Peak Oil

Peak oil is the point in time when the maximum rate of petroleum extraction is reached, after which the rate of production is expected to enter terminal decline. Global production of oil fell from a high point in 2005 at 74 mb/d, but has since rebounded, and 2011 figures show slightly higher levels of production than in 2005. There is active debate as to how to measure peak oil, and which types of liquid fuels to include. Most of the remaining oil is from unconventional sources. Rough estimates indicate that out of an available 2 trillion barrels of oil, about half has been consumed.

Peak oil is determined by the observed production rates of individual oil wells, projected reserves and the combined production rate of a field of related oil wells. In order to understand physical peak oil, the growing effort for production must be considered. Physical peak oil occurs earlier, because the overall efforts for production have increased, expanding production.

The aggregate production rate from an oil field over time usually grows until the rate peaks and then declines—sometimes rapidly—until the field is depleted. This concept is derived from the Hubbert curve, and 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 often confused with oil depletion; peak oil is the point of maximum production, while depletion refers to a period of falling reserves and supply.

M. King Hubbert created and first used the models behind peak oil in 1956 to accurately predict that United States oil production would peak between 1965 and 1971. His logistic model, now called Hubbert peak theory, and its variants have described with reasonable accuracy the peak and decline of production from oil wells, fields, regions, and countries, and has also proved useful in other limited-resource production-domains. According to the Hubbert model, the production rate of a limited resource will follow a roughly symmetrical logistic distribution curve (sometimes incorrectly compared to a bell-shaped curve) based on the limits of exploitability and market pressures.

Some observers, such as petroleum industry experts Kenneth S. Deffeyes and Matthew Simmons, predict negative global economy implications following a post-peak production decline—and oil price increase—due to the high dependence of most modern industrial transport, agricultural, and industrial systems on the low cost and high availability of oil. Predictions vary greatly as to what exactly these negative effects would be.

In 2008 oil prices reached a record high of $145/barrel. Governments sought alternatives to oil, particularly the use of ethanol, but that had the unintended consequence of creating higher food prices, particularly in the third world.

Optimistic estimations of peak production forecast the global decline will begin after 2020, and assume major investments in alternatives will occur before a crisis, 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 are that either the peak has already occurred, that oil production is on the cusp of the peak, or that it will occur shortly. The International Energy Agency (IEA) says production of conventional crude oil peaked in 2006. Throughout the first two quarters of 2008, there were signs that a global recession was being made worse by a series of record oil prices.