Peak oil – coming soon, but when?

The idea that someday we are going to “run out of oil” is an old one. In fact, it goes back to the beginning of the 20th Century. However, it is a mistaken idea.

A reservoir of crude oil is never “pumped dry”. Instead at some point, the extraction of hydrocarbons from a well is stopped and the well capped, because it is no longer economic to keep producing from it. At this point, most of the oil which the reservoir once contained is usually still in the ground. The same applies to natural gas and to reservoirs which contain both gas and oil.

Nevertheless, this mistaken idea has its roots in a geological reality. Oil production from any well, reservoir or field of multiple reservoirs will increase from an initial volume, eventually peak and then decline irreversibly to its “capping point”. The decline may start immediately or some years later, after production has “plateaued” for a while.

When plotted on a graph, every production curve resembles a hill. The precise shape of the hill is largely determined by economics, the rocks which contain the oil and the history of its extraction. But is always a hill. Once you pass the peak, you cannot reverse the decline for very long, if at all. If you want more oil, you will just have to drill another well, preferably in another reservoir some place else.

So when we say that world crude-oil production is going to peak, we do not mean that one day there will be no oil left in the ground, or that all the wells are going to be capped on the same day. We mean that at some point, the oil which is economic to extract (by whatever means) will reach its all-time high, and that sooner rather than later, there will be less and less of it produced each year thereafter.

So the more important question is not how much oil is down below, but how fast one can get it out. If you try to accelerate the extraction process too much, because near money is worth more than far money, you run the risk of reducing the amount of oil and/or gas which can be extracted over the remaining life of the well or reservoir. The foregoing is not a theory. It is economics, engineering and geology all entwined together.

Economics Web Institute