The Peak Oil Debate – Does it Matter?

Establishing the Context

The theory of peak oil implies that there will be a time at which global oil production begins a permanent decline as a result of supply and economic production factors. Should world demand continue to increase (as it has), the point of peak oil will pose a significant supply and price problem for the world economy. The question we seek to explore is, “Have we reached this point where the oil supply will decline forever?”

The discussions regarding the timing of depletion of crude oil are well-founded, but frustratingly inconclusive:

• Member nations of OPEC (including Iran, Venezuela, Saudi Arabia and Iraq) provide unaudited figures of their oil reserves. The majority of their national revenue comes from oil and they have numerous incentives to misstate the accuracy of reserve and production statistics.
• We are unable to look into the earth’s mantle and determine exactly how much oil is left.

Given the variety of oil sources that have been discovered but are not yet fully developed and the belief among scientists that there still exist undiscovered sources of oil, the general consensus is that the use of the last drop of oil is still a long way off.

Factors that Influence the Arrival of Peak Oil

The factors that suggest the date of peak oil is far into the distant future include:

• Time – there is still sufficient time to develop and commercialize alternative technologies to bridge the gap that eventual depletion of crude oil will create. These include production technologies that improve oil recovery and consumption technologies that alter the overall demand patters.
• Technological Innovation – with each advancement of new technology (e.g. bio-fuel, solar panels, and wind farms), and most significantly worldwide acceptance of a permanent solution for disposing of nuclear fuel, the oil consumption profile slows down.
• Energy Conservation – either through revised behaviors of consumers or technological innovation in creating more fuel efficient vehicles and/or home appliances will also slow down consumption.

There are factors at work that can have an adverse affect:

• Political instability in oil-rich countries is always a possibility and it can impact crude oil production (particularly an issue if the alternative technologies have not reached scalable proportions in terms of energy production)
• The rapid economic expansion and development of the two most populous countries – China and India – will only result in an increase of oil demand.
• The oil-rich companies whose GDP is largely driven by supplying crude oil to the international market can adjust pricing downward to stem the pace the development of competing energy sources.

Where Do We Go From Here?

A growing view is that regardless of whether we have already arrived at peak oil or not, there is no doubt that the concept is valid – there will be a day when the world as a whole will arrive at a state termed peak oil. Consequently, perhaps the argument should shift from when it has or will occur to what steps should be taken to limit its impact. Even the most pessimistic projections suggest that we have until well into the middle of the 21^st century before the supply of crude oil is totally depleted and we have the wherewithal to effect a permanent solution; and to do so in a manner that extends the period of time for which crude oil will be available.

In terms of how best to address this challenge, the aforementioned factors provide the clearest insight:

• Continue to invest in renewable technologies that, in the short term, can serve as alternatives during peak demand periods, but work towards playing a more significant role in the overall energy solution.
• Within the U.S., resolve the issues around the ultimate disposition of nuclear fuel and reassert its leadership in the development of this technology.
• Continue to drive technological innovation and behavioral change to improve energy efficiency and reduce energy consumption.
• Remain committed to these initiatives, independent of the political and economic factors of potentially unstable governments and fluctuating economics around crude oil.

In so doing, we will have ensured that the world’s ever-increasing need for energy will be met and the only variable will be the proportion that crude oil will contribute in the years to follow.