This blog post is more about economics of
oil running out and the possible implications of the phenomenon on humanity
rather than the physical facts about how much oil is left on our planet. Peak
oil is the point after which oil production, which has previously trended
upwards, will start to decline. Peak oil has now been seen as serious issue for
a long time and it is in fact no about the oil fully running out but about the
rates of oil discovery and production, the rate of demand for oil growth and
the rate of technological change (Greene,2010).
This is because whilst oil may still remain on the planet, its extraction could
become economically unfeasible as all the “easy oil” will be extracted and it
will no longer become profitable for countries to recover oil considering the
costs of recovery and the profits they would obtain from selling this oil. Thus
peak oil questions not only how much fossil fuels formations of hydrocarbons
known as oil are left but also how much more can realistically be extracted
from beneath the surface of our planet.
The peak oil debate is about how much
longer it will be before oil production worldwide starts to decline and oil
prices become very high thus forcing humanity to transition to other sources of
energy and potentially a simpler lifestyle that requires less energy inputs (Whipple, 2008).
The declining oil production does not only mean higher oil prices but also
prices for virtually everything will also rise starting from petroleum products
such as petrol and diesel for every day consumptions of humans in cars to even
food as it requires transportation to its final destination and oil inputs
whilst being produced. The big debate is whether we have reached the oil peak
already or whether it is still to come. At the heart of the debate, geologists
argue that oil supply is finite thus oil will eventually reach peak oil and
productions will start to decline as there is simply not enough of it however
economists believe that much like the Malthusian Theory discussed earlier in
this blog, society will create new technologies for more efficient better
extractions as the supply becomes more scares and thus we still have a lot of
years ahead of us in our oil world.
The peak oil equation describe “Hubbert’s
Peak” which is the theory that the shape of conventional crude oil production
is approximately a bell-shaped curve as shown by figure 1 below (Dipeso, 2005).
Production increases after the oil field is opened, followed by a peak when
about half of the oil from the reservoir has been recovered and then it starts
to decline again. This theory states that rate of oil production is only
dependent on the amount of oil that is left under the surface and as its
quantity starts to decline, less can be produced. This is the geologists’
approach to the peak oil theory. This theory is named after Hubbert who was an
American geologist who once predicted peak oil in America in 1956 stating that
USA peak oil would occur in the 1970s. Whilst when he first proposed his
theory, no one paid much attention to it not believing him but it is now
obvious that what he predicted was actually true and US oil production hit its
peak in 1970 (Dipeso, 2005).
Nothing seemed to slow down the decline in American oil production albeit a
significant amount of new technologies allowing oil recovery from ocean deep
waters or the discoveries of new oil fields in Alaska. In 1970, the US oil
production was at 3.5 billion barrels of oil but by 2003 the production fell to
less than 2.1 billion barrels as seen in Figure 1.
Figure 1.
On the other hand, the economists
argue that like Malthus, Hubbert did not consider technological change in his
equation. They say that reported size of recoverable oil are more than just its
quantities below the surface but the supply of the recoverably oil can be
expanded through technological improvements and by changes in the economics of
oil such as lower production costs of oil and higher prices of the end product.
As evidence they give the example that only 50 years ago the oil lying beneath
the deep ocean floor was not recoverable but due to the new efficient and
economically sustainable technologies today it is. Furthermore when the Western
oil companies were kicked out of the Middle East, it also forced them to come
up with new technologies and innovate in their methods of production to find
and produce oil. The drills can now reach 10 miles below ground and are able to
move horizontally as well as vertically, reservoir modeling has also been
improved showing the precise locations of oil and gas and many new EOR methods
have been synthethized thus allowing up to 80% oil recovery from each reservoir
compared to the only 30% recovery just a few decades ago (Dipeso, 2005).
Thus economists, seen as the optimists here, argue that global peak oil will
not be reached until at least 2030.
Alternative theories also exist that
instead of oil reservoir life being represented as a bell-shaped curve, it is
actually more like a “plateau” after the peak has been reached and humans will
keep coming up with recovery methods to sustain the needed levels of oil
recovery (Haubrich, 2007). Supply of oil in the future is hard to predict as it
requires extrapolation and the current and historical oil production data show
no levels of decline thus when extrapolated, only increase in production is
mainly seen. Figure 2 below shows the historical and current oil production
growth and these are the data from which the future production of oil is
extrapolated. It has been shown that global oil production has actually
increased by 2.4% per year since 1965 hence economists argue that there is
nothing to worry about (Haubrich, 2007).
Figure 2.
Some studies such as that by Haubrich,
however try to use complex mathematical methods to try and predict when people
oil will occur. His study suggests that although historically there is no
evidence of decline, if annual oil production was plotted as a fraction of
cumulative total, it shows a decrease as shown by Figure 3 below. When further
mathematical methods are applied, this study predicts peak oil in 2007 or in
2014 using different mathematical methods and equations. These potential oil
peaks are shown by Figure 4 below.
Figure 3.
Figure 4.
Furthermore there is evidence from
such reports as the European commission to suggest that Europe has already
reached its peak oil as well. This is shown by figure 5 below. Historical data
show that oil production in the EEA (which is EU25- the EU that included 25
countries at the time the report was published in 2005 together with Norway
which is part of the EEA but not the EU) peaked in 1997 at 6.2 md/b and has
been in decline since (European Commission, 2005).
Figure 5.
Source: European Commission, 2005.
Historical data for oil production in the EEA showing
a decrease since 1997.
Figure 6 below shows the oil
production decrease in the North Sea, which is where most of the oil fields in
Europe are located. This is a more specific illustration and evidence to
support the data given by Figure 5.
Figure 6.
Source: European Commission, 2005.
Oil production history in the North Sea per sector
showing a decrease since 1997.
Overall we can conclude that peak oil
is in fact a scary phenomenon whether it is going to occur or not. It is
evident that although the projections for peak oil being in the very near
future or that it has already occurred might not be true but that some day we
sure will reach peak oil. Regardless of the optimistic views of the economists
regarding new technologies, oil is a finite resource so it is just a matter of
time how long we can sustain our oil based life as it is today. Oil currently
accounts for one third of global energy supply and more than 95% of transport
energy use. It is a critically important sector where there are no easy
substitutes to oil yet in our society today (Miller, 2013). This means that we are in desperate times to
develop alternative sources of energy or oil production from non-conventional oil
in the nearest future before it is too late. From now on in my blog, I am going
to explore non-conventional oil and how useful it is to us as well as renewable
sources of energy and try to conclude whether our civilization without oil is a
sustainable one and if we can keep our familiar ways of life the same as what
they are now.
