Peak Oil

It is commonly accepted that oil reserves are equivalent to a little more than 40 years of consumption, implying that oil reserves are sufficient to meet global needs for several decades. However, in practice this affirmation does not mean much, for two reasons. First, this assertion assumes a constant demand for oil. However, the rapid development of Asia implies an explosion of demand in that region (40% by 2025). Secondly, this assertion assumes that it is possible to extract oil as quickly as desired. However, for geological and technical reasons, any oil production follows the following pattern: production increases after the first wells have been drilled, then reaches a maximum – a peak or a plateau, and then gradually decreases until zero. This pattern is valid for an individual oil field, for a region, for a country, and ultimately, at the worldwide level.  Globally, the peak is reached when more or less half recoverable oil has been produced, i.e. the peak is reached when there is still a lot of oil to recover.

 From the perspective of the economy, it does not matter when the last oil drop will be extracted. What does matter is when oil production peaks, because once the peak is reached, the economy has to adapt to an oil flow that declines as time goes by. After more than 150 years of growing availability of oil, entering the second half of the oil age without awareness and preparedness could pose numerous challenges for the economy and society in general.