The law of conservation of energy states that energy can not be created, only converted. Despite the apparent abundance of oil it follows this law of nature. Oil and other fossil fuels are just a quirk of geological history, created when a finite amount of decayed organic matter was compressed underground millions of years ago. Except for geothermal power, tidal power, and nuclear power, all available energy flows and energy reserves on earth are or were ultimately provided by the sun. Fossil fuels are stored sun energy and they are finite.
Geophysicist M. King Hubbert created a mathematical model of petroleum extraction which predicted that the total amount of oil extracted over time would follow a logistic curve. This in turn implies that the predicted rate of oil extraction at any given time would then be given by the rate of change of the logistic curve, which follows a bell-shaped curve now known as the Hubbert curve (See figure above).
Hubbert, in 1956, predicted oil production in the continental United States would peak in the early 1970s. U.S. oil production did indeed peak in 1970, and has been decreasing since then. According to Hubbert’s model, U.S. oil reserves will be exhausted before the end of the 21st century.
Given past oil production data and barring extraneous factors such as lack of demand, the model predicts the date of maximum oil production output for an oilfield, multiple oil fields, or an entire region. This maximum output point is referred to as the peak. The period after the peak is referred to as depletion. The graph of the rate of oil production for an individual oil field over time follows a bell-shaped curve: first, a slow steady increase of production; then, a sharp increase; then, a plateau (the “peak”); then, a slow decline; and, finally, a steep decline.
When an oil reserve is discovered, production is initially small, because all the required infrastructure has not been installed. Step by step, more wells are drilled and better facilities are installed in order to produce an increasing amount of oil. At some point, a peak output is reached that can not be exceeded, even with improved technology or additional drilling. After the peak, oil production slowly but increasingly tapers off. After the peak, but before an oil field is empty, another significant point is reached when it takes more energy to recover, transport and process one barrel of oil than the amount of energy contained in that one barrel of oil. At that point, oil is not worthwhile to extract, and that oil field is abandoned. Hubbert peak theory proponents claim that this is true regardless of the price of oil. This concept is referred to as the ratio of energy extracted over energy invested.
The Hubbert peak theory is most often applied to oil but is applicable to other fossil fuels such as natural gas, coal and non-conventional oil.
The Association for the Study of Peak Oil and Gas is an organization founded by the geologist Colin Campbell. It argues that the Hubbert model is fundamentally correct, and that the world faces the start of oil depletion around 2007 — potentially leading to a major global crisis in the early 21st century. Proponents of peak oil theory point to the fact an increasing percentage of oil fields are either beginning depletion or are already depleted. Huge, easily exploitable oil fields are likely to be a thing of the past. Natural gas is expected to peak anywhere from 2010 to 2020 (Bentley, 2002).
Exacerbating the potential oil depletion problem is the increasing global demand for oil due to population growth and increased global economic prosperity. In a recent year, 25 billion barrels of oil were consumed worldwide, while only eight billion barrels of new oil reserves were discovered. In 2004, world consumption of crude oil is expected to surpass 82 million barrels per day, which equates to 30 billion barrels per year. In March 2005, the International Energy Agency raised projections of annual global demand to 84.3 million barrels per day AP (http://www.nytimes.com/reuters/business/business-markets-oil.html). This puts consumption equal to production, leaving no surplus capacity. Even if there are temporarily sufficient oil reserves that could be used to meet rising global demand, there is an unknown limit on the increase of oil production capacity, absent additional investment in oil production, transportation and refining facilities.
When people use the phrase “the end of cheap oil,” they are referring to two things: price increases due to scarcity, and the increasing inefficiency of oil production (cheap from both a monetary and energy efficiency perspective). When oil production first began in the early twentieth century, at the largest oil fields 50 barrels of oil were recovered for every barrel of oil used in the extraction, transportation and refining processes. This ratio becomes increasingly inefficient over time: currently, anywhere between one and five barrels of oil are recovered for every barrel used in the various recovery processes. When this ratio reaches the point where it takes one barrel to recover one barrel, then oil becomes useless as energy. At that point, all energy used to extract oil would result in a net energy loss; society would be more efficient and better off using that remaining energy elsewhere. As would be expected by any theory that predicts future fuel shortages, the Hubbert model has significant political, economic and foreign policy ramifications.
In March of 2005 the Algerian minister for energy and mines stated that OPEC has reached their oil output limit.  (http://news.yahoo.com/news?tmpl=story&ncid=749&e=1&u=/ap/20050312/ap_on_bi_ge/algeria_opec)
Oil production outside OPEC and the states of the former Soviet Union appears to be consistent with a Hubbert Peak pattern: however, as of 2004, OPEC and FSU output was rising. Note that data to the right of the vertical line is a prediction. Source: Strategic Significance of America’s Oil Shale Resource: Volume I – Assessment of Strategic Issues
Few would deny that fossil fuels are finite and that alternative energy sources must be found in the future. Most critics are instead arguing that peak will not occur very soon and that the form of the peak need not be a sharp logistic curve peak but may be irregular and extended.
In 1971, Hubbert used high and low estimates of global oil reserve data to predict that global oil production would peak between 1995 and 2000. This peak has not occurred, and the implications for the model are controversial. Some petroleum economists, such as Michael Lynch, argue (http://www.gasresources.net/Lynch(Hubbert-Deffeyes).htm) that the Hubbert curve with a sharp peak is inapplicable globally.
The United States Geological Survey (http://energy.cr.usgs.gov) estimates there are enough petroleum reserves to continue current production rates for at least 50 to 100 years. That is contrasted by Saudi Arabia’s top oil industry insider who says the American government’s forecast for future oil supply is a “dangerous over-estimate”.  (http://channel4.com/news/2004/10/week_5/26_oil.html) Campbell argues that the USGS estimates are methodologically flawed. One problem, for example, is that OPEC countries overestimate their reserves to get higher oil quotas and to avoid internal critique. Population and economic growth might require increased energy consumption in the future.
Critics such as Maugeri point out that Hubbert peak supporters such as Campbell previously predicted a peak in global oil production in both 1989 and 1995, based on oil production data available at that time. He claims that nearly all of the estimates do not take into account non-conventional oil even though the availability of these resources is huge and the costs of extraction, while still very high, are falling due to improved technology. Furthermore, he notes that the recovery rate from existing world oil fields has increased from about 22% in 1980 to 35% today due to new technology and predict this trend will continue. According to Maugeri, the ratio between proven oil reserves and current production has constantly improved, passing from 20 years in 1948 to 35 years in 1972 and reaching about 40 years in 2003. Also according to Maugeri, these improvements occurred even with low investment in new exploration and upgrading technology due to the low oil prices during the last 20 years. The current higher oil prices may well cause increased investment. (Maugeri, 2004).
There are many other attempts to predict oil production. One example is that the world conventional oil production will peak somewhere between 2020 and 2050, but that the output is likely to increase at a substantially slower rate after 2020. A continued rapid increase in oil production requires an increased exploitation of non-conventional sources(Greene, 2003).
Implications of a world peak
The implications of a world peak, or lack thereof, are large. Economic growth and prosperity since the industrial revolution have, in large part, been due to the use of oil and other fossil fuels. Almost all agree that fossil fuels are finite and must be replaced with alternative energy sources in the future. But opinions differ on when this will happen, how to replace the fossil fuels, and how difficult this will be.
Some believe that the decreasing oil production portends a drastic impact on human culture and modern technological society, which is currently heavily dependent on oil as a fuel, chemical feedstock and fertilizer. Over 90% of transportation in the United States relies on oil. Some envisage a Malthusian catastrophe occurring as oil becomes increasingly inefficient to produce. No other known energy source is as cheap to extract, as easy to transport, and as full of energy as oil.
Since the 1940s, agriculture has dramatically increased its productivity, due largely to the use of chemical pesticides, fertilisers, and increased mechinisation. This process has been called the Green Revolution. The increase in food production has allowed world population to grow dramatically over the last 50 years. Pesticides rely upon oil as a critical ingredient, and fertilisers require both oil and natural gas. Farm machinery also requires oil. Some have speculated that a decreasing supply of oil, will cause modern industrial agriculture to collapse, leading to a drastic fall in food production, leading to food shortages or even mass starvation.
Even a benign scenario with a slow rate of depletion and a smooth transition to alternative energy sources may well cause great economic hardship such as a recession or depression due to higher energy prices. There is a close correlation in the timing of oil price spikes and economic downturns. Inflation has also been linked to oil price spikes. However, economists disagree on the strength and causes of this association. The world economy may be less dependent on oil than during earlier oil crises and the recessions of the early 1970s and early 1980s were associated with a relatively brief period of somewhat dwindling energy supplies due to politics. The possible future increase in oil prices might be much higher and last longer. See Energy crisis.
The developing world
A decline in fossil fuels also impacts development in the third world, as it touches on the question of whether it is possible for the vast majority of humanity to live at standards of living currently found in the United States and Europe. Pessimists argue that resource limitations make this scenario impossible, while optimists strongly disagree, although they might admit that the switch to alternative energy may cause great temporary problems.
New technology may allow new energy sources to be used and may allow more energy to extracted from old ones. Most of the potential energy in energy sources is not converted to a useful form. For example, only 10-20% of the sunlight is converted to electricity in solar cells and only 35% of the oil in a typical field is recovered. New technology may increase these numbers. Many of the non-conventional oils today require more energy to extract than can be gained from the oil itself. This may also change with new technology.
Opposed to this is the problem that the remaining fossil fuel reserves usually are increasingly difficult to extract. They may be in increasingly remote areas like far below the surface of the ocean or in the Arctic. They may also be of increasingly lower quality like oil that is more difficult to convert in a oil refinery.
Both of these factors may affect the oil price in the future, making it difficult to predict. In the end new technology cannot prevent oil production from declining since the amount of oil is finite. But new technology may push the peak farther into the future than is predicted today.
If oil begins depletion humanity may increasingly turn to less environmentally friendly energy sources such as coal which there are significant reserves of remaining on earth. This may exacerbate global warming and health problems such as cancer. For this reason, many peak oil proponents advise that an alternative energy source should not be considered unless it is less polluting than oil.
A market solution is the belief that the rise of oil prices due to scarcity would stimulate investment in oil replacement technologies and/or more efficient oil extraction technologies and/or an increase in productivity. The economic challenge within an environment of decreasing energy supplies is the fact that research of alternative energy sources currently rely upon fossil fuels for development. Critics argue that if conventional oil and natural gas become more expensive, alternative energy source development and increased technological efficiency research will become more expensive to the same degree.
Presumably, as rising energy costs exceed the labor costs of construction, and as long-term interest rates drop to match the falling productivity of an energy-starved economy, other sources of energy would become increasingly more attractive. However, critics argue that market solution proponents mistakingly phrase everything in terms of money, e.g., they only consider the price of oil when in reality, the important metric is energy efficiency (the ratio of extracted energy over energy used by the extraction and refining processes).
Additionally, some critics believe that a market solution is likely to result in profiteering by energy suppliers from the price shock, due to the scarcity of oil and artificial scarcity of replacement sources of energy, rather than providing a smooth transition from oil to other energy sources.
Increased fuel efficiency
Any moderate oil price increase is expected to stimulate an increase in transportation fuel efficiency. Some believe this would postpone and lessen the impact of severe oil shortages. However, others will note that an increase in fuel efficiency may in fact compound the problem. This phenomenon is refered to as the Jevons paradox, which states that as technological improvements increase the efficiency with which a resource is used, total consumption of that resource may increase, rather than decrease. Currently, some governments mandate a minimum fuel efficiency standard for automobiles.
It may also cause a shift to forms of transport which are not so dependant upon oil. Electricity in particular can be generated from a number of different sources. This may lead to increased use of transport such as trains, trams/streetcars or trolleybuses instead of oil dependant trucks, cars and aircraft.
As of 2005, the United States economy is the world’s largest user of oil, with a historical reliance on what have been, and still are, some of the world’s lowest oil prices. Its position as the global hyperpower rests on its economic supremacy, which in turn depends heavily on oil. At the same time, the world’s largest oil reserves are held by Saudi Arabia, followed by those of Iraq, the United Arab Emirates, Iran and Russia. If a Hubbert Peak occurs and oil becomes a progressively more scarce commodity, it is reasonable to expect the possibility of massive political and economic tension between its principal producers and consumers.
Some observers see the 2003 U.S. invasion of Iraq as the beginning of a geopolitical struggle driven by anticipated oil scarcity, whereby the U.S. will seek to establish a long-term military presence in the Middle East in order to be able to maintain oil supplies, by force if necessary. Others view this characterization of the invasion as a conspiracy theory. The original vision for post war Iraq was for it to be a tranquil example of a market economy and have free flowing oil. The U.S. military estimated revenues of between 50 and 100 billion dollars over 5 years for Iraq’s oil which they alleged would offset the cost of rebuilding Iraq. Proponents of the oil industry claim it is unlikely that oil companies specifically asked for the invasion of Iraq. Iraq oil reserve maps were used by Vice President Dick Cheney and a group of oil industry insiders to formulate U.S. energy policy in early 2001. Some oil company executives claim to value stability above all else. The stock market also values the stability of contractual arrangements, a regular return on capital, and not getting company employees killed and equipment blown up. Charles H. Featherstone says, “If there were commercial quantities of oil in Hell, Exxon executives would not call God and demand regime change. They would buy an extremely nice lunch for the Devil, and they would talk contract and concession terms”.  (http://www.mises.org/fullstory.aspx?Id=1717)
A significant percentage of today’s resource use is based upon lifestyle choice rather than unalterable human needs. The United States accounts for 5% of world population but consumes 25% of the world’s fossil fuel based energy. The voluntary simplicity movement advocates a shift from consumerism to a reduced use of natural resources and energy. Regardless of choice, a period of decreasing fossil fuel reserves is likely to lead to a decrease of demand for goods and services. However, environmentally friendly, low-energy replacements for many current activities are increasingly or already available. For example, commuting using bicycles and mass transit as well as eating home-cooked locally grown organic meals instead of highly-packaged convenience foods from restaurants and grocery stores. Jobs that make use of telecommuting or that are nearer to home with shorter commuting distance may become increasingly desirable.
Some critics of consumerism argue that modern society has addictive elements, exacerbated by advertising and overuse of credit; this addiction has been dubbed affluenza. If so, any future decline in energy supplies may force people to break out of their current consumer lifestyle and begin to reevaluate their values. Such a re-evaluation may induce a tipping point to further accelerate people away from a high-energy lifestyle. Other processional effects may include healthier lifestyles (reducing demands for medical resources) and improved communities and family relationships (reducing demands for government resources for social problems).
Changes in lifestyle choices have other important practical advantages. First, under extreme conditions, social change can proceed much more rapidly than large-scale infrastructure change. Second, the other alternatives assume the results are technologically feasible, whereas decreased energy availability can be planned for a potentially mitigated by increased efficiency and less demand. Finally, living simply can reduce one’s reliance on the well-being of the global economy. Even so, a serious shift from a high-energy lifestyle could lead to increased unemployment and bankrupt many businesses and markets.
Others are pessimistic of the lifestyle changes needed to reduce energy demand. If society doesn’t proactively reduce energy use and consumption remains high as supplies run entirely out, this reduction may be imposed by a reducing energy supply. Many of these lifestyle changes are seen as unpleasant. People may be be forced to work more to replace the work previously done by machines. Airplanes and cars may be replaced by railroads, ships and mass transport. People may travel much less, for example staying at home during holidays. Foods like meat, chocolate, coffee, tea, fish, and milk may be be replaced by locally produced cereals and vegetables. Air conditioning may disappear. People may move to smaller houses that cost less to build and heat. In general, there will be less consumption because higher power cost affects all stages of production and transportation. In extreme cases there will be rationing of electricity and heating.
Although the conventional wisdom of individual energy conservation is a compelling approach to energy stability, it is also possible that this approach is entirely naive. Jevons paradox implies that as individuals become increasingly efficient, the overall economy will compensate by supporting additional individuals and increasing overall consumption.
When a small percentage of the population chooses to drive fuel efficent automobiles, and a large percentage drives inefficient vehicles, every barrel of oil saved by the efficient group is ultimately consumed by the less efficient group. In fact, the net effect of the conservation will be to lower the price pressure on the inefficient consumption, and thus make such consumption more desirable in economic terms.
Even the idea of a fuel efficient automobile is an oxymoron. The theoretical maximum thermodynamic efficiency for an automobile is roughly 25 percent, while the true efficiency of gasoline engines is much lower, perhaps as low as 7 percent in some cases. This means that every time you fill your gas tank, only about 1 Gallon of gas actually gets converted into the energy that moves the car along, the rest of the fuel gets converted into heat.
Sadly, even those who choose to stay at home and telecomute have a significant global impact. Telecommuting requires a vast computer infrastructure to be effective. Worldwide, this infrastructure consumes enormous energy resources. Also, computers are a major source of some of the worst types of pollution, including Heavy metals.
Therefore it is likely that no individual effort will be able to resolve world energy resource consumption. Only global solutions involving agreements between all world energy consumers and strict enforcement will have a significant impact on world energy problems.
Alternatives to oil
If or when conventional oil begins depletion the following alternative energy options may be increasingly relied upon to meet the world’s energy needs. These and other potential energy alternatives are also discussed elsewhere (See Renewable energy and future energy development).
Non-conventional oil is another source of oil separate from conventional or traditional oil. Non-conventional sources include: tar sands, oil shale and bitumen. Potentially significant deposits of non-conventional oil include the Athabasca Oil Sands site in northwestern Canada and the Venezuelan Orinoco tar sands. Oil companies estimate that the Athabasca and Orinoco sites (both of similar size) have as much as two-thirds of total global oil deposits, but they are not yet considered proven reserves of oil. Extracting a significant percentage of world oil production from tar sands may not be feasible. The extraction process takes a great deal of energy for heat and electrical power, presently coming from natural gas (itself in short supply). There are proposals to build a series of nuclear reactors to supply this energy. Non-conventional oil production is currently less efficient, and has a larger environmental impact than conventional oil production.
Other fossil fuels and the Fischer-Tropsch process
It is expected by geologists that natural gas will peak 5-15 years after oil does. There are large but finite coal reserves which may increasingly be used as a fuel source during oil depletion. The Fischer-Tropsch process converts carbon dioxide, carbon monoxide and methane into liquid hydrocarbons of various forms. The carbon dioxide and carbon monoxide is generated by partial oxidation of coal and wood-based fuels. This process was developed and used extensively in World War II by the Germans, who had limited access to crude oil supplies. It is today used in South Africa to produce most of that country’s diesel from coal. Since there are large but finite coal reserves in the world, this technology could be used as an interim transportation fuel if conventional oil were to disappear. There are several companies developing the process to enable practical exploitation of so-called stranded gas reserves, those reserves which are impractical to exploit with conventional gas pipelines and LNG technology.
Methanol can be used in internal combustion engines with minor modifications. It usually is made from natural gas, sometimes from coal and could be made from any carbon source including CO2.
The U.S. would require at least an eightfold increase in nuclear power production, from 10% of all energy supplied to about 90%, to replace both the current amount of electricity generated from fossil fuels and gasoline usage. Nuclear engineers estimate that the world can derive 400,000 quads of energy (1000 years at current levels of consumption) from uranium isotope 235, if reprocessing is not employed. As uranium ore supplies are limited, a majority of this uranium would have to be extracted from seawater.
Fast breeder reactors are another possibility. As opposed to current LWR (light water reactors) which burn the rare isotope of uranium U-235, fast breeder reactors produce plutonium from U-238, and then fission that to produce electricity and thermal heat. It has been estimated that there is anywhere from 10,000 to five billion years’ worth of U-238 for use in these power plants, and that they can return a high ratio of energy returned on energy invested (EROEI), and avoid some of the problems of current reactors by being automated, passively safe, and reaching economies of scale via mass production. There are a few such research projects working on fast breeders – Lawrence Livermore National Laboratory being one, currently working on the small, sealed, transportable, autonomous reactor (SSTAR).
The long-term radioactive waste storage problems of nuclear power have not been solved, although onsite spent fuel storage in casks has allowed power plants to make room in their spent fuel pools. One possible solution several countries are considering is using underground repositories. The U.S nuclear waste from various locations is planned to be entombed inside Yucca Mountain, Nevada.
Because automobiles and trucks consume great deal of the total energy budget of developed countries, some means would be required to deliver the energy generated from nuclear heat to these vehicles. Mass transit will play a role, as it is readily electrified. Some think that hydrogen may play a role (but see below). If so, it would be produced by electrolysis, either conventionally or at high temperatures supplied by reactor heat.
Main article: Renewable energy
Another possible solution to an energy shortage or predicted future shortage would be to use some of the world’s remaining fossil fuel reserves as an investment in renewable energy infrastructure such as wind power, solar power, tidal power, geothermal power, hydropower, thermal depolymerization and biodiesel which do not suffer from a finite energy reserves, but do have a finite energy flow. The construction of sufficiently large renewable energy infrastructure might avoid the economic consequences of an extended period of decline in fossil fuel energy supply per capita.
Biodiesel has some potential advantages because it could replace petroleum diesel without engine modification, and could reuse existing fuel distribution infrastructure. Hydro electric power currently produces electricity more cheaply than natural-gas turbines, as a result, nearly every river in North America that can be dammed has been. Gigantic hydropower projects have recently been built all around the world (see Itaipu and Three Gorges Dam). Another promising renewable energy source may be wind power (currently over four times as efficient as solar PV power systems). Solar trough concentrating power systems are economic in arid and semiarid regions today. This is particularly true if these solar power plants are designed to take full advantage of the combined heat and power potential outputs. These solar facilities can produce not only electricity, but also steam, hot water, chilled water, and ice using absorption refrigeration cycle equipment. Thermal depolymerization, like biodiesel, has significant current interest and investment because of the potential to replace or gradually replace oil based transportation fuels.
One factor potentially in renewable energy’s favor is its much smaller environmental impact. Renewable energy sources may have a significantly smaller total “cost” compared with fossil fuel production after factoring in pollution, in other words, oil production is likely more expensive than the initial price seems to indicate and relative to renewable energy if you factor in the “cost” of pollution.
A very small minority of geologists support the abiogenic petroleum origin theory. They claim that very large amounts of hydrocarbons exist extremely deep underground. Even if this very controversial theory is true, it may be of little relevance for the near future since drilling costs increase exponentially with depth.
Proponents of a hydrogen economy think hydrogen could hold the key to ongoing energy demands. Relatively new technologies (such as fuel cells) can be used to efficiently harness the chemical energy stored in diatomic hydrogen (H2). However, there is no accessible natural reserve of uncombined hydrogen (what there is resides in Earth’s outer exosphere) and thus hydrogen for use as fuel must first be produced using another energy source. The most immediately feasible hydrogen mass production method is steam methane reformation which requires natural gas, itself potentially in increasingly short supply. Another method of hydrogen production is through water electrolysis which can use electricity generated from any combination of: fossil fuels, nuclear, and/or renewable energy sources. Biomass or coal gasification, photoelectrolysis, and genetically modified organisms have also been proposed as means to produce hydrogen.
According to the majority of energy experts and researchers, hydrogen is currently impractical as an alternative to fossil based liquid fuels. It is inefficient to produce, insufficiently energy dense (hydrogen gas tanks would need to be 2-3 times as large as conventional gas tanks), and expensive to transport and convert back to electricity. However, theoretically it is more efficient to burn fossil fuels to produce hydrogen than burning oil directly in car engines (due to efficiencies of scale). Unfortunately, this does not take into consideration the significant energy cost of having to build hundreds of millions of new hydrogen powered vehicles plus hydrogen fuel distribution infrastructure. Research on the feasibility of Hydrogen as a fuel is still underway, and the outcome is at best uncertain.
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