Peak Oil

If you have never heard about peak oil, then you really should read about it in earnest, RIGHT NOW. Search on Google and read everything that you can about it. If it is real, which I think it is, it is going to change the way we live on Earth. It will be a paradigm shift.

Peak oil is a theory by Hubbert, a geologist at Shell. It’s also called the Hubbert’s peak. Essentially, it is based on empirical evidences that the production of oil (or any commodities) follows a Gaussian normal distribution or bell-shaped curve. And by all best estimates, the peak of this bell-shaped curve is from 2005 to 2010. In fact, some experts have declared that peak oil is behind us already. Hubbert gave two predictions in 1956, one of them dated that US oil production will peak around 1970s, and the peak turned out to be the year of 1970. US oil production has ever since gone into decline. However, at the time of Hubbert making such prediction, he was ridiculed widely for his opinions.

You may ask why a normal distribution curve. In fact, this curve is the most sensible curve out of all. In the theories of probabilities, there is a theorem called the Central Limit Theorem. It proves that any sum of MANY independent identically distributed random variables will approach the normal distribution when the number of variables approach very large. Although I never saw anyone tries to make a proof from the Central Limit Theorem to the oil production curve, intuitively I believe that both can borrow the same mathematical framework. One simply needs to treat every small or big oil field as an independent random event, and the final sum approach the normal distribution curve.

So here is a theory of peak oil that is based on empirical evidences and has been formerly shown to render correct prediction. In fact, not just oil, but many production of basic materials follow such curve. Many other people have tried to date the peak for global oil production. Some dates go as far as 2020. I do know for a fact that because of the technology advancement in secondary and tertiary extraction from the oil fields, most likely the peak can be postponed by a little somehow. But whatever extra production that you get now, you will be hit by the accelerated decline in production post-peak.

Based on what is happening currently, I have reasons to believe that we are right at the peak of global oil production. You can read more about it in the book of by Matt Simmons, where he discussed his findings on the oil fields of Saudi Arabia. I heard from financialsense that Saudi Arabia has paid some 4X amount of money to obtain the oil digging rigs around the world, frantically trying to making up any amount of shortfall in their oil production.

What are the implications and ramifications of Peak Oil if it is true and we’re close to the peak (if not behind it)? At the time of the two most populated countries China and India coming to join the world as the new capitalists, improving their living standards, and therefore increasing dramatically their usage of oil and natural resources around the world, global oil demand has stepped on the acceralated pedal. Unfortunately, oil production appears to be almost at the peak. If you recall from the basic of economics, supply/demand curve, with dwindling supply and increasing demand, the only resolution for price is to go up. What’s even worse is that both the supply and demand are relatively inelastic. Supply cannot be increased without dramatically higher price; demand cannot be decreased with our current economic and transportation infrastructure. Relative inelasticity will simply worsen the crude oil price picture.

Here are some more books & websites on Peak Oil. If you have time & money, I suggest you try to read as much as you can about this topic. When I first visited Life After Oil Crash, I was really depressed about the bleak outlook. However, I was able to climb out quickly due to my religious belief and my general optimism. Just be aware not to sink too deep emotionally. But do reflect on all the facts. After all, even a physics professor David Goldstein at Caltech (top three, if not #1 university in science in the US) has subscribed to the theory of peak oil.

  1. Life After Oil Crash
  2. Peak
  3. Peak Oil blog
  4. Peak Oil from Energy Bulletin

Unfortunately, the development of alternative energy sources and most importantly the infrastructures are so far behind that I doubt that if peak oil is upon us, mankind would be able to come out of the crisis without some serious economic and social upheavals.

P.S. Due to the lack of my time, I would really appreciate anyone who can write some very short summaries or comments on any links or books so that everyone can benefit from it. Thanks. By the way, I bought Hubbert’s Peak, and it has too much technical information for non-geologists. Personally, I would suggest trying Golstein, Simmon’s books.

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