An Introduction to Peak Oil
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This may feel a bit technical at times, so fasten your seatbelt!
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Why the High Price of Gas?
Crude Logic
Over 50% of what we paid at the pump in 2005 bought the raw ingredient for gasoline — crude oil — according to the U.S. government (other expenses included refinement, distribution, marketing, taxes, and profits).
Everyone has noticed gas prices increasing, but what’s actually going on? Increases in the price of crude oil are the largest cause of increasing gasoline prices. In 2005 increasing global demand for oil stretched refinery and distribution capacity to the max, and then Hurricane Katrina limited distribution in the U.S. by temporarily knocking out two major pipelines. Those pipelines have since been repaired, and we enjoyed a temporary reduction in gasoline prices in 2006 and 2007. Crude oil, meanwhile, has continued to increase. The recent housing/credit crisis has led many investors to speculate in commodity markets, which is one factor driving crude prices up. Still, global demand for crude continues to be a factor as the developing world’s appetite for oil grows.
In theory, whenever prices rise dramatically, they will eventually fall dramatically when oil exporting nations crank up their production to meet rising demand. There is a problem with that theory, though: oil is a finite resource and that will not last forever. At some point it will start getting difficult to get more out of the ground. We can’t be sure at this time, but a phenomenon predicted by a geophysicist in the 1950s may be starting to play a role in this story. If it isn’t yet, it likely will very soon.
Hubbert’s Peak Oil Theory
M. King HubbertM. King Hubbert (pictured) was a U.S. oil industry geophysicist who predicted in 1956 that an oil field’s production would resemble a bell curve - it would grow quickly in early years, before growth slowed and plateaued. Then it would begin a slow decline that would accelerate over time. What happens in the field is that drillers first go after the oil that is easiest (and cheapest) to extract. The field’s production grows as more wells come online, but it becomes necessary over time to drill deeper wells as more and more oil is extracted. There comes a point where the easily accessible oil dwindles and production begins to decline. At that point it is simply too difficult (and expensive) to bring oil pumps online fast enough to continue extracting more than the year before, even though there is still a great deal of oil under ground.
Production Plateau
“[D]uring the past three years, global production of crude oil has remained static, despite demand growth - especially from Asian economies. And there is every indication that worldwide petroleum production will begin an inexorable, inevitable decline beginning around 2010.”
– peak oil expert Richard Heinberg
This “Peak Oil Theory” successfully predicted a peak in U.S. oil production in 1970 (although Hubbert actually thought it would occur a few years sooner — it was, and remains, not an exact science). After that year our country changed from a net oil exporter to a net oil importer since our demand for oil continued to grow. We became dependent for the first time on foreign sources to supply our growth. Scientists and the oil industry paid more attention to Hubbert’s theory after that, and in 1974 Hubbert made another prediction: oil production will peak globally at some point. Just as oil production peaked in the United States, sooner or later it will peak in the world as a whole.
It is difficult to say exactly when, though. Hubbert originally thought it would come in 1995, but that year came and went with no sign of global oil production slowing. Over time, scientists have kept busy quietly refining data. Many of these researchers now think the peak will occur sometime between 2006 and 2020. Many think it has already happened, or that it will happen in 2008. We won't know for certain until a few years afterwards. Fun Fact: M. King Hubbert is no relation to L. Ron Hubbard of Scientology fame.
Why Peak Oil Matters
A bell curveAfter oil production peaks, it will not simply disappear, because production follows a bell curve. Before the peak, each year more and more oil is available. After the peak, less will be available each year. In a very simplified example, if the peak happens this year, then in 2016 the world will produce about as much as it did in 2008. This would not be so bad except that global population is growing and so is the standard of living of that growing population. Worldwide demand for oil will continue to grow, even as supply declines.
The increasing cost of crude oil affects far more than the price of gas. You have probably noticed increasing prices on food and other basic household goods. Construction businesses are noticing increased prices of basic material like steel and asphalt. All of these goods have to be transported, which consumes oil. Food prices are hit twice as hard, first because food is transported to us from all over the world, and second because most food is grown with the aid of oil-derived chemicals (which themselves are more expensive). So here is what we face: paying more and more for everything we use and depend on.
According to wikipedia, “Shortfalls in [oil] production (and therefore supply) would cause extreme price inflation, unless demand is mitigated with planned conservation measures and use of alternatives, which would need to be implemented 20 years before the peak.” Since experts increasingly believe the global peak is less than twenty years away, and may already be upon us, it seems to be a good idea to start doing whatever we can to conserve and adopt alternatives. Source: Wikipedia article accessed June 3, 2008.
By the way, there are indications that other fossil fuels will also peak this century, including natural gas, coal, and even nuclear power (which is not technically a fossil fuel). Thus, switching away from oil to these other non-renewable sources of energy for electricity production would be a short term solution, at best. At worst... well, keep reading.
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