Have we reached peak oil?

In February 2007, the U.S. Government Accountability Office published a stu­dy that examines the steps that would need to be taken in order to protect against a peak-oil fallout. The GAO concluded that there are a variety of factors that will ultimately influence the arrival of peak oil. Consider peak oil as a marathon, one where each of the runners' progress has an effect on the others. Each of the runners -- oil consumption, oil production and alternative fuel technology -- is involved in the oil peak, which we'll call a grim finish line.

In this race, oil production appears to have a tight lead over oil consumption. But remember, in this marathon, each of the runners' progress affects the others. So every time alternative energy sources have a burst of speed -- say, through some new advancement in biofuel technology -- oil consumption slows down.­ The same goes for another runner who is relatively new to the race: conservation. This runner can surge ahead, perhaps through new government regulation, which forces auto makers to increase the fuel efficiency of new cars. In the same way, this would slow down consumption and prolong the race.

­The opposite is true as well. Political instability in oil-rich countries could trip up production, causing it to fall behind. The huge economic development that has begun to characterize two of the world's most populous nations -- India and China, each with more than one billion people -- could give a boost to oil demand.

The way you look at the peak oil dilemma depends on which runner you bet on. Will alternative fuel sources overtake oil consumption? Or will increasing consumption simply be too much for the upstart to edge out? Will production get a sudden burst thanks to the discovery of a new oil field and leave the others in the dust? One way or another, the only guaranteed loser in this race will be production. It's how long this race will last that's up for discussion.

For peak-oil believers, the question is not whether oil production will decline while demand increases, but rather when the peak will take place. The Hubbert Curve of oil production can be extrapolated from individual wells all the way to worldwide production, and its creator, M. King Hubbert, has a history of accurate projections. In 1956, he predicted that the United States' production of oil would peak between 1965 and 1970. It peaked in 1971 and has been in decline ever since, closely following the curve Hubbert predicted [source: Dept. of Energy]. As a result, the United States imported about 58 percent of the petroleum it used in 2007 [source U.S. Energy Information Administration].

The U.S. isn't alone in this dilemma. The United Kingdom's North Sea oil production peaked in 1999. The decline in entire countries' production may alter the world production bell curve. Many believe we have already reached the peak of world oil production and have entered a plateau. This appears to have happened sometime in 2005, and is being dubbed by peak oil adherents as "peak lite."

But are peak-oil theorists simply overreacting? After all, no one can say for certain how much oil is left. Read the arguments against peak oil on the next page.­

In 2006, Cambridge Energy Research Associates (CERA) said that "the remaining global oil resource base is actually 3.74 trillion barrels -- three times as large as the 1.2 trillion barrels estimated by the [peak oil] theory's proponents" [source: CERA]. The organization went on to say that, rather than peak and decline, the world's oil supply will eventually resemble an "undulating plateau," with small peaks and valleys that will continue to meet the needs of global oil consumption for decades to come.

In CERA's opinion, one to which many of the peak-oil skeptics subscribe, the oil peak theory is just that -- a theory -- and one that it considers questionable. The organization instead believes the plateau will not occur until at least 2030, and by the time demand surpasses the supply plateau, other forms of energy will be sufficiently advanced enough to "fill in the gaps."

So how is CERA coming up with such a sunny forecast for oil? They believe we can rely on future discovery and full exploitation of the resources of which we're already aware.

There are many sources of petroleum that we already know exist. In the Arctic, oil fields, which could yield as much as 118 billion barrels, were identified in the 1950s. The deep sea is also a source for potentially billons more barrels of oil. And there are also unconventional sources as well. Canada is home to vast ­fields of oil shale -- a rock that when heated releases its oil -- and more fields have been discovered in the western United States in 2005. And future discoveries of "superfields" of conventional oil reservoirs could boost world production.

­Enhanced oil recovery (EOR) may also help find new petroleum sources. Oil production usually exists in three phases: primary, secondary and tertiary. Primary recovery is the easiest, with oil virtually (and sometimes actually) spurting out of the ground due to pressure from gases within. This was perhaps most famously displayed in the opening credits of each episode of "The Beverly Hillbillies," when Jed Clampett accidentally strikes oil with an old rifle.

Primary recovery usually draws about 10 percent of the oil in a reservoir. Secondary recovery can remove an additional 20 to 40 percent of the oil [source: Department of Energy]. In this process, water or gases are pumped into the reservoir to repressurize the oil. So after these two methods of drilling oil are exhausted, there is still as much as 50 percent of the oil left in the reservoir.

After the first two stages are spent, oil companies generally cap the reservoir, leaving the remaining oil in reserve. But why don't they just recover it all? The answer is simple economics. Tertiary recovery is expensive. With oil at its current price, it's simply not economically wise for oil companies to tap these harder-to-exploit resources. The price for oil hasn't reached the level where companies will make enough money exploiting resources in places like the Arctic and deep ocean, or to roll out the more expensive technology for enhanced oil recovery.

But when easily accessed oil dries up, the price of oil will increase, since there will be less of it. This may have already begun. On Jan. 2, 2008, the price per barrel of oil reached $100 for the first time, a landmark many peak-oil proponents have warned of. On July 11, 2008 it reached an all-time high of $147 [source: Jacobs]. When oil suppliers must spend more money to recover oil, the price will rise further. This is one of the possible problems that could face the world if oil peaks or if alternative energy sources aren't adopted more widely.

Read about more of the potential crises that could arise on the next page.

The peak oil dilemma is one of those debates where for every solution raised, three more problems crop up as a result. Take the Arctic oil reserves, for example. If we begin to run out of oil and demand remains the same or increases, governments may be forced to relax regulations concerning drilling in the fragile Arctic ecosystem. As a result, species extinction could be accelerated by the impact oil drilling would have there.

This is but one pr­oblem that could arise from peak o­il. Petroleum is used in a wide array of products -- including medicine and food. It’s also used as fuel to get us to and from jobs (where we make those products). In the United States in 2005, 67 percent of all petroleum consumed was used for transportation [source: EIA]. Even the tanker trucks and ships that transport oil use it as a fuel source. Oil is arguably the lifeblood of the global economy, and we’re at a point where, without it, the world would suffer tremendous economic damage.

But if future oil production is threatened, why don’t we just ramp up our alternative fuel research? This leads us to another problem with a peak oil scenario. Worldwide research and investment into alternative energy sources are at an all-time high, but the progress being made remains a drop in the oil barrel compared to the amount of energy needs alternative fuels would have to satisfy in order to support an oil crisis like a peak. In other words, we just don’t have the capacity to produce enough alternative fuel to make up for a major loss of oil production.

Cellulosic ethanol -- fuel produced from the carbohydrates found in plants like switchgrass -- shows a great deal of promise. But the process of refining fuel from grass is still expensive; it still lacks a major breakthrough in the production technique that could reduce costs. And it’s highly corrosive, much more so than gasoline. This means that gas stations would have to retrofit their pumps and storage tanks at a cost the Department of Energy estimates could be around $100,000 per gas station [source: GAO].

Additionally, alternative fuels are in direct competition with oil for investment money. If more money is poured into developing alternative fuels, less may make its way into finding more oil fields or refining processes like extraction from oil shale. Jumping the gun and focusing on alternative fuels too early could also damage economies that heavily rely on petroleum. The trick is to get as much out of oil as possible without waiting too long.

Ethanol isn’t the only alternative fuel source currently suffering challenges to its progression. Even coal, a fossil fuel in wide use, has its problems. Some people see this fuel as the likeliest answer to the peak oil crisis. Many power plants are already fueled by coal, and the process of making liquid coal has been mastered. This process produces fuel that doesn’t need to be refined and can power current vehicles.

But coal is also extremely dirty. One ton of coal -- including the fossil fuels used to mine, transport and produce it -- puts out about two tons of carbon dioxide emissions when used conventionally. And it’s estimated that a car using liquid coal as fuel would emit 4 to 8 percent more greenhouse gas emissions than one running on gasoline [source: Scientific American].

It seems like every way you look at it, the peak oil theory is nothing but bad news. But there appears to be nothing worse than doing nothing. Read about this scenario on the next page.

While solutions meant to alleviate a shortfall face many challenges ahead, doing nothing is the worst option, according to "Peaking of world oil production: Impacts, mitigation and risk management." This influential 2005 study of a peak oil crisis has become the de facto peak oil adherents' bible. This study, dubbed the Hirsch Report after its main author, researcher Robert L. Hirsc­h, examined three scenarios: one where no steps are taken to offset a peak until the peak occurs, one where steps to mitigate a crisis are instituted 10 years before the peak, and one where mitigation is put into practice 20 years before peak.

The Hirsch Report concluded that mitigation -- taking steps to both expand supply through the introduction of alternative liquid fuels, as well as decrease demand by increasing fuel efficiency -- 20 years before peak would help us make a smooth transition to other fuels. This would minimize the economic or sociopolitical consequences when the oil peak takes place.

­However, mitigation measures begun 10 years before the peak would place the globe into a fuel supply shortfall that we would not be able to restore for about a decade. And mitigation measures that aren't taken until the peak occurs would create a 20-year-long global fuel shortage. Couple this with the Hirsch Report's conclusion that "[m]itigation will require a minimum of a decade of intense, expensive effort" [source: Hirsch, et al.] and Hirsch's idea that the peak will come within 20 years of 2005, and you can understand why peak oil makes a lot of people very nervous.

So have we reached peak oil? Ironically, if it has occurred, it will be impossible to tell until a few years afterward. Although it may seem that the planet's oil resources have been tapped, future exploration may find new superfields. Or if economic expansion in India and China slows, that could ease the strain on the world's petroleum needs and put off the peak. A sudden burst in technological advancement in switchgrass ethanol could also mitigate the demand. Eventually, however, it will become statistically impossible for oil production to ever catch back up to demand. Once this has occurred, we will know that we have already reached and passed peak oil.

Whether or not you sleep well at night could depend on which view you hold over peak oil. Those who hold an optimistic view don't necessarily believe that oil production follows the curve predicted by M. King Hubbert. Instead, they believe that around 2030 oil production will begin the "undulating plateau" envisioned by CERA and continue indefinitely as other energy sources take up the slack. Like climate skeptics, critics of the peak oil theory feel that our outlook isn't so bleak.

To peak oil adherents, however, the future is dire. In fact, it may already be too late. We may have already reached peak oil production and are in the few-year period before it becomes painfully clear it has taken place. Others see the peak taking place as soon as 2011. Even the most conservative peak oil adherents don't place the peak any further out than 2040.

Both sides believe in taking steps to offset an eventual failure for oil production to meet demand. It's exactly when these steps should be taken that is such a point of contention. It's a tricky situation every person on Earth faces. As the Hirsch Report put it, "[t]he peaking of world oil production presents the U.S. and the world with an unprecedented risk management problem."

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