Peak Oil Theory

peak oil theory, a contention that conventional sources of crude oil, as of the early 21st century, either have already reached or are about to reach their maximum production capacity worldwide and will diminish significantly in volume by the middle of the century. “Conventional” oil sources are easily accessible deposits produced by traditional onshore and offshore wells, from which oil is removed via natural pressure, mechanical walking beam pumps, or well-known secondary measures such as injecting water or gas into the well in order to force oil to the surface. The peak oil theory does not apply to so-called unconventional oil sources, which include oil sands, oil shales, oil extracted after fracking “tight rock” formations, and oil found in deepwater wells far offshore—in short, any deposit of oil that requires substantial investment and labour to exploit.

petroleum refinery

Proponents of peak oil theory do not necessarily claim that conventional oil sources will run out immediately and create acute shortages, resulting in a global energy crisis. Instead, the theory holds that, with the production of easily extractable oil peaking and inevitably declining (even in formerly bounteous regions such as Saudi Arabia), crude-oil prices are likely to remain high and even rise further over time, especially if future global oil demand continues to rise along with the growth of emerging economies such as China and India. Although peak oil theory may not portend prohibitively expensive gasoline any time soon, it does suggest that the days of inexpensive fuel, as were seen for more than a decade after the collapse of OPEC cartel prices in the mid-1980s, will probably never return.

The first person to advance the peak oil theory publicly was Marion King Hubbert, an American geoscientist who worked as a researcher for the Shell Oil Company from 1943 to 1964 and taught geophysics at Stanford University and other institutions. At a meeting of a branch of the American Petroleum Institute in 1956, Hubbert presented a paper in which he depicted U.S. petroleum production on a bell curve, starting from zero in the late 19th century, peaking between 1965 and 1975 at roughly 2.5 billion to 3 billion barrels per year (or approximately 6.8 million to 8.2 million barrels per day), and declining thereafter just as quickly as it had grown until production slows to 19th-century levels after 2150. Hubbert further predicted that global crude-oil production, assuming untapped reserves of 1.25 trillion barrels, would peak about the year 2000 at roughly 12 billion barrels per year (some 33 million barrels per day), decline quickly after that, and eventually disappear in the 22nd century.

Hubbert’s theory for U.S. production was on the mark, as 1970 proved to be the peak year for oil-well production in that country, at approximately 9.64 million barrels of crude oil per day (compared with some 6.4 million barrels per day in 2012). Whether Hubbert was accurate about the global crude-oil production peak is a more controversial topic. Some analysts argue that a peak was indeed reached in the early 2000s. Others counter that the world has not yet reached peak production, that Hubbert seriously underestimated undiscovered oil reserves (especially in the Arctic, South America, and Sub-Saharan Africa), and that extracting methods have greatly improved productivity, enabling producers to get more oil out of declining wells than Hubbert was able to predict in 1956.

A core challenge to the theory is that calculating future global oil production remains a guessing game, as it requires not only a database of past production figures but also accurate knowledge of current reserves. While statistics on production in years past are easily accessible, oil producers often keep reserve figures confidential. In particular, Saudi Arabia has refused to disclose whether its largest fields—especially the huge Al-Ghawār field, which in 2005 was estimated to be producing five million barrels a day—are declining in production or are, at least, becoming more difficult to exploit. Still, there have been attempts to verify Hubbert’s projections. In 2010 the International Energy Agency’s (IEA’s) annual World Energy Outlook speculated that the global peak of conventional crude-oil production may have taken place in 2006, when 70 million barrels were produced per day. By contrast, the influential Cambridge Energy Research Associates (CERA) estimated in 2005 that current global production capacity would not hit peak before 2020.

Assuming that it is accepted that global oil production either has peaked or eventually will peak, the debate shifts to the severity of the subsequent production decline. Here most predictions do not see the steep downward slope that is implied by Hubbert’s classic bell curve. For instance, the IEA’s World Energy Outlook 2010 predicted that world production would “plateau” at some 68 million–69 million barrels per day for the foreseeable future—though by 2035 production of conventional crude oil might drop to 20 million barrels per day, with the difference being made up by increasing production from unconventional sources. CERA too predicts that unconventional sources will sustain world oil production well into the future. In fact, CERA holds that it is pointless to construct scenarios that strictly separate conventional oil from unconventional oil, as advances in technology and other factors have ways of blurring differences between the two.

On the other hand, some theorists foresee a more problematic future. For instance, Olivier Rech, a former IEA economist, publicly predicted in 2011 an annual decline of one million to two million barrels a day, with supply bottlenecks becoming noticeable by 2015. Oil producers have generally stayed out of the fray, though Jeroen van der Veer, then chief executive officer of Royal Dutch Shell PLC, declared in 2008 that “easily accessible supplies of oil and gas” probably would not be able to meet demand by 2015. Van der Veer’s successor at Shell, Peter Voser, added that any potential reduction of supply would not be due to declining resources so much as it would be due to reductions in investment and exploration by oil companies, caused in part by the worldwide recession that began in 2008.

Peak oil thus remains a contentious theory, especially as some of its most fervent advocates argue that higher oil prices and reduced production may lead to geopolitical convulsions and massive public unrest. If the theory holds, then the world’s oil-based economy will face a reckoning around the middle of the 21st century. Such a reckoning might spur a revolution in extraction methods, leading to more oil than ever before being derived from fracking, Canadian oil sands, and an increasingly accessible Arctic, or it might cause reduced dependence on oil and growing use of alternate and renewable energy sources. It is worth noting that Hubbert, the founder of peak oil theory, was a nuclear-power advocate who believed that the end of oil would mean not the end of civilization but its improvement.