PeaK OiL: Crisis may prime the pumps

The rise and rise of oil prices is renewing interest in the "peak oil" theories which originated in 1956 when the geologist M King Hubbert predicted that US oil production would peak in about 1970, which it did. While demand has risen sharply in recent years because of the strongest performance of the world economy for decades, oil supply has increased far more slowly, leading to the price we have today.

Some of the price rise has been blamed on speculation, some on the decline of the dollar, in which oil is priced, but most analysts agree that this oil price shock is demand-led rather than being the result of an interruption to supply, as in 1974 and 1979.

The peak oil theorists argue that production has not increased in line with demand simply because it cannot. Oil reserves are finite. Many of the world's biggest fields are already suffering declining output, and that could accelerate, they argue.

One leading proponent of the theory, the German-based Energy Watch Group, recently argued that global oil output peaked in 2006 and will halve by 2030, rather than rise from the current 85m barrels per day (bpd) to 120m, as conventional projections suggest.

Oil prices hovered between $10 and $20 a barrel for many of the 15 years to 1999, then began an upward march that has culminated in the $100 now being tested. While conventional wisdom has been that rising prices would bring big rises in production, this has barely happened. The producers' cartel OPEC increased its output by 3m bpd in the early years of this decade but it has not risen since.

Peak oil theorists point to the UK, where oil production peaked in 1999, at 3.2m bpd but has halved in just eight years. Once oil production peaks, they say, it does not stay steady for decades, it falls quite rapidly.

The current price is a real incentive for producers to pump more oil. The next two or three years will tell us whether global production has peaked.

By Ashley Seager | Read more | Digg story

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