Planning For the Peak

The economic effects of peak oil go far beyond spending more at the pump.

You will never wake to the headline, “World Runs Out of Oil.”

Rather, global oil production will rise, reach one or more peaks, and decline. Well before production declines to very low levels, the peak will mark a point of no return that will be a watershed in the economic history of the 21st century. For the first time, industrial economies will be forced to a lower-quality energy source. And this decline will affect every aspect of modern life.

The notion of a world speeding towards a peak in oil production was made famous by the geologist M. King Hubbert. In the late 1950s and early 1960s, Hubbert used a simple bell-shaped curve to forecast the annual rate of production in the lower 48 U.S. states. At a time when oil production was increasing rapidly, Hubbert forecast that it would peak in about a decade (1965-1970) and decline thereafter. Despite provoking nearly unanimous derision, his forecast was remarkably accurate. Oil production peaked in 1970 and declined fairly steadily thereafter. A similar bell-shaped pattern appears in several other oil producing nations, such as Norway, the United Kingdom, and Egypt.

Subsequent research indicates that Hubbert’s forecast was part genius and part luck. U.S. oil production is determined by the costs of production, the price of oil, and the quantity of oil “shut in” by the Texas Railroad Commission, which aimed to stabilize prices by opening and closing oil wells in Texas to ensure a balance between supply and demand from the 1930s through the early 1970s. Had prices evolved over some alternative path or had the Commission controlled production using some other criterion, Hubbert’s prediction probably would have been less accurate.

AlterNet