If you are like me, you may think that “Peak Oil” is a product that comes from the oil producing company “Peak”. In reality, Peak oil is the point in time when the maximum rate of global petroleum extraction is reached, after which the rate of production enters terminal decline. The concept is based on the observed production rates of individual oil wells, and the combined production rate of a field of related oil wells. The combined production rate from an oil field over time usually grows exponentially until the rate peaks and then declines—sometimes rapidly—until the field is depleted. This concept is derived from the Hubbert curve, (fig. 1) and has been shown to be applicable to the sum of a nation’s domestic production rate, and is similarly applied to the global rate of petroleum production. Peak oil is often confused with oil depletion; peak oil is the point of maximum production while depletion refers to a period of falling reserves and supply.
A bell-shaped production curve, as originally suggested by M. King Hubbert in 1956
Why is this important?
As an increasing number of households in China, India and other advancing overseas economies join the world’s middle class, they’ll start making such basic purchases as electronic goods, houses – and automobiles. The fact that China’s oil imports jumped 18% in one month is evidence enough that this is happening. And the fact that leading India automaker Tata Motors Ltd (TTM) has unveiled a $2,500 dollar car, the Nano, underscores that international carmakers are looking to recruit a whole new group of motorists.
The Fallout: For U.S. refiners, oil will first get lots more expensive, and then supplies will start to dry up as countries opt to halt exports and keep the ever dwindling commodity for themselves. As the U.S. currently imports approximately 70% of the oil it consumes on a daily basis, 25% of the World production totaling approximately 21 million barrels, this would be a devastating chain of events.
What can we, as consumers, do?
As consumers, our purchasing power plays a key role in the mitigation of rising fuel costs and overall effects of the “Peak Oil” principle by:
- Purchasing American goods and services that will in turn strengthen the purchasing power of the U.S. dollar.
- Ensuring that our cars and trucks are tuned to ensure they are capable of achieving the best possible fuel efficiencies.
- Minimizing household fuel consumption by weather proofing, insulating and lowering thermostats to 68 degrees.
- Minimizing unnecessary travel or using mass transportation when possible.
Taking aggressive actions to reduce our dependence on oil will avoid the ramifications of production Peak.