will begin to impact production at some point which may begin in the near future. Though the exact timing could be debated endlessly, the event is a certainty. To do nothing would be like, well, choosing to be struck by an oncoming bus because you are uncertain about the exact moment you will be struck.
Many experts have concluded that Peak Oil is imminent, including prominent private sector geologists, physicists, and engineers, for example:
- Jeremy Gilbert, former Chief Petroleum Engineer for BP where he was responsible for the company’s worldwide petroleum engineering and research and development
- Dr. Colin Campbell, who has acted as an oil exploration geologist / engineer for Amoco, BP, Shell, Esso
Check ASPO to learn more about Peak Oil thought leadership.
Of geopolitical interest, the decline in production is not evenly distributed. What we see is that oil from the Middle East will much more strategically important in the coming decades, increasing its share of world oil production 63%, from 30% of the total in 2006 to a projected 50% by 2030.
Put another way, the only oil producing region on the planet expected to be able to hold or increase oil production from now on, is the Middle East.
source: Campbell
Are Bush administration insiders "true believers" in Peak Oil? Indications are strong that they are.
Here is a 1999 quote from Dick Cheney, as CEO of Halliburton in 1999: "By some estimates, there will be an average of two-percent annual growth in global oil demand over the years ahead, along with, conservatively, a three-percent natural decline in production from existing reserves. That means by 2010 we will need on the order of an additional 50 million barrels a day."
Some have argued that Cheney and Bush reasoned that creating a military presence in Iraq could serve as a hub to protect our oil supplies when Peak Oil hits, thus explaining the administration's ardor for a military initiative there. Instead of oil, we used anti-terrorism to sell the war.
Economists predict of course that when Peak Oil hits, prices will increase dramatically with global economic impacts. The biggest impact here in the United States will be in liquid fuels used for transportation (see chart), which consume the majority of oil based fuels. There will be an impact on the many industrial usages of fossil fuels as well.
To materially reduce our transportation liquid fuel consumption, private individuals would have to drive less (40% or more of personal driving is discretionary / non-commuting), replace current vehicles with re-engineered models, and pursue other forms of transportation such as mass-transit, and other initiatives.
These adjustments would require a time period of 10 to 15 years to begin actually reducing our national consumption (see study).
Campbell has commented that the 73-74 oil shock and recession was a mild, gentle prelude compared to the "earthquake" potential of Peak Oil. Thus to avoid a severe shock to the national economy when Peak Oil hits, our mitigation efforts to soften the impact should be an urgent national priority... now.
These impacts and how to plan for them are under intense review by investors, the military, the academic community, economists, national governments, local governments... the list goes on. The buzz boom reminds me of what was happening in the late 90's when the web was beginning to take off. You can sense that something very, very big is gathering momentum.
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