Peak oil is defined as the point where the rate of global petroleum production reaches maximum. After this point, the rate of production will reach terminal decline. In other words, after peak oil is reached, the world is unable to produce more oil than it currently uses and soon we would run out of oil.
Of course, with civilization as we know it being built on oil, peak oil essentially equates to a doomsday scenario. With the prices of crude oil constantly hitting new heights as it has for the past decade, it is no wonder that many people have been predicting the advent of peak oil. After all, it is only logical to assume that prices rise when supply falls. In fact, 70% of people worldwide believe that the planet is going to run out of oil in their lifetime.
The current proven oil reserves worldwide is over 1.3 trillion barrels. A mere 15 years ago, it was barely a trillion. And in 1980, it was 650 billion barrels. Despite the high rate of consumption by today’s society, it seems like our reserves are not being depleted. To the contrary, with every decade the proved oil supplies increases dramatically. There are a few reasons for this.
Firstly, new oil reservoirs are constantly being discovered in places thought previously to be oil barren. As demand for oil constantly increases, there is a new and increased drive for exploration. Improved technology has also made it easier to find oil reserves, and also to drill further and deeper. And secondly, modern extraction and refining process has increased the percentage of recoverable oil from reservoirs. And thirdly, while in the past it was believed that crude oil was the only source of petroleum, it has been proven otherwise.
Natural resources such as shales and coal also has large amounts of oil locked inside them, and while in the past it was economically and technologically unsound to extract this oil, the rising price of crude oil and new technology means that it has become more practical to do so. In fact, the amount of estimated global oil shales is estimated to be 3 times that of the current oil reserves, or nearly 4 trillion barrels.
So why are oil prices worldwide rising out of control? It has nothing to do with the threat of peak oil. Rather, the major oil producing countries have their capabilities constrained. Western intervention in oil-rich Middle East have lead to political and social turmoil there, thus limiting oil production and new investments. It is ironic that in the US’s attempt to gain control over oil, they have only managed to drive prices further up. In fact, oil production in Iraq is only operating at less than 50% of what its infrastructure would allow.
As i pointed out above, the myth about peak oil has contributed to the rising prices as well. As demand from the developing markets of China, India and Latin American grows, there is increasing doubt about the availability of future supply. In a free market, panic and speculation is unavoidable. A slight rise in price leads to mass hysteria in the stock market, driving the price up even further as stockholders try to minimize their loss.
The implication of higher oil prices is much more than just increased living costs on the part of the consumer. It has led to a redistribution of wealth towards oil rich countries. Saudi Arabia currently makes USD 1.3 billion solely based on its oil export industry. This has also led to a change in the balance of power globally,although it is not immediately obvious. Traditional superpowers, or rather the US and the UK now have much less influence in terms of foreign policies. Two decades ago at the end of the Cold War, Russia was effectively bankrupt. Now, with its newfound wealth derived from oil, its foreign policy has changed significantly. While in the 1990s, it basically sided with the US on global issues, now it has seen it fit to exert its influence in former Soviet Union territories. The recent skirmish in Georgia is the perfect example of this.
Crude oil is not just good for filling up gas tanks. It plays an important role in every industry, from manufacturing to healthcare. Higher oil prices means more expensive commodities, and that is where inflation creeps in. It is easy to find evidence that over the past few decades, the up and downs of inflation around the world directly corelates to oil prices.
As much as the media would like us to think otherwise, alternative forms of fuels are a long way off from being adopted by the mainstream in a world where fortunes are built and lost on oil. There is no way around it, oil is here to stay for a long time.