Peak Oil Primer

Oil is the world's premier source of energy and is fundamental to almost every important function of modern life. It fuels 95 percent of land, sea and air transport, so the efficient movement of raw materials and goods, as well as personal mobility, is almost entirely oil-dependent. Food production too relies heavily on oil to run farm machinery and to make fertilisers, herbicides and pesticides. Oil generates 40 percent of the world's commercial energy, provides heating fuel, and drives industry and commerce. No other existing energy source can match the versatility, convenience and low cost of oil. Moreover, it supplies feedstock for many thousands of manufactured products as diverse as plastics, medicines, clothing and building materials.

Global demand for oil has increased seven-fold over the past half-century due to rapid population growth and industrial expansion. The world now consumes about 82 million barrels of oil a day. (A barrel is the equivalent of 42 U.S. gallons or 159 litres.) Demand is generally expected to continue growing at an average annual rate of one to two percent. The International Energy Agency forecasts that worldwide oil demand could exceed 100 million barrels a day by 2020. The greatest rise in demand is expected to come from developing nations. Growing transportation needs throughout the world would account for up to three-quarters of the projected increase.

Oil industry leaders acknowledge that new sources of oil are becoming increasingly difficult to find and more costly to exploit. New oilfield discoveries have been declining steadily for 40 years despite extensive exploration with the most advanced technology, and most importantly, finding giant new fields is becoming ever more rare. Recently, major oil companies have had to cut their production growth targets. In 2002, the world used four times more oil than was found from new sources. Since about 80 percent of the oil that will be necessary to meet projected needs in 10 years time is not currently in production, unprecedented levels of investment and yet-to-be-achieved technological advances will be required to balance supply with future demand.

The industry's ability to locate and recover ever-smaller volumes of oil has improved significantly but the physical limitations of the resource are inescapable. Operating experience from tens of thousands of oilfields shows that the rate of production always rises to a peak and then begins to fall off when about half the recoverable oil has been extracted. Since the world's total endowment of oil is finite and non-renewable, in due course, as new discoveries become insufficient to offset the natural depletion of existing reserves, overall output will reach its maximum limit and begin to decline.

The world has now consumed almost half the total amount of conventional oil most experts estimate will ever be available for recovery. Assessments of the world's ultimately recoverable oil reserves vary but 65 published studies by oil companies, geologists, government analysts and consultants over the past 50 years have produced remarkably consistent estimates. The overwhelming majority of these put the world's original endowment of recoverable oil at no more than about 2,400 billion barrels; the average estimate is 2,000 billion barrels. Cumulative worldwide consumption had exceeded 900 billion barrels by the end of 2003.

A growing number of experts now foresee a permanent downturn in global oil production rates within a matter of years. Although past premature forecasts have led many to view warnings of impending oil scarcity with a great deal of scepticism, no fewer than a dozen recent independent analyses, using different assumptions and demand growth projections, all show global production reaching its natural peak within the coming decade. Even the most conservative of these, based on what some consider an implausibly high estimate of the total oil endowment, forecasts the peak by 2020.

As growing demand exceeds available supplies, oil prices will rise substantially and the effects will be felt throughout the global economy. Oil is the world's single largest traded commodity, accounting for over half the total value of all commodity transactions. Fears of oil supply disruptions alone can create financial panic. The few episodes of dramatic oil price rises in the past 30 years, due mainly to events in the Middle East, have shown how vulnerable the world economy is to the impact of supply restrictions. High oil prices fuel inflation, contribute to economic recessions and create the greatest hardship for those least able to bear the additional costs.

The world will become increasingly dependent on oil from the Middle East as supplies from elsewhere decline. Already over 50 oil-producing countries have passed their peak production, including the United States, once the world's largest producer, which now relies on imported oil for over 60 percent of its domestic needs. Most other producing nations are expected to reach their peak within the next few years. The only exceptions will be a handful of oil-rich Persian Gulf states, which hold about two-thirds of the world's proven reserves. Saudi Arabia alone controls 25 percent of those reserves.

The productive capacity of Middle East oilfields is uncertain and the risks of supply disruptions are heightened by continuing political instability in the region. Oil from the Middle East currently accounts for almost a third of the world's supply and that share will grow steadily in the years ahead. While it is commonly assumed that some excess production capacity is available to meet short-term increases in demand, little is known about the longer-term potential for growth. In any case, intensified worldwide competition will inevitably accelerate the depletion of those reserves and the onset of falling output. Moreover, securing reliable supplies from the region comes at a substantial additional expense. Some estimates put the military costs of protecting pipelines and tanker routes, borne mainly by U.S. taxpayers, at around $15-20 a barrel.

The era of cheap, plentiful supplies of oil is coming to an end, requiring fundamental restructuring of the world's energy systems. Any shift towards new, more costly alternatives is bound to be difficult and time consuming. Growing recognition of the serious environmental damage and climate-changing effects caused by burning oil (and other fossil fuels) is beginning slowly to drive new, long-term energy policies. The approaching peak and decline in oil supplies adds urgency to the need for greater energy efficiency measures and more rapid development of sustainable energy alternatives.

When will peak oil occur, or has it already happened?

A reader of our newsletter recently asked us why, since the BP Statistical Review shows oil production was lower in 2009 than 2008, did we not accept his view that the peak has already passed?

Our position is as follows:

Just because output was lower in 2009 than 2008 does not necessarily mean the fall was geologically imposed. We think oil production was lower in 2009 than 2008 because of lower demand caused by the recession, itself caused in part by the spike in the oil price to $147/barrel. That in turn appears to have been the result of an effective plateau from around 2005 to 2008. What’s more, output has risen strongly in 2010, rising by 2.8 million b/d in 2010 over 2009, and is forecast to rise by a further 1.5 million b/d this year (IEA - see http://omrpublic.iea.org/). In January this year, IEA figures, which are based on an all-liquids definition similar to the BP Stats, showed production at 88.5 mb/d, against 87.8 mb/d in July 2008. So already we are 700,000 b/d above the previous peak. Chris Skrebowski, ODAC trustee and independent forecaster, suggests the crunch will come in 2012/2013 at 92-94 mb/d. More generally we think that forecasting the precise date is now less important than preparing for the event. Whenever it comes, peak oil is far too close for comfort.

Key reports & videos available on the internet

For many more see our Reports & Resources page

UK Energy Research Centre (UKERC)Global Oil Depletion - An assessment of the evidence for a near-term peak in global oil production (PDF 3856Kb) - October 2009. This independent report is billed as a, review of over 500 studies, and an analysis of industry databases and comparison of global supply forecasts, which seeks to bring some clarity to this debate. It concludes that a peak in conventional oil production before 2030 appears likely and there is a significant risk of a peak before 2020.

The Oil Depletion Analysis Centre & Post Carbon InstitutePreparing for Peak Oil: Local Authorities and the Energy Crisis - (PDF 2647Kb)  - August 2008. ODAC's own report provides an introduction to peak oil with a focus on the impacts for Local Government. The report sets out steps for Local Authorities to begin to address the issues. 

A Crude Awakening - Promotional video, 02:06 long.
Available on DVD from retailers.

Crude Impact - see the Crude Impact website. The DVD cover quotes Chris Vernon of The Oil Drum: Europe: "Crude Impact is a terrific film. I have no hesitation in saying it is the best documentary I have seen on the subject".

ASPO TV News: Peak Oil Reality: Production & Depletion Issues (video)- Four leading petroleum industry experts discuss the major production challenges posed by peak oil. While new fields are being discovered, the steady pace of depletion, a growing world population, and diminished investment in new exploration and production point to a constrained world oil supply in the next few years. This video features Sadad al-Husseini, Jeremy Gilbert, Jeremy Leggett, and Chris Skrebowski.

ASPO TV News: Acknowledging the Reality of Peak Oil (video) - The reality of oil depletion is undeniable. Volumes of publicly available data, collected over many decades, demonstrate that the world may have reached the point of maximum oil production. Despite the clarity of the facts and data, leaders in government, industry, and business are reluctant to articulate and address the enormous challenges that a declining oil supply will have on the world economy - and the urgent steps that should be taken to mitigate shortages of our most valuable energy source. This video features industry veterans Sadad al-Husseini, Jeremy Gilbert, Jeremy Leggett, and Chris Skrebowski, who discuss why governments and business are reluctant to face up to the realities of peak oil.

Richard Heinberg Video - Richard Heinberg begins his talk with a history of energy use, then moves on to various aspects of Peak Oil. Looks at the Katrina hurricane aftermath as an example of how well prepared the USA is for Peak Oil (not very). Finishes off his talk on an optimistic note, discussing some of the many options we have for coping and preparing for Peak Oil. An all-round excellent talk. About 56 minutes long. Video.

Last updated: 24-Nov-2009