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Peak oil

Peak oil is the point in time when the maximum rate of global petroleum production is reached, after which the rate of production enters a terminal decline. NBS Information Specialist Michael Smith discusses the issues surrounding a growing concern.

The theory was first proposed by M. King Hubbert in 1956 to accurately predict that United States oil production would peak between 1965 and 1970. The Hubbert peak theory has since been used to predict production curves for many other countries. According to the model, the production rate of a limited resource will follow a roughly symmetrical bell-shaped curve based on the limits of exploitability and market pressures.

Optimistic estimations of world oil production forecast that a peak will happen in the 2020s or 2030s, and assume major investments in alternatives will occur before a crisis occurs. The model shows the price of oil at first escalating and then retreating as other types of fuel and energy sources take over.

Pessimistic predictions of future oil production operate on the basis that the peak has already occurred, or will occur shortly, and predict a global depression, perhaps even initiating a collapse of global industrial civilization. Throughout the first two quarters of 2008 there were signs that a possible recession was being made worse by a series of record oil prices.

Demand for oil

The demand side of peak oil is concerned with consumption over time, and the growth of this demand. World 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 further projected to increase 37% over 2006 levels by 2030.

As countries develop, industry, rapid urbanization and higher living standards drive up energy use. Thriving economies such as China and India are quickly becoming large oil consumers, the former seeing oil consumption grow by 8% yearly since 2002.

Another significant factor on petroleum demand has been human population growth. Oil production per capita peaked in the 1970s; however, the world's population in 2030 is expected to be double that of this period.

Generally, energy demand is distributed amongst four broad sectors: transportation, residential, commercial, and industrial.

Reserves

Oil reserves are classified as proven, probable and possible. 'Proven reserves' are generally intended to have at least 90% or 95% certainty of containing the amount specified, 'probable reserves' have an intended probability of 50%, and the 'possible reserves' a probability of 5% to 10%. Current technology is capable of extracting about 40% of the oil from most wells, with future technology perhaps making further extraction possible.

The peak of world oilfield discoveries occurred in the mid 1960s and 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).

Sadad I. Al Husseini, former Vice President of Aramco, has estimated that 300 billion of the world's 1,200 billion barrels of proven reserves should be re-categorized as speculative resources, illustrating the difficulties in forecasting the date of peak oil. However, many worrying signs concerning the depletion of 'proven reserves' have emerged in recent years, best exemplified by the 2004 scandal surrounding the apparent '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's (EWG) 2007 report showed total world 'proved' (P95) plus 'probable' (P50) reserves to be between 854 and 1,255 gigabarrels (30 to 40 years of supply if demand growth were to stop immediately). However, major discrepancies arise from accuracy issues with the Organization of the Petroleum Exporting Countries' (OPEC) self-reported numbers. Besides the possibility that these nations have overstated their reserves for political reasons, over 70 nations also follow a practice of not reducing their reserves to account for yearly production.

Unconventional oil reserves

Unconventional oil reserves are several times as big as conventional ones, and despite the large quantities available in non-conventional sources, limitations on production prevent them from becoming an effective substitute for conventional crude oil.

Even under highly optimistic assumptions, sources such as Canada's oil sands will not prevent peak oil - although production could reach 5 million barrels/day by 2030 in a 'crash program' development effort. The same applies to much of the Middle East's undeveloped conventional oil reserves which are heavy and contaminated with sulphur and metals to the point of being unusable.

Of course, recent high oil prices now make these sources more financially appealing, with current studies suggesting that within 15 years all of the world's extra oil supply is likely to be sourced from unconventional sources.

As an aside, a 2003 article in Discover magazine claimed that thermal depolymerisation could be used to manufacture oil indefinitely, out of municipal and agricultural waste and sewage. The article claimed that the cost of the process was around £8 per barrel; however a follow-up article in 2006 stated that the cost was actually £41 per barrel because the feedstock which had previously been considered as hazardous waste now had a market value.