Peak oil is the point in time when the maximum rate of crude oil extraction is reached, after which the rate of extraction is expected to begin to decline… forever.
It simply does not matter why peak crude oil extraction is reached, the peak is the peak regardless of the cause. The cause could be geological or it could be economics but most likely it will be a combination of the two.
Matthew Yglesias Recently wrote in Slate: “I will admit that I’ve always found the “Peak Oil” debate to be a little bit confusing, especially because both the words “peak” and “oil” turn out to have some ambiguity to them.”
While it is true that the word “oil” has some ambiguity to it, there is no ambiguity about the word “peak”. Let me explain:
Some include such things as ethanol, biodiesel, palm oil, bottled gas such as propane and butane and even refinery process gain as oil, I only track, and regard as oil, crude oil plus condensate. Condensate, mostly pentane, is a product of natural gas wells but the EIA includes it, along with crude, in their data base so we have no choice but to include it in ours.
However there is nothing ambiguous about “Peak”. Some people say peak demand is different from peak supply. No, it is not. It is not because both supply and demand are a function of price. The higher the price the more oil producers are willing to deliver and the less consumers are willing to buy. So both peak demand and peak supply depend on the price. And of course the state of the economy comes into the picture. Both peak supply and demand in a booming economy would be totally different from peak supply and demand in a deep recession.
So when peak oil happens, or happened, it will be both a function of supply and demand. There will always be oil left in the ground. In other words we will never run completely out of oil. But as the marginal price of rises the peak gets closer and closer. In fact it may have already arrived.
The following graphs and text are from PeakOil.com.
Peak oil theory states: that any finite resource, (including oil), will have a beginning, middle, and an end of production, and at some point it will reach a level of maximum output as seen in the graph to the left.
Oil production typically follows a bell shaped curve when charted on a graph, with the peak of production occurring when approximately half of the oil has been extracted. With some exceptions, this holds true for a single well, a whole field, an entire region, and presumably the world. The underlying reasons are many and beyond the scope of this primer, suffice to say that oil becomes more difficult and expensive to extract as a field ages past the mid-point of its life.
In the US for example, oil production grew steadily until 1970 and declined thereafter, regardless of market price or improved technologies.
In 1956 M. King Hubbert, a geologist for Shell Oil, predicted the peaking of US Oil production would occur in the late 1960s.
Although derided by most in the industry he was correct. He was the first to assert that oil discovery, and therefore production, would follow a bell shaped curve over its life. After his success in forecasting the US peak, this analysis became known as the Hubbert’s Peak.
- The amount of oil discovered in the US has dropped since the late 1930s.
- 40 years later, US oil production had peaked, and has fallen ever since.
World discovery of oil peaked in the 1960s, and has declined since then. If the 40 year cycle seen in the US holds true for world oil production, that puts global peak oil production, right about now; after which oil becomes less available, and more expensive.
Today we consume around 4 times as much oil as we discover.
If we apply Hubbert’s Peak to world oil production we estimate that approximately half of all oil that will be recovered, has been recovered, and oil production may reach a peak in the near future, or perhaps already has.
“Understanding depletion is simple. Think of an Irish pub. The glass starts full and ends empty. There are only so many more drinks to closing time. It’s the same with oil. We have to find the bar before we can drink what is in it.”
What peaking does mean, in energy terms, is that once you’ve peaked, further growth in supply, is over. Peaking is generally, also, a relatively quick transition to a relatively serious decline at least on a basin by basin basis. And the issue then, is the world’s biggest serious question.