I’ve spent a fair while talking and thinking about the Peak Oil Hypothesis, and a couple of thoughts have struck me. Looking at the data, graphed below, the big increases in oil prices in the last five years or so seem to have done nothing to call forth additional supply. And for the last couple of years, output has actually declined. In that sense, it looks as if those pundits who claim that oil output has passed its historical maximum may be able claim vindication.
On the other hand, the term “peak” tends to imply a steep ascent, followed by an equally steep descent. Looked at on a time scale of several centuries this will be about right. But, year to year, the pattern is better described as a plateau with a slight downward slope.
There are good reasons for this. Once producers start to anticipate a peak in output, it is in their interests to slow down, rather than to pump out all their oil at prices that are bound to be lower than those prevailing in the future. That means that the price increase is brought forward and demand growth is constrained. So, what might have been a peak is flattened out into a plateau.
Plateaus are not very exciting as landscapes, and the Plateau Oil hypothesis is not very exciting in its implications. Given increasing demand from China and elsewhere, Plateau Oil means that consumption will have to decline somewhat in developed countries. To make this happen, prices will have to stay high, and rise gradually over time (the standard economic model has the rate of price increase equal to the discount rate of oil producers). But it’s quite possible that the biggest jump in market prices is already behind us, and that the next (probably more modest) step increase will come about when fuel taxes are increased to take account of CO2 emissions.
Of course, prediction is risky, especially about the future. It may be that we’ll see some big new fields brought on line or that new sources like tar sands will expand rapidly. Still, my best bet for the future is that global oil output will never rise much above its current level, and that a definite decline will be evident within a decade or so.