by Allan Taylor

Created on: December 16, 2008

Peak oil is the term given to that point in time when the world's production of petroleum starts to decline due to gradual depletion of oil fields.

M.King Hubbert developed the peak oil theory in 1956 to accurately predict that US oil production would peak between 1965 and 1970. He illustrated this with a bell-shaped production curve showing a peak production followed by a continual decline (1).

Each country has its own bell-shaped production curve. Fortunately at the time, the countries of the Middle East were increasing production, so the US is able to import oil cheaply from overseas. Aggregate all those production curves and you get a summary production curve for the world supply of oil. When does it peak? Who knows? There is much scope for inventiveness in the calculations.

On the supply side of the problem, factors other than depletion may cause a short term decline in production, such as a war in the Middle East where much of our oil comes from. Terrorists may blow up a few pipelines or pirates may cause havoc to oil tanker shipping routes. Hurricanes or tsunamis may wipe out offshore oil production platforms.

The demand side of the problem is that of increasing population and affluence of the people, with many wanting to drive cars. This is causing a steady rise in the amount of petroleum we consume, not only as a transport fuel but also as a feed stock to the petrochemical industry. The whole world economy is dependent on the availability of petroleum, preferably at a cheap price now and into the distant future. Allowing for inflation of currency, in real money terms, oil today is cheaper than what it was 50 years ago, by about 25% (2).

Are we really reaching peak oil? Should we be worried about it?

Is the concept of peak oil as described above really true?

Hubbert's Theory of Peak Oil" is dependent on there being a finite resource to consider. Oil fields are obviously finite and will eventually become depleted. What do we do then?

Some economists think differently. An alternative theory is contained in "The Fallacy of Finite Resources" whereby the proponents mount a semantic attack on Hubbert's idea of a resource. Please define what you are talking about, they say. This competing theory states that resources are infinite and so we will never run out of oil! The argument goes something like this.

A resource is something useful to man. (definition).

Conversely, if something is not useful to man then it is not a resource. (An example: US banning of offshore oil

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