Not if, but when: Oil production peak will bring hard transition
World demand for oil currently totals 82 million barrels per day, and is growing at a rate of just over 2 percent a year. The Paris-based International Energy Agency predicts that demand will reach 120 million barrels per day by 2030 - an increase that would fuel economic growth in the United States and the rest of the world for the next quarter of a century. Such an increase in demand can be satisfied only if the world's oil basins are capable of producing that much more than they're producing today. If LaherrÃ¨re and Campbell are right, production capacity will soon bump up against its limit.
The notion that the oil production peak is near is still a minority view. The prevailing ideology among governments and the oil industry is that technology will permit ever-more-efficient oil extraction, so that reserves will grow even if no new massive oil fields are discovered. In addition, when demand exceeds supply, prices will rise, spurring further exploration and technological improvements. That's what happened after the oil shocks of the 1970s, when higher prices resulted in a surge of non-OPEC production.
Both prices and technology have important roles to play, LaherrÃ¨re says - but the oil-supply picture is governed by geology, not economics. (Youngquist jokes that oil companies should fire their geologists and hire economists instead, since economists are so much better at finding oil.) Higher prices and technological innovations will both be required to extract harder-to-get oil reserves, but neither can magically bring new supplies into being.
Moreover, given finite supplies, the peak of oil production is a logical certainty - the only question is the date. The U.S. Department of Energy's Energy Information Administration analyzed U.S. Geological Survey data to estimate the date of the peak. Its analysis assumed that new discoveries and technological improvements would significantly increase recoverable world oil reserves. The administration's mid-range estimate shows that if oil consumption grows at a 2 percent rate, the peak in production will occur in 2037.
That's 33 years in the future, which sounds like a long time. Yet, the Arab oil embargo occurred 31 years ago, and little has been done since then to insulate the United States against the many costs of imported oil. Still less has been done to prepare the entire world's economies for an era of declining oil production - indeed, China and the developing world are giving oil-fueled growth an enthusiastic embrace.
The country and the world will have to adjust to declining oil supplies by switching to other energy sources and pursuing efficiency. The sooner that transition occurs, the less wrenching it will be. Instead, oil consumers are driving toward a cliff with their foot on the accelerator, with Americans in the lead.