Peak Oil

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The term peak oil refers to the point after which the amount of oil that can be extracted from the earth in a given year, begins to decline. The phrase was first coined by the American geophysicist Dr. M. King Hubbert in 1956. Hubbert was the first person to predict that US oil production would peak in 1970, which has since been proven to be correct. Hubbert also predicted a world-wide peak in oil production around the year 2000.

Peak oil does not mean that there is no oil left, rather it means that the quantity that is produced each year has reached its maximum rate and future production rates will decline. Before this point, extra production could be brought on line to satisfy growing demand. As long as demand continues to rise or is static, the pattern of peak of production, followed by a plateau and then contraction will result in ever higher prices. A large part of economic activity depends on oil so a recession can have the effect of reducing the oil price temporarily as demand dips, but ultimately, oil is a finite resource made millions of years ago, and so the remaining reserves are increasingly difficult and expensive to extract.

Prospectors and producers around the world first tapped into the easiest oil fields to find and exploit. Large scale oil extraction began in the mid 1850s and since then oil fields have been prospected around the world, but many of these resources are now reaching depletion, such as the North Sea supply off the coast of Britain. Eventually the amount of energy available from the oil extracted gets ever closer to the amount of energy needed to extract the oil in the first place. This ratio is often termed the Energy Return On Energy Invested (EROEI).

The closer EROEI is to one, the less economically viable is the extraction, no matter how much oil may be left in the ground. Oil producers have begun to exploit alternative sources of oil, such as the tar sands in North America, to try to meet the expanding markets of the growing global economy. But such sources have much lower returns on investment than conventional oil fields and require the price of oil to be far higher to be worth extracting. The catch is that these higher prices may stall the world's energy dependent industrial economy, leading to recession and a periodic collapse in oil prices. This makes it far harder to maintain the investment needed to exploit non-conventional sources of oil.

The physics of peak oil can be further understood on a well-by-well or field-by-field basis. When oil is first extracted it is often under great pressure and it is therefore easier to extract. When oil wells begin to run down, what remains is under less pressure and is further down in the earth’s core. Such reserves may be large but the oil is harder to extract. Current commentators and energy insiders are now suggesting that we are at peak oil now, or that we will reach it sometime before 2018.

"Our ignorance is not so vast as our failure to use what we know." - M. King Hubbert

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Author: Julia Forster