Peak Oil part II

Peak Oil is a "theory" only in the sense that it tries to predict when the peak will come. The premise on which this theory is based, the fact that oil (and similar hydrocarbons) is a finite resource that will eventually run out, is not in dispute. This is to point out that the peak in oil production will come, the only question is when.

Peak Oil can be applied to an individual well, an oil field, a group of oil fields, a nation, a region, and, presumably, the planet as a whole. Typically though, when people speak of Peak Oil they are using it in a planetary sense.

Some experts are on record as stating that the peak has already occurred. In fact, 33 of the 48 largest oil producing countries have already reached peak production and have begun to decline. U.S. oil production peaked in 1970 and has steadily declined ever since. This was accurately predicted by Hubbert in 1956. Other experts predict that the peak is either imminent or, according to the most conservative predictions, will occur sometime in the next 20 years.

The importance here, of course, lies in the consequences of a decline in production after a century and more of increase. The fact is, consumption of and demand for oil very closely tracks production, increasing at roughly the same rate. In other words, the oil currently being produced is not being stockpiled; it is being used as fast as it can be pumped, refined, and transported. For this reason, when production begins to decline, consumption will necessarily also decline.

But will demand for oil also decline? Of course not. Demand for oil is, quite simply, driven by population increases and expanding economies. So, if you can envision the Peak Oil graph, and look near the top where production is still increasing, you should be able to superimpose a demand curve that will continue to move upward at the same rate, while the production curve goes downward. The resulting gap should be our concern. Even a rudimentary knowledge of supply and demand principles will tell you that this gap will rapidly cause prices to rise.

The rise in oil prices will certainly hurt global economies, and probably in a devastating fashion. But at some point, the strategic importance of oil will trump any economic considerations. In other words, countries that do not have their own oil will be at a strategic (and security) disadvantage.

Think of it this way: the production of food, especially in this country, relies to a very great extent upon fossil fuels. Farm machinery, irrigation systems, and transportation all rely on oil to operate. Without sufficient oil, food production drastically declines. The same goes for the production and operation of military equipment. Also safe drinking water and sewage treatment. The everyday consequences of moderate-to-severe oil shortage are far-reaching in the extreme.