Peak Oil Theory Debunked

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Peak Oil Theory Debunked Powered By Docstoc

                                          Victor Ameh
                  Department of Economics Nasarawa State Univeristy, Keffi Nigeria


Hubbert (1956) held that in any large region, unrestrained extraction of a finite resource rises
along a bell-shaped curve that peaks when about half the resource is gone. This has been the
building block of what was later to be called peak oil.

Peak oil refers to the point in time when the maximum rate of global production of oil is reached,
after which the rate of production enters terminal decline. Hubbert argued that the production
rate of a limited resource will follow a roughly symmetrical logistic distribution based on the
limit of availability, exploitability and market pressures. These pressures include increasing
manufacturing and transport activities in the OECD and emerging markets, population growth
and oil production growth rate. These are deemed to exert significant influence on peak oil.

Figure 1 depicts a typical Hubbert curve based on which oil will peak before 2025. Hubbert
projected that oil will peak before 1995 based on the fact that oil peaked in the lower US states in
1970 in line with his earlier projection.

Fig. 1 The Hubbert curve

Underlying Assumptions of the concept

      Finite supply of oil.
      Production follows a functional form with discovery. Production will rise with more discoveries.
      Production follows a form of bell shaped curve.

Adherents/variants of the theory

Campbell and Jean (1998) based on the Hubert’s curve and using different techniques to
estimate reserves of conventional oil and amount still left to be discovered, concluded that oil
will peak before 2010 and recommended that the world reduce dependence on crude oil from the
Middle East.

Simmons (2008) contends that Saudi Arabia vastly overstated its oil reserves and that the world
was on the verge of severe shortage on this account. Hook (2011) holds that 60% of global oil
production comes from only 330 giant oilfields which are gradually becoming matured. With an
estimated 6% depletion rate, he argued that new field developments are unable to offset the
decline. He contends that the peak of the oil age is here.

Recent developments

World oil consumption declined between 1970 and 1980 owing to the development of more
energy efficient transport systems and the switch to natural gas and electricity for heating. 1
Figure 2 reveals that world oil consumption growth rate has remained positive for most part of
1981-2008 but became negative since 2008 owing to the switch to coal, gas and other renewable
energy sources.

Fig. 2. World oil consumption growth rate (1981-2009). Source: Energy Information Administration.


    0.00%                                                                                                growth rate of
             1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009      Year        demand in %


The negative impact of nuclear technology as reflected in the Fukushima and Chernobyl
disasters is expected to keep pressure on demand for oil in the coming years. This rising demand
is however expected to be met by other energy sources such as natural gas and coal. More so,
improvement in technology is expected to reduce the cost of producing oil from unconventional
sources. With this development, the world can continue to satisfy its oil needs without
necessarily running out of oil.

  The US had initiated the Emergency Highway Conservation Act to effect the needed reduction in consumption.
This was motivated by the soaring prices of gasoline occasioned by the embargo by Arab states on oil shipments to
the US
                       Fig 3. Net reserve addition in billion barrels
                                       Addition          Extraction

                     222 211               219                 250             258

                  1970-1979        1980-1989         1990-1999          2000-2008

Source: Iledare (2010)

Figure 3 shows that advances in technology do not just hasten extraction but also expands the resource
base as well. The figure above shows that more reserves have been added in aggregate since 1970 than
has been extracted.

                 Fig 4 Net growth in recoverable reserves 2000-2008


       North America       0.00%

     S & cent America                                           1.70%

    Europe & Euroasia                             1.10%

          Middle East                            1.00%

                 Africa                                                         2.60%
                0. cific
                 World                           1.00%

Source: Iledare (2010)

The activities of Shell in the oil sands of Canada, the discovery and production of oil in Angola, the
Jubilee Development in Ghana2 among others are responsible for the growth in recoverable reserves
especially in Africa as shown in the figure above. World supply of oil will continue to rise even as
consumption rises. Besides, economics not just geology does affect the discovery and production of oil.

  The Jubilee Oil and Gas Development project involves the extraction of hydrocarbons from an underground
reservoir located in deep water offshore Ghana.
              Fig 5. Reserve replacement rate 2000-2008
                                  Series2   Series1

                  N.America                           103.00%
           S. & cent. America                                               215.00%
           Europe & Euroasia                                    152.00%
                 Middle east                                              200.00%
                       Africa                                                237.00%
                  Asia Pacific                     98.00%
                       World                                      165%
    Reserve replacement rate

Source: Iledare (2010)

Besides, figure 5 shows that the world has replaced more than it actually extracted during the period. This
high replacement rate delays the exhaustion of petroleum resources.

Major flaws of the concept

The concept of Peak Oil is flawed on the basis of the following.

       It fails to recognize the role of technology in increasing recoverability of oil resources.
        Over time, advances in human and technical expertise has made it possible to produce oil
        from unconventional sources such as the Caspian Sea, the Orinoco belt in Venezuela, the
        tar sands and shale deposit in Canada among others. Maugeri (2009) argues that the
        recovery rate from existing oil fields has increased from about 22% in 1980 to 35% today
        due to improved technology.

       It discounts the huge amount of oil yet to be found. Campbell specifically argued that
        much of the oil in the world has already been found.

       There is no sufficient/reliable information on the current reserve of oil as countries and
        oil companies are prone to underestimate and/or overstate their reserves depending on
        political convenience.

       It assumes that the available reserves of crude oil in the world is known and is finite. This
        premise is flawed on two grounds namely, that it is impossible to know what the actual
        reserve of oil at any time is, as much as it is difficult to predict what the reserves will be
        in the future and because synthetic fuel can substitute fossil fuels and since these are in
        abundant supply (accounting for about 70% of known oil reserves), oil reserves is far
        from known.
Despite its relative significance, the concept of peak oil is fundamentally flawed because it does
not consider application of new technology, likely resource growth, the impact of geopolitics on
production or basic commercial factors (price). The concept does not work in all cases and
cannot be relied on to forecast the future of oil.

Adam, R. B. 2006. Testing Hubbert: Energy and Resources Group, University of
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BP 2006. Statistical review of energy: a table of world oil production 2006. retrieved from

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Campbell, C and Laherre, J. 1998. The end of cheap oil. Scientific America March

Hubbert, M. K. 1956. Nuclear Energy and the Fossil Fuels: paper presented at the
         Spring meeting of Southern District, American Petroleum Institute, Texas.

Hook, M. 2011. Coal and Oil: The Dark Monarchs of Global Energy: Understanding
       Supply and Extraction Patterns and their Importance for future Production.
       (Unpublished PHD dissertation University of Uppsala)

Iledare, O. 2010. Is the world really running out of oil? Lessons from the past four
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         Journal Vol 32(1) page 229

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        Debate. Washington. AEI press

EIA. Official energy information from the US government. Retrieved from

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