Peak Oil

“Peak oil states that any finite resource, (including oil) will have a beginning, middle and an end of production, and at some point it will reach a level of maximum output.” Another way of looking at peak oil is that it will occur when all the readily available, easy to find and relatively cheap oil runs out. All that will be left is the hard oil that is very expensive. Peak oil is a major issue facing the international community in the near to immediate future. Many industry experts argue that peak oil has already begun to occur in many of the oil rich countries of the world. Other experts argue that peak oil has not yet occurred but will occur within the next decade or two. The world currently uses a little more than 80 million barrels of oil a day and relies heavily on oil for use in daily life. Estimates suggest that the number of barrels of a oil a day that will need to be produced in order to meet consumer demands will exceed 100 million barrels within the next fifteen to twenty years.

There are numerous forces that drive the rise to peak oil. Market demand is probably the main reason peak oil is plaguing the international community especially with major consumer countries like China, the United States and India. The United States has only one-twentieth of the world’s population yet it consumes one-fourth of the world’s oil. “The US consumes six times the amount of oil per capita as the rest of the world.” As of 2007, China was using nearly 8 million barrels of oil a day. That is approximately 10% of world consumption. China’s “oil consumption grows by 7.5% per year [which is] seven times faster than the U.S.” However, market demand is only part of the equation. Natural disasters are a large contributing factor to the depletion of oil reserves as well. When cyclones, tornadoes, tsunamis and other natural disasters that are out of the hands of people occur this puts a strain on the world’s known oil reserves. Market uncertainty and economic imbalances as well as geopolitical turmoil also play a huge role in oil production. Even though Myanmar is not part of the Arab League (the region where most of the oil exists), they highlight an important lesson of what is happening in the realm of peak oil. In 2008 when a cyclone hit Myanmar, the world saw what happens when politics clashes with a country that is at grips with recovering from a devastating disaster. Myanmar has the 10th largest oil fields in the world. This has serious implications on the international community. Peak oil will come sooner and more drastically if the oil reserves of Mexico and Saudi Arabia, homes to two of the largest known oil fields in the world, are depleted. This is exemplified by oil rich countries like Myanmar who are politically and diplomatically isolated from the international community. This isolation not only makes it hard to ensure aid when natural disasters strike, but indirectly puts their oil fields at risk of being damaged or destroyed.

America has already experienced what it would feel like if peak oil occurred. During the 1970’s there were embargoes placed on oil to the United States due to the United States helping Israel during the Yom Kippur War. Saudi Arabia completely cut off oil to the United States after President Nixon announced support for Israel in 1973. With the oil embargo on the United States, consumers experienced long lines and higher prices at the gas stations as well as higher food prices. Furthermore, “posted prices changed hourly in some places as station owners took advantage of a panic situation” and “odd and even license plate numbers were used to assign gas-buying privileges on certain days of the week.” Not to mention that this was all occurring just as oil geologist, M. King Hubbert predicted that the United States would hit peak oil in the 1970’s. Following this incident with the oil embargo on the United States, The Organization of Petroleum Exporting Countries (OPEC) grew into a force to be reckoned with even though it was only the Arab states within in OPEC that enforced this embargo.

OPEC also plays a role in peak oil. OPEC is important to the Arab League because six of its twelve Member States are a part of OPEC. The economic factors behind the rising price of oil are largely due to market demand. Since there are very little options for alternative energy the price of oil is able to remain high and will continue to increase. However, this is only exacerbated by the fact that oil depletion is on the rise. There are industry experts who argue that peak oil is a tactic of OPEC to keep the price of oil high. If OPEC limits the number of barrels per day that is produced then it is basic supply-and-demand. However, throughout the 70’s and 80’s when OPEC cut production, consumers cut usage more than OPEC expected.

“Since peak oil output is not about the time at which oil will run out, but the time at which production can no longer be increased to cope with increased demand, it seems the only way the oil price can go is up.” “OPEC says it pumps a third of the world’s oil and controls 80 percent of reserves.” If peak oil has been reached OPEC Member States would be among the first to know of this. However, according to Chevron, "oil production is in decline in 33 of the 48 largest oil producing countries." Even though there are over 40,000 oil fields across the globe, 94% of the “oil is concentrated in less than 1,500 fields.” Two of the top three oil fields in the world have already peaked. In 2005, the Kuwaiti oil field, Burgan, began depleting. In 2006, Cantarell Field in Mexico began to deplete at a rate of 13% a year. Saudi Aramco announced in 2006 admitted that some of their fields are declining as well. While it is not as bad as Mexico’s Cantarell Field at 13% a year, the Saudi oil fields are declining at 8% a year. This leads some industry experts to believe that the Ghawar Oil Field located in Dhahran, Saudi Arabia may already be depleted as well. As of April 2010, the Ghawar Oil Field was producing 6.5% of global oil daily. Cumulative production reached well over 65 billion barrels at the Ghawar Oil Field.

Obviously peak oil poses a major threat to the global economy; specifically the oil rich nations such as Saudi Arabia. Saudi Arabia’s number one export is oil. They rely so heavily on the revenue generated from exporting oil. In fact, in 2001 75% of government revenue and 90% of their export value came from oil production. If more oil fields in Saudi Arabia become depleted in addition to the Ghawar Oil Field, this will put a major strain not only on the Saudi economy but on the mobility of countries which import oil from Saudi Arabia. Without access to as much oil as the demand requires, millions of people will be immobile. Not only will the food and textile industries’ costs skyrocket, but so will many other industries will struggle as well. There will be a greater global economic crisis and maybe even a greater food crisis. The peak oil crisis that occurred in the 70’s and into the 80’s was not the real crisis since despite the oil production cuts, the world GDP (Gross Domestic Product) still grew at a rate of 13% over five years. The real crisis will be the one that the world will experience when peak oil finally happens again.
There are several ways in which the solution to peak oil has been discussed. First, the recovery rate needs to be increased as well as recovery techniques. “The industry is already improving technologies in areas like drilling and completion, production operations, and reservoir engineering, including enhanced oil recovery operations.” However, it is not enough to just improve the technologies. Rapidly increasing the recovery rates instantaneously will not necessarily be the answer either. It needs to be done at rapid yet incremental rates. Another way to prevent the rapid increase towards peak oil is to find alternative ways to reduce costs. If the price of production costs was cut it would open up more opportunities to search for more oil.

Countries like Saudi Arabia are looking to other sources of economic stimulation over the next few decades since oil can no longer be their main source to run their economy. King Abdullah has proposed economic industrial cities that will be built up all around Saudi Arabia. KAEC--King Abdullah Economic City is being built not too far from Jeddah; another one of these economic cities is being built near Medina; a third is being built outside of Riyadh. For the first time, foreign investors will be allowed to invest in these projects. They are a sense of modernity and the King's way of looking to alternate options other than oil. These economic cities are also meant as a source of job stimulation. Hopefully, these cities which will be more gender-friendly towards women shed a good light on the Saudi Kingdom and allow the other oil rich countries to look to Saudi Arabia as an example of how to move away from economic dependency on oil.