When will oil production peak?

When will peak oil happen?

One of the most common questions people ask when first learning about peak oil is when will “it” happen. People want to know “When will we run out of oil?” and later, “What is the date of Peak Oil?”

Unfortunately, these questions probably do not address what people really want to know. One of the most difficult things in educating people about peak oil is that you have to start off by telling them that their questions are incorrect. These questions stem from a lack of understanding about the world’s tiring oil production system and the extremely complex interaction between fossil fuel production and the economy.

Energy that can be summoned up at man’s command is his wealth in the physical world, and fossil fuel currently provides the vast majority of this wealth. At any given time, the net energy available for use by industrial man is given by the formula:

Eg – Ep = En

Where:

Eg is the gross energy extracted.

Ep is the Energy that has been consumed in the production of energy.

En is the net Energy that is available to power the industrial economy.

The net energy that is derived from fossil fuel production sets the possible wealth that our economy can potentially create. How much fossil fuel is produced over a given period of time is determined by a great many factors.

One of the most interesting and poorly studied factors in fossil fuel production is how the economy is affected by the decreasing availability of high quality oil reserves. While the U.S. Department of Energy and IEA show that gross oil production has been approximately flat over the last few years, this data does not take into account the increased amount of energy consumed in the extraction of decreasing quality reserves. Nor does it take into account the large amount of diesel fuel energy that has been converted into less desirable Ethanol or that the increase in the world’s population has decreased the quantity of oil energy available per person.

As the quality of a fossil fuel resource declines, the net energy available from its production decreases and the strain on the economy increases. Eventually, the economy will reach a point that it cannot afford to increase production, and thus will be resized for lower energy consumption. For a time, the price of oil may decline. This decline in price will actually further reduce the supply of oil because the new, more expensive production and recovery projects will be canceled or scaled back. And while the decreased oil prices from the economic downsizing may encourage the economy to grow again, this growth will quickly be stopped by the limited supply of high net energy resources.

Consider how the long-term, global trends of increasing energy consumption in oil extraction have affected the U.S.

In 1965 when the oil industry was just starting to experience declining results from increased efforts in oil production, the U.S. was the world’s largest creditor nation, and the wealth of the U.S was growing each year. In 1970, U.S oil production peaked and began to decline in spite of the greater amounts of energy expended in attempts to increase production.

Move to the fall of 2008, with the U.S as the world’s largest debtor nation and its wealth declining each year. Not even global oil prices in the $100 range and above for several months could raise oil production substantially above the level that it was in 2005 when oil prices were in the $45 range. Now in the winter of 2008, the economy has given in and oil consumption and oil prices have crashed. This cycle can be expected to continue unless proper management is implemented.

Without correct management of the economy, it is possible that the economy can be stimulated enough to get a short economic up cycle with oil prices and production higher than ever before. However, this becomes increasingly unlikely with each cycle.

I am convinced that no one understands all of the things that would be necessary to predict when global oil production will be at the highest level. There are just too many factors, including some that are completely unpredictable like the weather and politics.

I think that the question “When will oil production peak” is more accurately addressed by the following two questions:

1. When will increasing energy intensity of fossil fuel production begin to limit the wealth that can be created with the U.S. economy?

That already occurred in approximately 1965.

2. When will the increasing energy intensity of fossil fuel production really show up as a serious problem to the global economy?

That too has already happened, in the fall of 2008.

As for when the all-time peak of oil production will occur, each month that passes with the economy in decline increases the likelihood that the peak is now past. The reason is that high net energy reserves are being depleted, and low net energy reserves are not being developed. This makes it unlikely that any economic up cycle can last long enough and allow oil prices to be high enough to ever increase production above levels that were seen in the summer of 2005 – fall of 2008. But we will have to wait for the history books to be written for the best answer.

2 thoughts on “When will oil production peak?

  1. Pingback: Energy Strain » Blog Archive » What the Kuwait Oil Study Says About Peak Oil

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