The Theory of Peak Oil Explained
These days you hear a lot of talk about the theory of peak oil. Oddly most people who talk about it really don't understand it. There seems to be a belief that peak oil is the point where we run out. In reality this is not the case, it is the point where we reach maximum production. It is important to understand what peak oil is and how it affects the economy as a whole so that we can be prepared when it happens.
The theory of peak oil is actually pretty simple; at some point the production of oil will reach its peak after which it will enter a period of decline. This in itself is not all that shocking of a theory since we have known for years that at some point we would start to run out of oil. However there are some very serious consequences to peak oil and they are something that we need to be prepared for when it happens. It is important that we be ready ahead of time so that we are not caught unprepared.
The biggest impact of peak oil will be that prices will go up dramatically. This is simply the law of supply and demand, so long as the demand remains the same and the amount being produced starts to decline prices will have to go up. We are already seeing this on a limited scale as the oil fields that are easiest to get at have already peaked. That means that in order to continue to meet the demand it is necessary to put into production fields that are harder to get at. This requires a higher price since it costs more to get the oil out of these places.
There are very serious issues involved in having a significant increase in the price of oil. The world economy is largely based on the fact that oil can be had at a fairly low price. If this stops being the case it is going to have a major impact. There is a strong chance that the level of production would fall dramatically as the result of increased costs. This would lead to a significant contraction of the economy. Since this is something that we cannot afford to let happen it is imperative that we find alternative fuel sources.
The big question is just when will reach the point where oil production peaks. There are some people who believe that it has already happened but this is clearly not the case. It is hard to determine when it will happen since there may be new oil fields discovered and the demand for oil may increase or it may decrease. That being said it is probably true that at some point within the next fifty years we will see oil production reach its peak. After that the decline in production may occur very rapidly.