Tuesday, October 2, 2007

Peak Oil - How close are we?

Peak oil, according to Wikipedia, is: "The point or time frame at which the maximum global petroleum production rate is reached. After this time frame, the rate of production will enter terminal decline. According to the Hubbert model, the production rate will follow a roughly symmetrical bell-shaped curve. This does not mean oil will suddenly "run out", but the supply of cheap conventional oil will drop and prices will rise, perhaps dramatically. The following is an illustration of Hubbert's model:

According to the assumption of market efficiency these price increases will occur some time
before the actual peak. Has peak oil production already happened? Are current price increases a part of the process? The following is an illustration of world crude oil production from 1960-2005:

Hard, even impossible to tell. Hubbert originally estimated 1994 to be the year of peak oil production. Some economists and Geo-physicists estimate 2020-2030 as the years of peak oil production. Other economists rely on oil reserves buried deep in glaciers or ocean floors. These reserves might be used as price levels justify the investment required to extract them.

Regardless, as the Geo-political and ecological trend strengthens oil consumption levels will drop thus postponing peak oil production and the economic havoc which might occur as a result.

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