Bottom of the Barrel?
Let’s cut to the chase: The world is not about to run out of oil. But it may be about to undergo a gradual decline in annual oil production. In other words, production may “peak” at some point and after that point year-over-year production will decline. The concept of peak oil is based on the simple observation that once an oil well or oil field consumes one-half of the oil in the ground, then production will begin to decline. To illustrate, if an oil field contains 500,000 barrels of oil, once 250,000 barrels have been pumped to the surface, the amount pumped each day will begin to decline.
Originally proposed by M. King Hubbert in 1956, this theory has proven true not just for wells and fields, but for entire countries. Hubbert accurately predicted the US would begin to see production declines in the early 1970’s. Sure enough, in 1970, 14 years after his prediction, the US did indeed see its production peak. Today the US produces approximately 6.8 million barrels of oil per day, about 60% of what it produced at its peak.
A number of other countries have already passed their production peak and have entered what geologists refer to as terminal decline. Among the countries that have peaked and their peak year:
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The 2004 peak year for Mexico is so recent that one might presume they can increase production and continue towards a higher peak. However, Mexico is home to one of the world’s largest oil fields, Cantarell. Cantarell is one of only a handful of oil giants ever discovered and it is responsible for approximately 60% of oil produced in Mexico. In early 2007 Pemex announced that production was indeed declining at the Cantarell field.
Predicting when the world might peak is a bit of a tricky issue because one can never be sure how much discoverable oil may exist on the planet. And few can agree on how much there may be. Some say we still have 2 to 4 trillion barrels of oil to produce, and that peak oil production is decades away. Others are concerned that there may be only 1 trillion barrels of oil left, and that we have already reached—and surpassed—our peak production year.
Alongside the hard-line peak oil theory, a new school of thought has emerged that looks at oil production issues from a slightly different angle. Rather than seeing the world’s oil well as half empty and on the decline, they believe issues like geological difficulties, political restrictions, and rising oil prices will culminate in a production plateau.
The bottom line is this: oil producers will reach a point at which their production capacity won’t be able to meet global energy demand. Once this happens, the world will see rising oil and gas costs as supply struggles to meet demand. And we will see a growing shift toward finding alternative energy sources.