Peak Oil Overview

Oil has had a long and varied role in human history. The ancient Babylonians used it as a mortar to build their cities. Native American tribes considered it a form of medicine. Before the invention of the light bulb, Europeans used it to light their homes. However, it was not until 1912 that oil came into its own.

England was in an arms race with Germany, and Winston Churchill knew that a navy fueled by oil was faster and more powerful than one fueled by coal. England had no oil of its own at the time, so it bought a small petroleum company in Iran. Churchill ordered that all new naval ships be built to run on oil, and created military bases in Iran to protect British interests. England maintained naval supremacy for the next several decades, and the modern world’s addiction to oil began.

The geopolitical importance of oil is hard to overestimate. Ever since Churchill sent troops to Iran, the developed world has fought for access to this precious resource. A lack of oil strongly contributed to the defeat of Germany and Japan in World War II. During the Cold War, both the U.S. and the Soviet Union squared off over numerous issues, not the least of which was oil. Ironically, the myopic tactics employed by both sides contributed to the current terrorist situation. Oil has made empires and destroyed nations, and will continue to be a player in world affairs for the foreseeable future.

Today, oil accounts for 45% of all energy generated worldwide.[1] It fuels 96% of the transportation sector[2] and is an integral part of other vital industries like plastics, fertilizers, and asphalt. Oil is the glue that binds the global economy. In 2003 over 66% of oil was traded internationally, and the slightest shift in oil prices is felt around the world.[3]

In recent years, the theory of “Peak Oil” has been at the center of intense interest and contentious debate. Peak Oil refers to the point in time at which global oil production reaches its highest possible level, after which oil production will irreversibly decline. The implications of Peak Oil have far reaching effects for global economics, politics, and environmental protection. There are a wide variety of opinions as to when Peak Oil will happen. Some people think it has already happened, while some maintain that it is decades away.

This paper will give an overall view of the current state of the global oil industry. It will also discuss the relevant issues regarding Peak Oil, and explain how each viewpoint relates to these issues.




1.1 Global Reserves

The amount of oil that exists in the world is a source of serious debate. Most of the world’s oil is owned by national governments, as opposed to private companies. This is significant, because governments are under no obligation to disclose information about their reserves, and can even misrepresent the actual data. Despite the billions of dollars spent every year studying the state of global reserves, ultimately there is no exact figure that can be trusted completely.

The four most widely accepted statistical reporting agencies in the oil industry show that there are approximately 1.2 trillion barrels of recoverable oil in the world.[4] In the oil industry the term “recoverable” refers to oil that can be extracted using current technology. An approximate distribution of the world’s recoverable reserves is as follows:

· 70% in the Middle East

· 7% in Africa

· 7% in South America

· 7% in Eastern Europe and Russia

· 4% in North America

· 3% in Asia

· 1% in Western Europe.[5]

Of those 1.2 trillion barrels, the countries with the most oil are

· Saudi Arabia, with 260 billion barrels (Bbl)

· Iran, with 130 Bbl

· Iraq, with 115 Bbl

· Kuwait, with 100 Bbl

· United Arab Emirates (UAE), with 98 Bbl

· Venezuela, with 80 Bbl

· Russia, with 65 Bbl

· Libya, with 40 Bbl

· Nigeria, with 35 Bbl.

Governments and corporations worldwide accept these statistics, although there is significant variation between the four major reporting agencies.* Additionally, many experts both within and outside of the oil industry believe that these numbers are a serious overestimation, a matter which will be discussed later in the paper.

In 2000 the United States Geological Survey (USGS) conducted a comprehensive world wide examination of traditional oil sources. They projected a 95% chance that another 394 Bbl of recoverable oil exist, and a 50% chance that 610 Bbl exist.[6] However, the USGS has a history of overly optimistic projections. More conservative estimates predict that there are only 200 Bbl left to be discovered.[7]


1.2 Global Production

Oil production refers to the process by which crude oil is extracted from the ground. When the oil industry began in earnest in the 1920s, only 20-30% of the oil in a given field could be recovered. As oil is extracted, the pressure in the oilfield decreases, and eventually the pressure becomes too weak to move the oil. Over the years, techniques have been developed that can increase the recovery rate of some fields to over 50%. The different benefits and disadvantages of these techniques will be discussed later.

Oil production statistics, although somewhat varied, are credible. They are tracked with a high degree of accuracy, and no country has an interest in manipulating numbers. In 2005, oil was produced world wide at a rate of around 83 million barrels per day (m bpd).[8]

Global oil production was distributed as follows:

· 31% in the Middle East

· 15% in Eastern Europe

· 14% in Latin America

· 12% in Africa

· 10% in Asia

· 10% in North America

· 7% in Western Europe[9]

Global daily production increased steadily over the last twenty years. The U.S. Energy Information Administration (EIA) projects that by 2030 the world will be producing 123.3 m bpd.[10] The International Energy Agency predicts a similar production rate in 2030: 121 m bpd.[11]

However, these projections are based on the steady increase of production capacity that has occurred over the last several decades, and will probably not hold true. It costs around $7 billion to increase production by 1 m bpd. Therefore, in order to increase production by 40 m bpd, oil producing countries would have to invest at least $300 billion, and some estimates go as high as $1 trillion.[12] These countries may not want to increase production because it is not in their interest to invest hundreds of billions of dollars to keep the price of oil low. Additionally, many oil producing countries want to guarantee that their children and grandchildren will be able to maintain their quality of life by selling oil.


1.2 Oil Refining

Turning crude oil, i.e. petroleum, into a useable product involves a process called fractional distillation. Crude oil is composed of a variety of hydrocarbon molecules, which are composed of a combination of hydrogen and carbon atoms. The more carbon atoms a hydrocarbon contains, the heavier it is. Fractional distillation separates the different hydrocarbons by heating the crude oil to 400 °C. Gasoline, which has 5-12 carbon atoms, separates at 150 ºC. Diesel, which has 10-15 carbon atoms, separates at 300 ºC.[13]

Another important factor in oil refining is the density of the crude oil, of which there are three categories: light, medium, or heavy. Light crude is the most useful, as fractional distillation of it will produce the largest number of useable products. Heavy crude is the least useful. It is harder to extract, transport, and refine. Most refineries are designed to handle a specific crude oil weight, and cannot refine a different density of oil without expensive and difficult modifications. Refining is an integral part of the oil industry, and a shortage in refining capacity is as severe as a lack of crude oil supply.

In 2005, approximately 83 million barrels of oil were refined every year.

· 26% was refined in North America

o 20% was the U.S.

· 25% was refined in Asia

· 20% was refined in Europe

· 11% was refined in Eurasia

o 7% was in Russia

· 8% was refined in Central and South America

· 8% was refined in the Middle East

· 2% was refined in Africa[14]

1.3 Oil Consumption


World oil consumption is presently around 83 m bpd.[15]

· 25% is consumed by the U.S.

· 18% is consumed by the European Union

· 7.5% is consumed by China

· 7.5% is consumed by Japan

· Russia, India, Canada, and South Korea each consume 2.5%[16]

Global oil consumption has been increasing at a rate of approximately 1.5% for the last several years, and this trend is projected to continue into the foreseeable future.[17] However, the oil industry is not subject to many of the laws that govern a market economy. In most industries, the demand for a product dictates the supply. With oil, however, the available supply has a considerable impact on the demand. Therefore, the most important factor determining future oil consumption is the extent to which oil producing nations increase their production capacity.

Oil has a variety of uses. In 2004, 58% of oil worldwide was used for ground and air transportation. 10% was used for industrial purposes. 15% was used for agriculture, fishing, and the commercial and public sector. 17% was used for non-energy related purposes like the manufacturing of fertilizer, plastic, and asphalt.[18]


There is a broad spectrum of views on when Peak Oil will occur, but there are essentially two camps: late toppers and early toppers. Late toppers predict that oil will peak in three decades or more. Early toppers believe that oil has already peaked, or will peak within a decade.

Rather than provide each perspective one at a time, this portion of the paper will focus on the most relevant issues affecting Peak Oil and show how each camp relates to these topics.


2.1 Inconsistencies in OPEC’s Reserve Estimates

The Organization of Petroleum Exporting Countries (OPEC) reportedly controls 78.4% of the world’s reserves.[19] In 2005, OPEC accounted for approximately 40% of global oil production.[20] It is composed of 11 countries: Indonesia, Venezuela, Nigeria, Libya, Algeria, UAE, Kuwait, Saudi Arabia, Iran, Iraq, and Qatar. In the early 1980s, OPEC considered instituting a quota system, which would have capped the amount of oil a member nation could produce based on their overall reserves. The purpose of this quota system was to keep any one nation from overproducing and thereby drive down the price of oil. In the years that followed, six OPEC nations had startling increases in their reported reserves.

· Kuwait’s reserves increased from 67 to 92 Bbl in 1983.

· Venezuela’s increased from 28 to 55 Bbl in 1984.

· Iran’s increased from 59 to 83 Bbl 1985.

· UAE’s increased from 33 to 97 Bbl in 1985.

· Iraq’s increased from 72 to 100 Bbl in 1986.

· Saudi Arabia’s increased from 170 to 255 Bbl in 1987.[21]

Many early toppers believe that the increases were fabricated. By overestimating reserves, these countries could produce as much oil as possible while still complying with OPEC’s quota system.

These six countries reported a net increase of 254 billion barrels between 1983 and 1987, which represent over 20% of today’s global oil reserves. During that same time period OPEC reported new discoveries of only 10 billion barrels,[22] meaning the rest of the reserve increase was from already existing fields. Critics outside the industry have pointed to this event for decades, and in recent years even industry insiders have said that the numbers were inflated for political reasons.[23]

Current OPEC reserve estimates raise even more questions. In 1988, OPEC’s reported reserves were 760.5 Bbl, and by 2005 they were 904.3 Bbl.[24] Considering the 250 Bbl produced since, OPEC claims to have found 393.3 billion new barrels of oil in the last 18 years.[25]

In recent years, the number of people questioning OPEC’s reserve statistics has increased. In January of 2006 Kuwait’s proven reserves were revalued at 24 Bbl, down from 99 Bbl.[26] This claim, made by the information service Petroleum Intelligence Weekly, was based on an internal memo within the Kuwaiti oil industry. Although Kuwaiti officials deny the claim, Kuwait’s parliament has demanded that the government release all its data on national oil reserves.[27]

In 1993 Dr. Ali Muhammed Saidi, an expert for the National Iranian Oil Company, estimated that his country’s proven reserves only amount to 37 Bbl, not 92 Bbl.[28] Dr. Mamdouh Saladeh, a consultant for the World Bank, the UN, and The Royal Institute of International Affairs placed OPEC’s actual reserves at 519.84 Bbl in 2002.[29] If these statistics are correct OPEC is overestimating its reserves by 400 Bbl, a full 30% of the global total.

Late toppers and people within the OPEC nations have loudly protested the accusation that OPEC has overestimated its reserves. According to many OPEC countries, foreign oil companies had intentionally underestimated their reserves in order to secure more favorable trade agreements. The sharp increase in reported reserves, therefore, resulted from reports made after they surveyed their oilfields themselves. They also defend their current estimates, citing new recovery techniques and advanced survey methods as the contributing factors. OPEC maintains that its reported reserves are completely accurate, and many experts from both industry and government believe their statistics.

2.2 Discovering New Sources of Oil

Over the last three decades, the oil industry has spent billions of dollars searching for new oil fields. In spite of this, it appears that most conventional oil sources have been found. In fact, discovery of conventional oil sources peaked in 1965.[30] Although there have been several instances in the last 40 years when large discoveries were made, the overall rate of discovery has nonetheless declined.

This fact is of particular significance for early toppers. Peak Oil elaborates on a theory called Hubbard’s Peak. Dr. M. King Hubbard was a geologist at Shell who, in 1956, predicted that U.S. oil production would peak in 1971. His prediction was based on the fact that the rate of discovery in the U.S. had peaked in the 1920s, while production had been increasing. Experts in both industry and government ignored or derided him, and his bosses at Shell forced him to soften his findings. However, when U.S. oil production peaked in 1970, his theory was proven correct. Hubbard’s Peak has also occurred in many other countries. Hubbard’s Peak espouses an essential message: it is inevitable that a peak in discovery in a region will be followed by a peak in production in that region; additionally, once half of the discovered oil in a region has been extracted, production will inevitably decline. Peak Oil is a variation on the theory of Hubbard’s Peak, wherein the geographic region being studied is the entire world.

In 2002 Harry Longfellow, the executive vice president at Exxon Mobil, mapped this history of global oil discovery.[31]


This graph shows that oil discovery peaked in the early 1960s. It also shows that in every year since the early 1980s, global annual production has been higher than annual discovery. Lastly, the area under the production curve is about half the area under the discovery curve, meaning that approximately half the discovered oil in the world has been produced. This has clear implications for Peak Oil.

Early toppers cite this study as clear evidence that global oil production is reaching its ceiling. They also point out that most of the oil that has been discovered in recent decades will be expensive to extract. Oil production in places like the North Sea or Alaska poses serious logistical difficulties, while oil production in countries like Kazakhstan or Iran engenders political difficulties.

Late toppers, the camp to which Harry Longfellow certainly belongs, do not dispute these facts. Instead, they place their faith in the ability of the market to provide new sources of oil from enhanced oil recovery, deepwater drilling, oil sands, oil shale, coal liquefaction, and gas liquefaction.


2.2.1 Enhanced Oil Recovery


When conventional sources of oil are discovered, the pressure in the oilfield pushes the oil into a well, from which it can be easily recovered. This is called primary recovery. However, as more and more oil is extracted, the pressure naturally decreases. After approximately 10% of the oil has been recovered, the pressure in the field gets so low that the oil becomes “inert”, meaning it will not move. At this point, secondary recovery techniques are employed. Secondary recovery involves pumping water in an oilfield to increase the pressure. This effective and time tested technique makes 20-40% of the oil in a field available for recovery.

Tertiary recovery techniques are used to increase the productivity of a field to 30-60%. Another term for tertiary technology is enhanced oil recovery (EOR). At present there are two main types of EOR: thermal recovery and gas injection.

Thermal recovery involves injecting steam or hot water into an oilfield. This technique effectively recovers heavy oil with high viscosity, because the heat causes the oil to flow more freely. Thermal recovery accounts for 50% of EOR in the U.S.

EOR from gas injection is the process by which the pressure in a field is increased by pumping CO2, nitrogen, or natural gas into a field. The gas, pumped into the edge of the field, forces inert oil towards the well. Gas injection also accounts for 50% of EOR in the U.S.[32] The US Department of Energy (DOE), which tends to produce relatively optimistic projections, claims that EOR could increase the amount of oil in the US by 240-430 Bbl, and that similar increases could be seen around the world.[33] Late toppers believe that innovations in EOR have the potential to dramatically increase the amount of recoverable oil in the world. CO2 injection, which has floundered due to lack of supply, could have a major impact on recoverable reserves if effective CO2 sequestration technology is developed.[34]

EOR contains two main disadvantages: it raises the cost of producing oil, and thermal recovery increases greenhouse gas emissions. As countries around the world become more serious about global warming, and the Kyoto treaty comes into effect, EOR gas injection may prove to be environmentally unfeasible. Although EOR increases the cost of production, the current oil market makes it an economically viable option.

Early toppers believe that late toppers are overly optimistic about EOR. They point out that almost all recoverable reserve estimates have already accounted for EOR, so it is unlikely that there are any future increases. They also believe that while EOR technology can prolong a peak in oil production, it will also sharpen the decrease after the peak and ultimately have no effect.[35]


2.2.2 Deepwater Drilling

The first offshore drilling platform was built in 1947 off the coast of Azerbaijan. In the fifty years since then, offshore oil exploration has gone to increasingly deeper and more treacherous waters. In 2000 offshore production averaged 27.5 m bpd, accounting for 30% of total global production.

· 25% of that came from the North Sea, and was produced by Norway and the UK

· 18% of the came from the Gulf of Mexico, and was produced by Mexico and the U.S.

· 17% was produced by Brazil, Venezuela, Nigeria, and Angola combined[36]

The International Energy Agency (IEA), estimates that there are approximately 200 Bbl in offshore reserves, mostly located in the Middle East, the North Sea, and the Gulf of Mexico.[37]

Early toppers point out that most of this oil was discovered decades ago, and has been already been taken into consideration. Late toppers believe that the future of offshore oil lies in deepwater. Although no universally accepted cutoff point between deepwater and conventional offshore wells exists, most experts consider anything under more than 500 feet of water to be deepwater.

In the early 1990s, British Petroleum (BP) allocated its entire exploration budget in North America for deepwater drilling. By the end of the decade they were finding large fields, and the other major oil companies were scrambling to catch up. In 2002, deepwater recoverable reserves were 60 Bbl, and production was 2.4 m bpd.[38] In the summer of 2006, oil giant Chevron released a report claiming they had discovered a giant find. They reported, with considerable fanfare, having found an underwater oilfield in the Gulf of Mexico that contains as much as 15 Bbl.[39] Late toppers believe that the technology to produced oil in ever deeper water will lead to more discoveries like this. They also predict that the North Sea and Africa will yield large deepwater discoveries.

Early toppers are skeptical of the idea that deepwater oil will have a significant impact. Deepwater production currently amounts to 2.5 m bpd, accounting for just 3% of global production. Recovering deepwater oil costs more than recovering conventional oil, and is only economically feasible if the price of a barrel of oil stays above $40 (at time of writing a barrel cost $65).[40] Regarding the recent discovery in the Gulf of Mexico, early toppers are quick to point out several problems. First, the actual report said there was between 3 and 15 Bbl spread out over a half a dozen fields. Secondly, the technology needed to extract and transport oil under these conditions remains untested.[41] Lastly, despite the publicity blitz, Chevron has yet to actually commit itself to producing oil from this source.


2.2.3 Oil Sand


Oil sand, or tar sand, refers to large fields of sand, water, mud and bitumen. Bitumen is a very thick, viscous, heavy hydrocarbon that can be refined into useable products. Two countries have three quarters of all of the oil sand in the world: Canada and Venezuela. Each country claims to have trillions of barrels of oil in oil sand, but because of the difficulty in recovering bitumen their production statistics remain unimpressive.

For decades Canada has been strip mining bitumen from oil sands. This process is expensive, messy, slow, and only accesses 10-20% of the oil. Recently, a technique has been developed for extracting bitumen from oil sand called Steam Assisted Gravity Drainage (SAGD). The successful testing and implementation of SAGD in Canada gave them a recoverable reserve hike of 175 Bbl, giving them the second largest reserves of any country in the world.[42] At present, the Canadians produce around one million barrels a day from oil sand, and they plan to increase that number in coming years. The capacity to refine bitumen presents the biggest obstacle affecting the growth of oil sand production. Bitumen can only be handled by certain refineries, and they are already working at full capacity.

Venezuela’s oil sand industry flounders far behind Canada’s. Political instability, lack of investment capital, and lack of technology have been obstacles in their development of this industry.[43] Venezuela claims to be producing as much as 600,000 barrels a day from oil sand, but the actual number could be much less.[44]

Late toppers frequently point to Canada as a future source of oil. Canada is a politically stable country with very sophisticated technology and infrastructure, and they have enormous potential reserves. If either Canada or the U.S. can increase their heavy oil refining capacity, oil sands could take off.

Early toppers cite the difficulty in producing oil sand as the main reason for their skepticism. SAGD is not universally accepted, and only one of the four major oil reporting agencies has validated Canada’s 175 Bbl reserve increase.* SAGD uses enormous amounts of water and natural gas to create the steam that melts the subsurface bitumen. In 2004, Alberta’s environment minister told oil executives that oil sand production was using far too much of the province’s water, and that they should cut back.[45] Additionally, SAGD is responsible for the increased cost of natural gas all over North America. Producing one barrel of oil requires approximately 1,000 cubic feet of natural gas. In order to meet their goal of 4 m bpd, the industry would need 4 billion cubic feet of natural gas every day, almost 25% of their overall supply.[46] The Canadian oil industry has considered building nuclear power plants to heat the steam, but such a plan would take over a decade to implement. The greenhouse gas emissions from SAGD also present a problem. 15,000 tons of CO2 are released for every 100,000 barrels produced, which could threaten Canada’s compliance with the Kyoto Treaty protocols.[47]

Building new heavy oil refineries to process bitumen also poses a significant difficulty. The U.S. has not built a new refinery in 30 years because of increasingly strict environmental legislation.[48] Today, it may be impossible to build an economically viable heavy oil refinery that meets regulatory standards.


2.2.4 Oil Shale

Oil shale is the blanket term for rocks that contain kerogen. Kerogen, while made up of the same decomposed organic matter as oil, has not been subjected to millions of years of heat and pressure. When oil shale is heated to around 1000 ºF the kerogen vaporizes, and the vapor can be turned into liquid fuel. This process is expensive and incredibly inefficient, and to date it has only been used by Estonia.

There has always been considerable interest in oil shale in the U.S., as there may be hundreds of billions of barrels in Colorado, Utah, and Wyoming. In 1912, President Taft federalized a large swath of land as an oil shale reserve. It was largely ignored until the 1970s Arab oil embargo, when research and development of oil shale received massive investment. At the end of the decade, oil prices dropped and most of the invested money was lost.

Recently, Shell has invented a radically new method for extracting kerogen. Traditionally, the kerogen rocks are dug up, loaded onto trucks, and carted to a plant where they can be heated. Shell has invented a much more efficient process. This technique involves digging deep, narrow wells in the oil shale, placing heaters in the wells to liquefy the kerogen, and then pumping the kerogen out of the ground. In order to deal with the concern that this would contaminate ground water, Shell has developed an interesting plan. They would drill more wells around the perimeter of the site, and run frigid coolant liquid through the wells. The coolant would freeze the water around the site, creating an ice wall that would prevent the heated liquid kerogen from seeping into the ground water. This process could be effective if prices stay above $30, and would open up the world’s largest fossil fuel reserve.[49]

Early toppers and most late toppers seriously doubt that oil shale will ever become effective. Although Shell’s new process is far more effective than strip mining, it still requires enormous amounts of electricity. In order to produce 100,000 barrels a day, Shell would need to build the largest power plant in Colorado’s history.[50] Additionally, the technology to transport and refine kerogen is poorly developed and only exists on a minute scale.

2.2.5 Coal and Gas Liquefaction

Theoretically, it is possible to transform any hydrocarbon into any other type of hydrocarbon. In the 1920s the Fischer-Tropsch process was developed to turn coal into gasoline. Only politically isolated countries ever used it, like Germany and Japan in WWII, and South Africa during Apartheid.

The Fischer-Tropsch process has two stages. In the first stage, the coal or natural gas is converted to syngas (synthetic gas). In the second stage, the syngas is heated and pressurized. Depending on the heat and pressure, different hydrocarbon products can be formed.

Late toppers think that coal liquefaction has a lot of promise. Coal reserves will last over 180 years at current rates of consumption, and the current oil market makes coal liquefaction economically feasible. Currently, China is building the world’s largest coal liquefaction plant. It should be operational by 2008, at which time it will produce 100,000 barrels per day.[51] The Chinese government speaks optimistically about the potential of coal liquefaction, but its economic and environmental feasibility are still unproven. Other coal rich countries are interested in this technology, and there will certainly be more developments in the future.

Natural gas liquefaction is being slowly developed, but because natural gas is so valuable in its normal state this technology has not taken off. In 1985, New Zealand created a plant to produce diesel from natural gas. It was a technical success, but could not produce diesel at economically competitive rates.[52] Natural gas liquefaction will probably not ever have an impact on oil.

2.3 Global Production and Refining Capacity

Peak Oil theory contains the underlying assumption that the ability to produce and refine oil will increase as long as oil exists to be extracted. This assumption belies the complexity of the actual situation. A lack of infrastructure has contributed to a decrease in the amount of oil that can be produced each year, and the current refining capacity will not be able to handle significant growth.

It is an undisputed fact that oil has peaked in many countries. As of 2005, non-OPEC countries produced about 60% of the world’s oil, and these countries are experiencing steadily decreasing oil production. Not only is current production capacity insufficient to fuel economic growth, it is insufficient to even maintain the status quo. Both late toppers and early toppers express this viewpoint.[53]

Late toppers, aside from their faith in unconventional sources, look to the OPEC countries to increase their production in order to offset losses from other areas. Some projections require Saudi Arabia to double its production to 20 m bpd by 2025.

Early toppers point out that increases like this would require massive investment by OPEC nations, which they may be unwilling to do. Oil producing nations have little incentive to produce oil at levels that will lower prices. Due to low oil prices, throughout the 1990s OPEC’s account balance mostly broke even. However, rising oil prices between 2000 and 2005 gave OPEC a positive account balance of $611 billion.[54] In October of 2006, OPEC decided to decrease production by 1 m bpd, a move designed to keep oil prices high.

While oil refining capacity does not have a direct impact on production capacity, it is a serious factor regarding the availability of useable petroleum products. The biggest problem with global oil refining capacity is that there is a mismatch between the types of refineries that exist and types of oil that are being produced.

Most of the oil refineries in the world were built to handle light crude oil. Light oil has always been the most sought after type of oil, and there has always been adequate supply. In recent years, light crude production has dropped, and medium and heavy crude oils have been making up the difference. [55] As this trend continues, the refining industry will have to make serious readjustments. If they are unable to keep pace with change, the world will experience a peak in supply of consumable products.


Needless to say, the effects of Peak Oil would be felt in every sector of modern civilization. The economic impact would be severe. In the last 50 years, a rise in oil prices has always been followed by a recession in the economy.[56] This would have disastrous effects in both the developed and developing world. Most countries in the developed world are so leveraged that they require constant economic growth to maintain the status quo. A decade long recession could destabilize the global economy.

In the developing world the problems are even more severe. The current global population is 6.5 billion people. By 2050 the population will increase to 9.5 billion, with almost all of those new people will be born in poor countries. If global economic expansion stops or reverses, many of these countries will not even be able to support their current populations, much less accommodate growth.

On the geopolitical front, the impact of Peak Oil would be equally troublesome. In the worst case scenario, the world powers will square off in a new Cold War over the remaining oil resources. Global interconnectedness would break down, and more primitive forms of government would rise the world over.

Peak Oil could also have some ultimately positive ramifications. A serious push to develop alternative fuels and decrease overall energy consumption could improve the lives of people in both the developed and developing world. Economic expansion is not possible indefinitely, and Peak Oil could potentially trigger a relatively smooth transformation to a sustainable global economy. Although this would certainly decrease the material wealth in developed countries, hopefully it would lead to healthier, happier people.

An end to global oil dependence could also be good in the long run for developing countries that export petroleum. It has been shown that developing countries which sell their natural resources to developed countries experience serious instability.[57] When governments in poor countries receive money from foreign investors the effect is increased corruption and decreased investment in education and infrastructure. If foreign investment capital dried up, these governments would be forced to adopt policies that strengthen their nations rather than simply line their pockets.

Ultimately, the effects of Peak Oil will depend on the severity of the decline, mitigating actions taken in advance, geopolitical stability at the time, and a host of other factors. It is impossible to predict exactly what will happen, but as the issue of Peak Oil enters mainstream consciousness hopefully both individual citizens and policy makers worldwide will begin to see the importance of this inevitable event.

Paul Alois, October 2006

This article may be reprinted or copied for non-commercial purposes as long as proper citation standards are observed.


[1] International Energy Agency, Key World Energy Statistics 2006, pg 6

[3] Energy Information Administration, International Energy Outlook 2006, pg 34

[4] OPEC 2004 Annual Statistical Bulletin, CIA World Fact Book, Energy Information Administration World Proved Reserves of Oil and Natural Gas, Most Recent Estimates January 18, 2006

[5] OPEC 2004 Annual Statistical Bulletin, pg 18

* These agencies are the OPEC Annual Statistical Bulletin, BP Statistical Review, Oil and Gas Journal, and the magazine World Oil

[8] Energy Information Administration, International Petroleum Monthly, Table 2.1 World Oil Balance, 2002-2006

OPEC Annual Statistical Bulletin 2005, pg 24

[9] OPEC Annual Statistical Bulletin 2005, pg 24

[10] Energy Information Administration, International Energy Outlook, Table E4

[11] IEA, Key World Energy Statistics 2006, pg 46

[12] World Energy, Vol. 5, No. 3, 2002 “The Future of Oil and Gas”, Harry Longfellow

[14] EIA International Energy Annual, Table 3.6

[18] IEA, Key World Energy Statistics 2006, pg 33

[19] OPEC 2005 Annual Statistical Bulletin, pg 20

[20] OPEC 2005 Annual Statistical Bulletin, pg 23 note: OPEC’s global production stats are too low

[21] OPEC 2005 Annual Statistical Bulletin, pg 20

[22] The Empty Tank, pg 24, Jeremy Leggett, Random House, copyright 2005

[23] Petroleum Review, August 2004, How Realistic are OPEC’s Oil Reserves?, Dr. Mamdouh G Salameh

[24] OPEC 2005 Annual Statistical Bulletin, pg 20

[25] OPEC 2005 Annual Statistical Bulletin, pg 23, Add the numbers from 1988-2005

[28] The Empty Tank, pg 27, Jeremy Leggett, Random House, copyright 2005

[29] Petroleum Review, August 2004, How Realistic are OPEC’s Oil Reserves?, Dr. Mamdouh G Salameh

[30] Colin Campbell, “The Truth about Oil”

[31] World Energy, Vol.5, No.3, 2002, pg 101







* Oil and Gas Journal, Their estimate is found in “Energy Information Administration World Proved Reserves of Oil and Natural Gas, Most Recent Estimates Oct 5, 2006”

[46] Energy Information Administration, International Energy Annual 2004, 2.4 World Dry Natural Gas Production, 1980-2004 Divided Canada’s 2004 production by 365. They had a daily rate of 17.75.


[51] 1 ton of oil equals 7.3 barrels, so 5 million tons equals 36.5 million barrels, divided by 365 days in a year.

[53]; World Energy, Vol. 5, No. 3, 2002 “The Future of Oil and Gas” by Harry Longfellow;, “CERA’s report is overly optimistic” Kjell Aleklett

[54] OPEC Annual Statistical Bulletin 2006, pg 17

[56] “The Oil Factor”, by Stephen Leeb, pg 17, Warner Business Book, © 2004

[57] “Natural Resource Abundance and Economic Growth”, by Jeffrey Sachs and Andrew Warner, National Bureau of Economic Research, working paper 5398