What is peak oil? • Peak oil refers to the point in time when crude oil production reaches its maximum level. • After peak production, supply will decline and oil prices will rise. • Crude oil, and natural gas, are fossil fuels so there is a finite supply of them and they will eventually run out. • The peak is more important than the point in time oil actually runs out, because of rising prices as supply falls. Peak oil theory is based on the work of Shell geologist M. King Hubbert in the 1950s
When will oil supply peak? • There is considerable debate over when global peak oil production will occur:
Peak discovery • In support of peak oil is the fact that the discovery of new oil fields peaked in 1965. • Since 1983, annual oil consumption has exceeded annual new oil discoveries. • In other words, very few new oil reserves are found today. • This is despite improvements in geophysical prospection techniques used to find new oil fields. Trends in the discovery of new oil fields 1930–2010
Past and future peaks • Globally, peak oil may be close, or even already have happened. • Many nations have already passed peak production, increasing their reliance on oil imports. • This includes the UK in 1999, the USA in 1970 and Nigeria in 1979. National peak oil production
Plateau oil? • Some geologists and economists expect global oil production to ‘plateau’. • In this scenario, oil supply would be stagnant for 10–20 years. • During this time prices are likely to be high as there will always be pressure on oil supplies. • Oil companies might increase the rate at which they pump oil, or use enhanced recovery methods, in order to try and maintain production. Global crude oil production 1965–2010
Alternative oil supplies • Peak oil relates to the production of light crude oil (also called conventional oil), which is cheap to extract, process and transport. • The steep price rises expected after peak oil could be limited by developing alternative supplies. • None of these in likely to dramatically increase the supply of cheap oil.
The importance of oil prices • The price of a barrel of crude oil is important. • The world economy depends on oil. • It is used in transport, plastics, chemicals and to generate electricity. • The price record was set in 2008 at $147 per barrel. • Rapid oil price rises increase costs for businesses and consumers. • Unfortunately, steep price rises correlate well with global recessions: