Monday, June 2, 2008

What is Peak Oil anyway?

"Peak Oil" refers to the developing global crisis caused by the "peak" in the world's oil production. Credible evidence from professional experts suggests that world oil production may have peaked and may now be entering a permanent decline. Many countries already had a peak in their oil production many years ago. The USA peaked in 1971! That is why the US has had to import more and more oil.

Peak Oil does not mean we are "running out." It also does not mean that big bad oil companies are playing mean games. It means we are half-way through the fixed amount of oil in the world and less oil will be available for all countries to share in the future.

This is a huge problem. Demand is expected to exceed available supply.

Unfortunately Peak Oil is happening right at the time in history when countries like China and India are expanding their economies and demanding more oil.

Not only will demand exceed supply, but there are no other sources of energy that can be substituted quickly enough or on a large enough scale to make a significant difference.

Two of the biggest potential dangers from the impact of Peak Oil are scary.

First, Peak Oil may cause a global economic collapse. May. It depends on how fast the world can adapt to the gap between demand and supply.

Second, Peak Oil may cause a "dieoff" of thousands, millions or billions of people. May. It depends on how fast the world can adapt to the shortfall in pesticides and fertilizers made from oil that help feed most of the world. Global food production is directly dependent upon oil.

There are lots of other interesting consequences of Peak Oil.

For example. What happens when transportation costs skyrocket in the near future? If diesel fuel rises to say, $25.00 per gallon, if you can get it at all. How would that impact the business model of say an online bookseller that depends on impulse buying supported by cheap delivery costs? Would people still buy very many books if the cost to ship one book was maybe, $100.00? I don't know. That's what makes it interesting.

What about the "travel" industry or "travel economies"? How many people could continue to afford to fly somewhere for a vacation if the costs were 5 or 10 or 20 times higher? For example, the economies in the Caribbean are 90% dependent upon tourism. What effect will Peak Oil have on them? Will it really work in the long run for Dubai to be dependent upon tourism once their oil runs out?

What about air travel itself? The question is already being asked in academic circles, "Will my grandchildren ever fly on an airplane?" 

One of the key questions that has received little, if any, consideration is the question of the future of the World Wide Web itself. Many people think of the web as merely cyberspace. A virtual world only. But the web has hardware and software and peopleware that make it alive. All that infrastructure is dependent upon cheap energy from oil. Somebody has to lay the fiberoptic cables and maintain the servers and repair the transoceanic cables. How long could the web keep going if a maintenance worker can't earn enough to support his family's energy budget or the company he works for can't afford the fuel costs to power his maintenance van? Who will support the web then?

One of the most critical questions about Peak Oil is how rapid will the decline be? Nobody knows. It might be only about a 3% per year decline. But Mexico has already had a decline of 14 or 15 percent per year in the Cantarell Oilfield. Could that happen to the world. No, not really.
Global supply is too diversified to be effected by the decline of just one  field. 

But what if the world's largest oilfield, The Saudi Ghawar field suddenly enters decline and drops 15% or 20% per year? They are already injecting about 7 million barrels of water a day into Ghawar to keep the reservoir pressure up. And the water cut in Ghawar may be 30% or more in most wells.

What if several of the world's largest oilfields enter decline in a short period? Not only would increasing world demand go unmet but supply would drop even further and more rapidly. Time is the key factor. Nobody knows how much time we have. The EIA is currently conducting a revision of their analysis of the world's 400 largest oilfields' production and reserves. Maybe by November 2008 some better numbers will be available. But don't hold your breath. The world's production statistics and reserves are politically manipulated for many reasons.

We probably won't know that global oil production has peaked until several years afterward. Definitive evidence might not be available for 10 years or so. It took about 3 years to confirm the US peak.

Peak Oil is already affecting everybody. Awareness of Peak Oil is the first step to creating a solution.

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