Oil is a substance, which is formed over million of years at a rate much smaller than the current rate of consumption. For all practical purposes it can therefore be considered to be a finite resource. One day we will run out of it, but not today.

Peak oil theory acknowledges the fact that there is a very large amount of oil left. However from a production point of view the amount of oil left is not the only thing that matters. The facility by which it can be produced is equally important.

As we begun to develop the oil recourses of this world, we started with the oil, which was easy to find and to develop. At this moment many of these early wells are reaching the end of their lifetime, and we are facing the increasing challenge of replacing these wells by more expensive and less productive sources. This is a challenge, which should not be taken lightly.

This brings us to the core of the peak oil problem. We’re not running out of oil, but we are running out of the cheap, easy-to-get oil.

Peak oil is a concept, which was developed and published in 1949 by Hubbert King, a petroleum engineer at Shell. Hubbert looked at the behavior of individual oil wells. What he noticed was that an oil well essentially has three stages of production.

1. At the first stage of a well’s life, the oil is easy to produce. The pressure in the reservoir simply pushes the oil out. At this stage production growth is easily achieved.
2. As more oil is produced the pressure in the reservoir starts fading. As most of the easy oil has been extracted, the oil becomes more difficult to extract. At this stage great amounts of technology have to be introduced to maintain reservoir pressure and flow. The production curve levels off.
3. At a certain point, no amount of technology can stop the production from declining and the production starts to decrease until extraction is not economically feasible anymore. When that happens the well is closed.

Plotted against time this yields a bell shaped curve, the so-called Hubbert curve. Hubbert’s main discovery was that the curve was symmetrical and that the peak in production usually fell at the halfway point. That means that the production peaks at the point where it has produced half the oil that it is ever going to produce.

He then went further by assuming that the production of a country should display a similar behavior, since the production of a country basically is the summation of a number of wells. In he applied this concept to the production of the USA and derived a peak in 1970. Although his theory was met with a lot of skepticism it has proven to be extremely accurate. US production peaked in 1970 and has been in decline ever since.

This theory can also be applied to the world as a whole. According to the peak oil theory, the peak will occur when roughly half the world’s recoverable reserves have been recovered.

This has been the subject of a fierce debate. The consensus is that peak oil will hit somewhere between now and 2030, but the different models and the different reserve estimates, point to different dates within this timeframe. The US experience has shown that the peak occurs with little or no advance warning. The models are ‘blind’, in a sense that they greatly rely on the accuracy of the input. The problem is that such data is hard to come by, as the oil industry is a very competitive (and thus secretive) industry. The current debate revolves around 3 central issues.

• The amount of recoverable reserves that already has been found. – Recent experiences have shown that various companies and governments have overstated their reserves for political reasons. The suspicion exists that this is a widespread practice in the oil industry and that actually less oil has been found than is currently reported.
• The amount of recoverable reserves that still has to be found. - As we can assume that we haven’t found all the oil in the world yet an estimate has to be made of the oil that is still out there.
• The technological advances that will be made in the near future. - Enhanced methods of recovery mean that more oil can be extracted from existing wells, thereby shifting the peak to a later date.

In this debate two groups can be distinguished:

• The International Energy Agency (IEA), which is a Paris-based intergovernmental body. Their estimates lead to a peak for conventional oil in 2030. (World energy outlook 2004).
• The Association for the Study of Peak Oil and Gas (ASPO). Their estimates lead to a peak for conventional oil in 2005. (ASPO Newsletter November 2004)

One of the main differences between these organizations is that the IEA uses unaudited (as they are reported by the various countries) reserve numbers. In their 2004 report they do warn that these numbers are suspicious, as various countries have revised their reserve numbers upwards without presenting any new finds to justify these revisions.

Saudi Arabia and Kuwait revised their reserves upward by 50%, while Venezuelan reserves were boosted 57% by the inclusion of heavy oil in 1988. The United Arab Emirates and Iraq also recorded large upward revisions in that period. Total OPEC reserves jumped from 536 billion barrels in 1985 to 766 billion barrels in 1990. As a result, world oil reserves increased by more than 30%. This hike in OPEC countries’ estimates of their reserves was driven by negotiations at that time over production quotas, and had little to do with the actual discovery of new reserves. In fact, very little exploration activity was carried out in those countries at that time. Total reserves have hardly changed since the end of the 1980s. IEA world energy outlook 2004

The main point of criticism towards the IEA is that they are much too positive when it comes to estimating the known and unknown reserves. The current stream of reserve scandals does seem to suggest that their reserve numbers are too high. Their estimate of the yet-to-find oil would mean that we should be finding much more oil than we’re currently doing, which can be a sign that these estimates are also too high.

ASPO uses more conservative (audited) reserve estimates, but critics claim that ASPO is too negative when it comes to estimating the world’s reserves and the impact of future technology. Indeed they have been forced to revise their date several times. On the other hand ASPO has correctly predicted the peak for a number of individual countries, showing the validity of their methods.

One can wonder whether this debate is really so important. Peak oil is something, which is going to happen in our lifetimes. This clearly is something we have to deal with, not the future generations.

Oil prices have risen dramatically in the past few years. This is certainly a worrying sign. Although much of the price fluctuations can be related to the global geopolitical situation, there are signs that the production has problems in keeping up with the demand growth. This could be a temporary lapse or a structural problem.

Most countries are producing at full capacity. Since the oil shocks OPEC has always maintained spare production capacity. They are “swing producers� which means that they have the ability to temporarily increase production to absorb supply shocks. This has been a great stabilizing factor in the oil market. Unexpected demand growth is currently usurping OPEC’s spare capacity, so that any supply disruptions lead to violent price swings. Whether the prices will come down depends on whether OPEC will be able to reclaim that swing role by indigenous production growth.

As most of the non-OPEC producers are already post peak or close to peaking the role of OPEC is extremely important for the future of oil production. If for any reason OPEC would be unable (or unwilling) to increase the production significantly, the world would be very close to peaking.

Peak oil will be a turning point in the history of mankind as oil is one of our most valuable and versatile commodities. The problem goes much further than the petrol you put in your car. There is hardly anything we use which isn’t dependent on oil.

Imagine the current world without oil. There would be no transport, no heating fuel, no synthetic fibers, no plastics, no computers etc. Without oil-based fertilizers and oil powered farming machines our food production would be severely compromised. Without oil the transport of the food to the markets would be a daunting task.

Luckily we’re not going to lose our entire oil production overnight. After the peak the oil production will gently slope downwards by 2-3% a year, buying us more time. However this little thought experiment illustrates the complexity of the problem we’re facing. Peak oil is going to affect all aspects of our life: the food we eat, the clothes we wear, the houses we live in, and the work we do. We have to find solutions to each and every one of those aspects, and implement them at the rate of the decline, if we want to maintain our current standard of living.

Some people say that the task ahead is simply too big. They foresee a collapse of the society as an inevitable outcome of peak oil. Others say that it is possible, that we can make the transition. No one is saying it is going to be easy.

Without a crystal ball it is impossible to predict what exactly is going to happen. Any guess is as good as another. What is certain is that we have to start thinking about a future without oil and that the longer we wait with facing this reality, the harder the transition is going to be.

In the past century more people have proclaimed that our oil production would peak. The most notable person to do so was president Carter in a dramatic speech in 1977.

“The oil and natural gas we rely on for 75 percent of our energy are running out. In spite of increased effort, domestic production has been dropping steadily at about six percent a year. Imports have doubled in the last five years. Our nation's independence of economic and political action is becoming increasingly constrained. Unless profound changes are made to lower oil consumption, we now believe that early in the 1980s the world will be demanding more oil that it can produce.�

“Each new inventory of world oil reserves has been more disturbing than the last. World oil production can probably keep going up for another six or eight years. But some time in the 1980s it can't go up much more. Demand will overtake production. We have no choice about that�.

As we all know this hasn’t happened. Peakoil critics frequently use this speech, to dismiss any fears about the future of the oil production. That’s not entirely fair because we have to account for the fact that shortly after this speech the oil shock occurred which cut the consumption by over 20%. Were it not for this event the world would have consumed a lot more oil and would be a lot closer to peaking. Perhaps we would even be post peak right now.

If anything, it shows the difficulty of predicting the oil supply, as production is also heavily influenced by economic and political factors.

Indeed many people have cried wolf before, and many were wrong. But we should not forget that some where right. An odd 30 years ago the Club of Rome warned us for global warming. Critics we’re quick to dismiss this as another “Wolf� story. It appears now that we have to suffer the consequences of that naivety.

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