Today, with the depletion of ‘proved reserves’ of oil being only about 40 years away at current consumption rates (BP, 2008), the debate around the limits of non-renewable resources is seemingly becoming urgent. However, its point of departure, namely depletion, is ill-conceived. The critical moment for human society is not when the last drop of oil will be extracted; in fact this will never happen. One hundred percent recovery of most resources is physically and economically impossible. Conventional petroleum fields, for example, usually have an average recovery rate of only around 35 percent. Instead, the critical point is that of maximum or peak extraction, the point when the resource stops being ‘cheap’. Prices will increase not only because demand will continuously outstrip supply but also because the second half of the remaining resource is usually of a lesser quality, more difficult to extract and/or in politically unstable regions. In the case of petroleum, this phenomenon is today referred to as Peak Oil and was first described by petroleum geologist M. King Hubbert (1949). He argued that production peaks in the form of bell shaped curves that could be observed for individual oil fields would eventually occur for entire oil regions, countries and eventually the world. These production peaks and the shape of the curve could be predicted mirroring the discovery peak curve. However, several ‘resource conditions’ must hold: First, the resource must be key, so that demand rises steadily over time. Second, substitution must be costly, difficult or impossible. Third, market access to the resource must be granted by the resource owner (usually nation-states). The more important the resource, the higher the international pressure on resource owners to grant this access. Finally, reasonable profits must be able to be gained by the entity (state or a private company) involved in its extraction. The United States satisfied all these conditions. Discovery had peaked in the 1930s, which allowed Hubbert to predict the US extraction peak for the lower 48 US states for 1971, being only a few months off the actual peak in October 1970. If resource conditions diverge from those described (e.g. the owner does not grant access for political reasons), depletion curves can differ from those described by Hubbert, at least over the short run.
Today the peak oil debate has become quite lively (Hirsch et al., 2006) with fundamental disagreement over when peak oil is going to happen and how important it is going to be for the world economy. Some geologists argue Peak Oil is more or less imminent and will have devastating consequences for society (e.g. Campbell and Laherrere, 1998). This position is close to that of ecological economists, who generally believe in the absolute scarcity of low entropy resources (e.g. Georgescu-Roegen, 1971). On the other hand, ‘optimists’ argue that market forces, driving up oil prices when scarcity increases, will lead to increased exploration and inspire human ingenuity to develop substitutes and alternatives for oil. Until recently, many economists still believed that Peak Oil would not happen or that it had no potential for causing a major economic crisis. In reality, many technological advances of our society are results of and dependent on the enormous energy affluence provided by fossil fuels, including petroleum.
References
British Petroleum (BP) (2008) ‘Oil reserves’, http://www.foundation.org.uk/events/pdf/20081105_Henstridge.pdf (accessed September 12 2012)
Campbell, C. and Laherrere, J. (1998) ‘The end of cheap oil’, Scientific American , March: 78–84.
Georgescu-Roegen, N. (1971) The Entropy Law and the Economic Process, Cambridge, MA: Harvard University Press.
Hirsch, H.L., Bezdek, R. and Wendling, R. (2006) Peaking of World Oil Production: Impacts, Mitigation, and Risk Management, Hauppauge, NY: Nova Science Publishers.
Hubbert, M.K. (1949) ‘Energy from fossil fuels’, Science, 109 (2823): 103–109.
For further reading:
Hubbert, M. K. (1956) ‘Nuclear Energy and the Fossil Fuels. Meeting of the Southern District Division of Production’, American Petroleum Institute San Antonio, Texas, Publication No. 95. Houston: Shell Development Company, Exploration and Production Research Division.
Jevons, W. S. (1865) ‘The Coal Question; An Inquiry concerning the Progress of the Nation, and the Probable Exhaustion of our Coalmines’. London, Macmillan and Co.
Meadows, D. H., D. I. Meadows, et al. (1972) The limits to growth: a report for the Club of Rome’s project on the predicament of mankind. New York, Universe Books.
This glossary entry is based on a contribution by Christian Kerschner
EJOLT glossary editors: Hali Healy, Sylvia Lorek and Beatriz Rodríguez-Labajos
