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M. King Hubbert proposed the theory of "peak oil" in the 1950's, the point at which global production would reach a maximum, to be followed by a steep decline. The only problem with that scenario is that it doesn't represent either oil production or economics accurately.
There have been Jeremiahs predicting the end of the oil supply since the 1940’s . . . then another major field is discovered, and doomsday is once again postponed. One major reason reserves appear to be low is that worldwide exploration has been neglected for the past 30 years. The major economic pressure has been to produce profit – and that only happens when oil is pumped out of the ground and sold. Until we put the seismic crews, and all of their newest technology, back to work on a large scale, those “known reserves” will continue to dwindle.
But more recently we've seen a resurgence of exploration. The new Thunder Horse field in the Gulf of Mexico promises to be the largest offshore discovery in history. The enormous discoveries in Siberia could also dwarf the current fields in the Middle East. Oil Shale in Alberta and the Dakotas, along with new discoveries in the Eagle Ford play in South Texas, have moved the US into becoming a net exporter of oil over the past few months, thanks to new technologies and processing techniques. New drilling and production technologies could well make old fields productive again, while oil is getting more expensive to find and produce, it is a mistake to believe that suddenly the pumps will all begin sucking air all at once.
Oil is a fungible resource. It trades in the marketplace freely, despite the attempts of some nations to artificially control its price. Should worldwide oil production be cut in half, plenty of oil would still be available – it would just be much more expensive . . . until new supplies were opened to the market, at which time prices would level off or begin to decline. It’s a simple matter of supply and demand. For that reason, if no other “peak oil” predicted by a few “scientists” is a poor model. The production chart will more resemble a classic bell curve. The time scale remains the unknown.
How would new supplies become available? Obviously new production is one method, but without new discoveries, price alone could quickly take the third world out of the market. India and Southeast Asia, currently huge consumers of oil would be the first to suffer. Oil might go to $120/bbl, taking a large part of Asia out of the market and stemming the rising demand from China. It isn’t “fair”, but who said macroeconomics was fair? That is the hedge offered by diesel and hybrid technologies - to make higher-cost fuels more acceptable by cutting usage.
Another school of thought believes that the oil supply is not altogether finite, but is a renewable resource on a large time scale. The classic models of drilling into “dead dinosaurs” is being replaced by a model of hydrocarbon formation as a natural process of the moho – the boundary region between the earth’s mantle and its crust – where chemical processes produce simple molecular chains. These materials flow and are trapped in pockets within the crust near the surface, says this theory – when discovered, we call them “reservoirs”. . . oil fields.
Finally, what role will geopolitics play in the world oil market? Strange to say, practically none in the long term. If OPEC closed the tap to the West, the market would suddenly open for third-party speculators trading oil in pursuit of profit. If OPEC closed the tap altogether, they would starve long before we would run out of fuel. Saudi Arabia and other OPEC nations operate on an extremely thin margin, and are deeply in debt even now. The promise of oil futures is all that props them up. Like the old variety act where a frantic man keeps a growing number of plates spinning, their economy only survives by pumping oil, propping up those futures. Only that keeps the Kingdom’s creditors from calling in their loans. Political instability in the region is probably a greater threat to their energy futures at this point, than ours.
The global oil market is far too interconnected to respond to simple local issues. While the oil economy is finite - it cannot continue to expand indefinitely, we are nearing the equilibrium point at which we are consuming hydrocarbon faster than earth can supply it. We have to look seriously at alternatives: oil shale, nuclear, wind, geothermal, hydropower, ocean upwellings, solar, as a part of an energy policy that extends beyond our own borders. Controlling the worldwide supply, sale, price, and distribution of energy is like trying to nail Jell-O to a stump – it will always find a way to escape control and find a market on its own. Until we can develop other energy resources, some oil will always be available at some price. We can start ensuring our futures now by consuming less.
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