THE IMPACT OF OIL DEPLETION

ON

THE WORLD ECONOMY

By

VINEETH VIJAYAN

(currently doing BBS from delhi university and a regular in making stupid studies like this which aims to uncover the facts people already

know and don’t want them to know got it? )No if u like this plz make sure u pray at least one time for the people at

Darfur and Tibet

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THANK YOUINTRODUCTION TO THE PROBLEM

In the 21st century the world must solve two great problems. These problems are rarely discussed by the public and have received little media attention. Neither are they discussed by those in power. The two problems are:12

Overpopulation in the developing world. Over consumption in the developed world.

Of course it's all about resources: Either too many people consume a few resources each totaling a lot of resources, or a few people each consume too many resources again totaling a lot of resources. What is important to note is the absolute consumption, not the relative consumption.

It is difficult to differ between the developing world and the developed world, but the canonical values usually used are that:

The developing world has 80% of the world's population and consumes 20% of its resources.

The developed world has 20% of the world's population and consumes 80% of its resources.

OIL DEPLETION: THE PRIMARY PROBLEM OF THE DEVELOPED WORLD

In dealing with several problems it is worth to spend time singling out the most important problem of the set such as not to waste too much time on relatively trivial matters. I believe that the primary problem is that of a sustained energy supply. Energy unlocks all other resources. Energy is required to transport raw minerals, to refine these, to manufacture goods, and to transport

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the goods to their destination. Without energy none of these functions which are essential to society are possible.

Today the primary energy source is oil. Oil accounts for 40% of all energy use therefore continued access to this resource or an equivalent or an improved replacement is essential to continue the world as we know it.

Oil depletion is the inescapable result of extracting and consuming oil faster than it can be replaced with artificial equivalents, due to the fact that the formation of new natural petroleum is a continuous geologic process which takes millions of years.. Many predictions have been made about the potential implications of passing the peak. These estimates range from warnings of a doomsday scenario created by long term lack of growth to faith that the market economy will allow a relatively smooth transition to other energy sources through technological solutions.

USES OF OIL

TransportPetrol and diesel are probably the first things that spring to mind when one thinks of the uses of oil. Because of its liquid nature and the power/mass ratio, there is nothing else that can easily replace oil. Cars can be adjusted to run on electricity or hydrogen but these are wasteful of energy and unsuited to the future. Road transport can replaced to a certain extent with public transport and oils from plants, and ships could reduce their energy usage by modern sails

Electricity Generation

About 42% of primary energy (oil, natural gas, coal) is used to generate electricity and if oil is our society’s lifeblood, then electricity is its oxygen. As seen by the blackouts in east USA and Canada in August 2003, even a few days without electricity and we grind to a halt. There are alternative ways of generating electricity but these make up only a small amount of electricity sources at the moment (see Chart S1), over three-quarters comes from oil, gas and coal. Hydroelectric is limited by availability of water and nuclear power is out of favour. The only

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option left is renewables and these are many years away from being developed enough. We should have been pouring money into research in the 1970s and 1980s.

FarmingOne important use for oil which many people are unaware of is agriculture, and not just to fuel tractors and combine harvesters. Fertilisers and herbicides are oil- and gas-based, and farmers use animal feeds that come from around the world.

PlasticsIt is often forgotten by many people that plastic products are based on petroleum. A glance around any room will show how pervasive they are. There are many other oil-based household objects. The following is a list of just some products that may disappear with oil.Air conditioners, ammonia, anti-histamines, antiseptics, artificial turf, asphalt, aspirin, balloons, bandages, boats, bottles, bras, bubble gum, butane, cameras, candles, car batteries, car bodies, carpet, cassette tapes, caulking, CDs, chewing gum, cold, combs/brushes, computers, contacts, cortisone, crayons, We are used to everything being cheap and freely available. Like oil itself, it is not that these things will disappear but that their costs will soar. Our present lifestyle will inevitably change.

THE SCALE OF THE PROBLEM

To solve a problem one must understand the magnitude of the problem. To reiterate previous numbers energy is consumed by humans at a rate of about 13TW (1TW equals one (US) trillion Watts). A very large fraction (around 40%) comes from oil. Oil is therefore the primary energy source, and it is the primary energy source which should concern us.The world consumes 77 million barrels (one barrel is 42 (US) gallons or 159 (SI/metric) liters) of petroleum daily, which makes 26 billion barrels annually. The biggest extractors are Saudi Arabia, Russia, the United States, and Mexico. The biggest exporters are Saudi Arabia, Russia, and Norway. The biggest importers are the United States, Japan, Korea and Germany

.  Here's a figure from Forecasting future production from past discovery.  It predicts a startling rate of decline of our oil supply between 2010 and 2050.

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HOW OIL RESERVES ARE ESTIMATED

It turns out that there are actually two quite opposing views, because people confuse reserves with resources and tend to focus too much on one or the other. Reserves include the amount of oil which can and will be extracted with a given probability. The P90 reserve i.e. the amount of oil which can be extracted with a 90% probability is usually referred to as proven reserves. A P50 reserve is called proven and probable.

The two different views are:

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1. Since the amount of oil is in principle unknown we can never know how big the resources are. What is relevant is whether we can find more oil or not. A rise of oil prices rise will motivate people to develop new methods to find more oil, to extract more oil from known wells, or to make development of shut-in wells economically possible.

2. Although the total amount of oil is unknown it is still finite. Once all resources have been turned into reserves no more oil can be discovered. The total amount of reserves can be estimated by noticing that the biggest fields are found and developed first afterwhich increasingly smaller fields are found and brought into production. Eventually the new fields will be small and hard to find. Plotting the so-called creaming curves i.e. the cumulative discoveries against the cumulative number of wildcats (exploration wells) the asymptotic value will indicate the ultimate amount of reserves.

Governments and oil companies some of which have economic turnovers compared to the GNP of entire countries might not benefit from revealing their true reserves, since many political and economic decisions depend on these numbers. Thus data are divided into freely available official data and confidential "technical" data which determine the development strategies of the oil companies. The freedom in reporting official data leads to so-called "reserve growth" which is not true growth, since the amount of oil in the ground does not increase, but an increase in the reported official number.

EROEI and EPRAn important element in comparing fossil fuels with other forms of energy generation is EROEI – "energy returned on energy invested". An alternative version of this is the EPR – Energy Profit Ratio. To produce any energy, whether it is pumping oil out of the ground, or building and operating a wind turbine, you need to use some energy in the process. If the energy returned is less than the energy you produce, it is generally not worth producing it

The EROEI is calculated by taking the energy content of your energy (in whatever units you wish) and subtracting the energy used in producing the energy. The result will be a number either negative, positive or zero. The higher the number, the better.

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As an example, if it takes the equivalent of 1 MJ of energy to extract oil which, when burnt, can produce 10 MJ, then the EROEI is 10–1 = +9 and the EPR is 10/1 = 10. If it took 15 MJ of energy to extract the oil, the answers would be –5 and 0.7.The only time when negative EROEI can be worthwhile is if the energy produced is in a more useful form than the energy used. For example, oil can be used not only for energy generation but to make petrochemicals whereas wind-generated electricity cannot. So it could be more worthwhile using some wind-electricity to pump oil-energy out, even if the EROEI is negative.

RESERVE GROWTH

Reserves are inherently unknown, but they can be estimated within a range and assigned to a probability. A P90 estimate denominates the amount of oil which can be extracted economically with a probability of 90%. Naturally a P10 estimate will be higher than a P90 estimate, and oil companies are free to report whatever number suits their purposes. Usually they will not even give the probability but simply give the official reserves.

Economists may then add all these official numbers and arrive at the total world reserve which tend to grow suggesting that more and more oil is discovered/available. This growth is not surprising. Initial estimates will be conservative since a company would develop the field only if they were quite sure that the investment would be returned. As the initial estimate is conservative, later times will demonstrate that the field most likely contains more oil. US companies are required by SEC to report "proven reserves with a reasonable certainty". As the fields are likely to be bigger than what is reported most likely the reserves will "grow" in subsequent reports. Updating of the official number will tend to increase the stock value of the company.

REPLACEMENTS AS A POSSIBLE SOLUTION

In addition, the globally dominant and most widely accepted scientific view is that combustion of oil and other fossil fuels is causing climate change, and that the potentially-catastrophic

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effects of this require alternatives to oil regardless of any decline in oil supply. Accordingly, some take the view that oil depletion does not matter, regardless of the interest of geophysicists in the subject, as the effects of climate change will be felt long before the effects of oil depletion. However others argue that oil depletion will make it harder to have the resources to fight global warming, especially as people will be forced to use more polluting forms of energy (such as coal) in order to sustain economic growth. The debate as to the timing of any effects of climate change depend on a number of, often unknown, environmental factors. In practical terms, both climate change and oil depletion are simultaneously driving the need for alternatives to oil.Some replacements under consideration are listed below.

Hydrogen Natural gas Tar sands Coal Coal-bed methane Biofuels e.g. ethanol Nuclear fission (Upcoming: LWR, FR, IFR, ADS and other

closed fuel cycles) Controlled fusion Hydro power Solar power Wind power

But the main problems with the alternatives to oil and gas are that:• they are generally only of use for heat and electricity, not the multitude of uses that oil in particular has (eg. transport and plastics)• they each have their own forms of pollution• even by increasing them to their maximum potential, they would find it hard to compete with the present day requirements

It shows that the alternative fuels would only just match the present fossil and nuclear fuels if they were expanded to their maximum. But this would involve many decades and enormous costs (wind power, for instance, would have to increase by 900,000 per cent!)Nuclear power Global warming (despite what they say); radioactivity (routine release, risk of accident, waste disposal);

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misuse of fissile material by terrorists; spread of nuclear weapons

PROBLEMS WITH MANY ALTERNATE RESOURCES

Biomass Effect of landscape of and biodiversity; groundwater pollution due to fertilisers; use of scarce water; competition with food production

Wind power Noise; visual intrusion in sensitive landscapes; bird strikes; TV interferenceTidal power Destruction of wildlife habitat; reduced dispersal of effluents

Geothermal Release of polluting gases (SO2, H2S, etc); groundwater pollution by chemicals including heavy metals; seismic effectsSolar energy Sequestration of large land areas; use of toxic materials in manufacture ofPV cells; visual intrusion in both rural and urban environment

MECHANISMS OF OIL DEPLETIONOil depletion occurs in a predictable fashion based on geological principles and engineering practice which applies in varying degrees to all oil fields. The shape of the decline curves can vary depending on particular circumstances and government policies, but all oil fields decline over time, and the geological and operational mechanisms involved ensure the fields will decline in a relatively predictable manner.

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Oil well production decline

Typical oil well production decline curve.

Oil wells tend to follow an exponential decline curve. Produced at their natural rates, oil wells will start off by producing at a high rate and then will decline rapidly from that rate and eventually level off at a low rate of slow decline. There are many exceptions to this misrepresentation of fluid flow in a reservoir, some dictated by operational procedures at the surface (the typical Saudi Arabia well does not decline in this manner )

Each well drains the oil reserves in its portion of the oil field at a high rate when pressures are high. As pressures decline and the oil in the immediate vicinity is reduced, the rate will fall, but will gradually level out as the production rate falls and pressure decline becomes slower. The theoretical curve will never actually reach zero, but at some point the well will no longer produce enough oil to cover its production costs and will be shut in as non-economic. In the United States, these low-production wells are referred to as marginal or stripper wells and receive special tax breaks to encourage companies to keep operating them as long as possible. Volumes for these wells can easily decline to less than 0.1 BBL Oil/Day and still be economic under operating scenarios in the Appalachian Basin.

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Oil field production decline

Typical oil field production decline curve

An oil field covers a fixed area. If oil wells are drilled in this area at a fixed distance apart at a steady rate, a curve such as at right will result. Production will rise rapidly at first but start to level off as the wells which have already been drilled begin to decline. Eventually, when the field is completely drilled out, production will go into a sharp decline as all wells are now in decline. This decline will level off and production can continue on for a very long time. A number of oil fields have been producing for over 100 years.

This curve can be modified by a number of factors:

Production may be restricted by market conditions or government regulation. Large oil fields tend to flood the market with oil and cause a temporary glut and low prices. This discourages drilling, flattens the peak of the production curve and pushes production into the future.

The field may undergo a secondary recovery project, such as water or gas injection. This can repressurize the field and improve the production rate, putting off the decline for a while. However, it will not change the area under the curve. Eventually the field will go into a steeper decline than it otherwise would.

the field may undergo an enhanced oil recovery project, such as drilling of wells for injection of solvents, carbon dioxide, or steam. This can be very expensive

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OIL PRICE HISTORY

IntroductionCrude oil prices behave much as any other commodity with wide price swings in times of shortage or oversupply. The crude oil price cycle may extend over several years responding to changes in demand as well as OPEC and non-OPEC supply.

The U.S. petroleum industry's price has been heavily regulated through production or price controls throughout much of the twentieth century. In the post World War II era U.S. oil prices at the wellhead averaged $24.20 per barrel adjusted for inflation to 2006 dollars. In the absence of price controls the U.S. price would have tracked the world price averaging $26.16. Over the same post war period the median for the domestic and the adjusted world price of crude oil was $18.53 in 2006 prices. That means that only fifty percent of the time from 1947 to 2006 have oil prices exceeded $18.53 per barrel.  (See note in box on right.)

Until the March 28, 2000 adoption of the $22-$28 price band for the OPEC basket of crude, oil prices only exceeded $24.00 per barrel in response to war or conflict in the Middle East. With limited spare production capacity OPEC abandoned its price band in 2005 and was powerless to stem a surge in oil prices which was reminiscent of the late 1970s.

The Very Long Term View

The very long term view is much the same.  Since 1869 US crude oil prices adjusted for inflation have averaged $21.05 per barrel in 2006 dollars compared to $21.66 for world oil prices.

Fifty percent of the time prices U.S. and world prices were below the median oil price of $16.71 per barrel.

If long term history is a guide, those in the upstream segment of the crude oil industry should structure their business to be able to operate with a profit, below $16.71 per barrel half of the time. The very long term data and the post World War II data suggest a

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"normal" price far below the current price.

The results are dramatically different if only post-1970 data are used. In that case U.S. crude oil prices average $29.06 per barrel and the more relevant world oil price averages $32.23 per barrel. The median oil price for that time period is  $26.50 per barrel.

If oil prices revert to the mean this period is likely the most appropriate for today's analyst. It follows the peak in U.S. oil production eliminating the effects of the Texas Railroad Commission and is a period when the Seven Sisters were no longer able to dominate oil production and prices. It is an era of far more influence by OPEC oil producers than they had in the past. As we will see in the details below influence over oil prices is not equivalent to control.

Post World War II

Pre Embargo Period

Crude Oil prices ranged between $2.50 and $3.00 from 1948 through the end of the 1960s. The price oil rose from $2.50 in 1948 to about $3.00 in 1957. When viewed in 2006 dollars an entirely different story emerges with crude oil prices fluctuating between $17 - $18 during the same period.  The apparent 20% price increase just kept up with inflation. From 1958 to 1970 prices were stable at about $3.00 per barrel, but in real terms the price of crude oil declined from above $17 to below $14 per barrel.  The decline in the price of crude when adjusted for inflation was amplified for the international producer in 1971 and 1972 by the weakness of the US dollar.

OPEC was formed in 1960 with five founding members Iran, Iraq, Kuwait, Saudi Arabia and Venezuela.  Two of the representatives at the initial meetings had studied the the Texas Railroad Commission's methods of influencing price through limitations on production. By the end of 1971 six other nations had joined the group: Qatar, Indonesia, Libya, United Arab Emirates, Algeria and Nigeria.  From the foundation of the Organization of Petroleum Exporting Countries through 1972 member countries experienced steady decline in the purchasing power of a barrel of oil.

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Throughout the post war period exporting countries found increasing demand for their crude oil but a 40% decline in the purchasing power of a barrel of oil.  In March 1971, the balance of power shifted.  That month the Texas Railroad Commission set proration at 100 percent for the first time.  This meant that Texas producers were no longer limited in the amount of oil that they could produce.  More importantly, it meant that the power to control crude oil prices shifted from the United States (Texas, Oklahoma and Louisiana) to OPEC.  Another way to say it is that there was no more spare capacity and therefore no tool to put an upper limit on prices. A little over two years later OPEC would, through the unintended consequence of war, get a glimpse at the extent of its power to influence prices.

Middle East Supply Interruptions

Yom Kippur War - Arab Oil Embargo

In 1972 the price of crude oil was about $3.00 per barrel and by the end of 1974 the price of oil had quadrupled to over $12.00. The Yom Kippur War started with an attack on Israel by Syria and Egypt on October 5, 1973. The United States and many countries in the western world showed support for Israel. As a result of this support several Arab exporting nations imposed an embargo on the countries supporting Israel. While Arab nations curtailed production by 5 million barrels per day (MMBPD) about 1 MMBPD was made up by increased production in other countries. The net loss of 4 MMBPD extended through March of 1974 and represented 7 percent of the free world production.

If there was any doubt that the ability to control crude oil prices had passed from the United States to OPEC it was removed during the Arab Oil Embargo.  The extreme sensitivity of prices to supply shortages became all too apparent when prices increased 400 percent in six short months.

From 1974 to 1978 world crude oil prices were relatively flat ranging from $12.21 per barrel to $13.55 per barrel.  When adjusted for inflation the price over that period of time world oil prices were in a period of moderate decline.

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Crises in Iran and Iraq

Events in Iran and Iraq led to another round of crude oil price increases in 1979 and 1980. The Iranian revolution resulted in the loss of 2 to 2.5 million barrels per day of oil production between November, 1978 and June, 1979.  At one point production almost halted.

While the Iranian revolution was the proximate cause of what would be the highest prices in post-WWII history, its impact on prices would have been limited and of relatively short duration had it not been for subsequent events. Shortly after the revolution production was up to 4 million barrels per day.

Iran weakened by the revolution was invaded by Iraq in September, 1980. By November the combined production of both countries was only a million barrels per day and  6.5 million barrels per day less than a year before. As a consequence worldwide crude oil production was 10 percent lower than in 1979.

The combination of the Iranian revolution and the Iraq-Iran War cause crude oil prices to more than double increasing from from $14 in 1978 to $35 per barrel in  1981.

Twenty-six years later Iran's production is only two-thirds of the level reached under the government of Reza Pahlavi, the former Shah of Iran.

Iraq's production remains about 1.5 million barrels below its peak before the Iraq-Iran War.

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Crude Oil Prices 1869-2007

World Events and Crude Oil Prices 1981-1998

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World Events and Crude Oil Prices 2001-2007

World Events and Crude Oil Prices 1997-2003

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OPEC-THEIR ROLE IN OIL SUPPLY &

MANAGEMENT

The Organization of the Petroleum Exporting Countries (OPEC) is a

permanent, intergovernmental Organization, created at the Baghdad

Conference on September 10–14, 1960, by Iran, Iraq, Kuwait, Saudi

Arabia and Venezuela. The five Founding Members were later joined by

nine other Members: Qatar (1961); Indonesia (1962); Socialist Peoples

Libyan Arab Jamahiriya (1962); United Arab Emirates (1967); Algeria

(1969); Nigeria (1971); Ecuador (1973–1992); Gabon (1975–1994) and

Angola (2007). OPEC had its headquarters in Geneva, Switzerland, in

the first five years of its existence. This was moved to Vienna, Austria,

on September 1, 1965.

OPEC's objective is to co-ordinate and unify petroleum policies among

Member Countries, in order to secure fair and stable prices for

petroleum producers; an efficient, economic and regular supply of

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petroleum to consuming nations; and a fair return on capital to those

investing in the industry. The principal aim of the organization,

according to its Statute, is the determination of the best means for

safeguarding their interests, individually and collectively; devising

ways and means of ensuring the stabilization of prices in international

oil markets with a view to eliminating harmful and unnecessary

fluctuations; giving due regard at all times to the interests of the

producing nations and to the necessity of securing a steady income to

the producing countries; an efficient, economic and regular supply of

petroleum to consuming nations, and a fair return on their capital to

those investing in the petroleum industry."

Since currently worldwide oil sales are denominated in U.S. dollars, changes in the value of the dollar against other world currencies affect OPEC's decisions on how much oil to produce. For example, when the dollar falls relative to the other currencies, OPEC-member states receive smaller revenues in other currencies for their oil, causing substantial cuts in their purchasing power. After the introduction of the euro, pre-invasion Iraq decided it wanted to be paid for its oil in euros instead of US dollars causing OPEC to consider changing its oil exchange currency to euros. Member states Iran and Venezuela have undergone similar from the dollar to the euro.

OPEC decisions have had considerable influence on international oil prices. For example, in the 1973 energy crisis OPEC refused to ship oil to western countries that had supported Israel in the Yom Kippur War or October War, which they fought against Egypt and Syria. This refusal caused a fourfold increase in the price of oil, which lasted five months, starting on October 17, 1973, and ending on March 18, 1974. OPEC nations then agreed, on January 7, 1975, to raise crude oil prices by 10%. At that time, OPEC nations — including many who had recently nationalized their oil industries — joined the call for a new international economic order to be initiated by coalitions of primary producers. Concluding the First OPEC Summit in Algiers they called for stable and just commodity prices, an international food and agriculture program, technology transfer from North to South, and the democratization of the economic system.

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OPEC's influence on the market has been called into question. Several members of OPEC alarmed the world and triggered high inflation across both the developing and developed world when they used oil embargoes in the 1973 oil crisis. OPEC's ability to control the price of oil has diminished somewhat since then, due to the subsequent discovery and development of large oil reserves in the Gulf of Mexico and the North Sea, the opening up of Russia, and market modernization. OPEC nations still account for two-thirds of the world's oil reserves, and, in 2005, 41.7% of the world's oil production, affording them considerable control over the global market. The next largest group of producers, members of the OECD and the Post-Soviet states produced only 23.8% and 14.8%, respectively, of the world's total oil production. As early as 2003, concerns that OPEC members had little excess pumping capacity sparked speculation that their influence on crude oil prices would begin to slip.

How to Avoid Oil Wars, Terrorism, and Economic Collapse

By now most well-informed people are aware that global oil production may soon reach its all-time peak, and that the consequences will likely be severe.

Already many important oil-producing nations (such as the United States, Indonesia, and Iran) and some whole regions (such as the North Sea) are past their production maximums. With nearly every passing year another country reaches a production plateau or begins its terminal decline.

Meanwhile global rates of oil discovery have been falling since the early 1960s, as has been confirmed by Exxon Mobil. All of the 100 or so super giant fields that are collectively responsible for about half of current world production were discovered in the 1940s, '50s, '60s, and '70s. No fields of comparable size have been found since then; instead, exploration during recent years has turned up only much smaller fields that deplete relatively quickly. The result is that today only one new barrel of oil is being discovered for every four that are extracted and used.

World leaders are hampered in their ability to assess the situation by a lack of consistent data. Proven petroleum reserve figures look reassuring: the world has roughly a trillion barrels

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yet to produce, perhaps more; indeed, official reserves figures have never been higher. However, circumstantial evidence suggests that some of the largest producing nations have inflated their reserves figures for political reasons. Meanwhile oil companies routinely (and legitimately) report reserve growth for fields discovered decades ago. In addition, reserves figures are often muddied by the inclusion of non-conventional petroleum resources, such oil sands - which do need to be taken into account, but in a separate category, as their rates of extraction, are limited by factors different from those that constrain the production of conventional crude. As a consequence of all of these practices, oil reserves data tend to give an impression of expansion and plenty, while discovery and depletion data do the opposite.

This apparent conflict in the data invites dispute among experts as to when the global oil peak is likely to occur. Some analysts say that the world is virtually at its peak of production now; others contend that the event can be delayed for two decades or more through enhanced investment in exploration, the adoption of new extraction technologies, and the substitution of non-conventional petroleum sources (oil sands, natural gas condensates, and heavy oil) for conventional crude.

PEAK OIL (THEORY OF HUBBERT CURVE)

The late Dr. M. King Hubbert, geophysicist, is well known as a world authority on the estimation of energy resources and on the prediction of their patterns of discovery and depletion. He was probably the best known geophysicist in the world to the general public because of his startling prediction, first made public in 1949 that the fossil fuel era would be of very short duration. His prediction in 1956 that U.S.oil production would peak in about 1970 and decline thereafter was scoffed at then but his analysis has since proved to be remarkably accurate. Hubbert is most well-known for his studies on the capacities of oil fields and natural gas reserves. He predicted that, for any given geographical area, from an individual oil field to the planet as a whole, the rate of petroleum production of the reserve over time

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would resemble a bell curve. Based on his theory, in a paper that he presented to the 1956 meeting of the American Petroleum Institute in San Antonio, Texas, Hubbert made the prediction that overall petroleum production would peak in the United States in the late 1960s to the early 1970s. He became famous when this prediction came true in 1970. The curve he used in his analysis is known as the Hubbert curve, and the peak of the curve is known as the Hubbert peak.

IMPLICATIONS OF A WORLD PEAK

A peak in oil production could result in a worldwide oil shortage, or it could not even be noticed as demand decreases in conjunction with decreased supply, such as what happened in the U.S. in 2005 and 2006. While past shortages stemmed from a temporary insufficiency of supply, crossing Hubbert's Peak would mean that the production of oil would continue to decline, and that demand for these products must be reduced to meet supply. The effects of such a shortage would depend on the rate of decline and the development and adoption of effective alternatives, ongoing as you read this. If alternatives were not forthcoming, it has been speculated that the numerous products produced with oil would become scarcer, leading to at the very least lower living standards in developed and developing countries alike, and possibly in the worst case to the collapse of the entire international banking system, which could not hope to sustain itself without the prospect of growth. The political situation may change dramatically, with potential wars between countries over access to dwindling supplies. Accordingly, inequalities between various countries and regions of the world may become exacerbated.

Catastrophe

Economic growth and prosperity since the industrial revolution have, in large part, been due to increased efficiencies in the use of better and higher concentrations of

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energy in fossil fuels. The use of fossil fuels allows humans to participate in takedown, which is the consumption of energy at a greater rate than it is being replaced. Some believe that decreasing oil production portends a drastic impact on human culture and modern technological society, which is currently heavily dependent on oil as a fuel and chemical feedstock. For example, over 90% of transportation in the United States relies on oil.

Oil shortages may force a move to lower input "organic agriculture" methods, which may be more labor-intensive and require a population shift from urban to rural areas, reversing the trend towards urbanization which has predominated in industrial societies; however, some organic farmers using modern organic-farming methods have reported yields as high as those available from conventional farming, but without the use of fossil-fuel-intensive artificial fertilizers or pesticides.

Another possible effect would derive from America's transportation and housing infrastructure. A majority of Americans live in suburbs, a type of low-density settlement designed with the automobile in mind. Current EV technology would allow these living arrangements to continue well into the next millennia but some commentators such as James Howard Kunstler argue that because of its reliance on the automobile, the suburb is an unsustainable living arrangement; the implications of peak oil would leave many Americans unable to afford fuel for their cars, and force them to move to higher density, more walk able areas. In effect, suburbia would comprise the "slums of the future." A movement to deal with this problem early, called "New Urbanism," seeks to develop the suburbs into higher density neighborhoods and use high density, mixed-use forms for new building projects.

Recession

A more modest scenario, assuming a slower rate of depletion and a smooth transition to alternative energy sources could cause substantial economic hardship such as a recession or depression due to higher energy prices. Historically, there is a close correlation in the timing of oil price spikes and economic downturns. Inflation has also been linked to oil price spikes. However, economists disagree on the strength and causes of this association. The world economy may be less dependent on oil than during earlier oil crises. Conversely, the recessions of the early 1970s and early 1980s were associated with a relatively

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brief period of somewhat dwindling energy availability; the possible future increase in oil prices might be much higher and last longer. See Energy crisis.

EXAMPLE OF PROBLEMS DUE TO OIL DEPLETION

Despite rising profits, investors have turned their back on Shell. Giant oil group Royal Dutch Shell has said it is trimming its figures for proven oil and gas reserves by 20%. Stunned investors promptly began a sell-off that knocked more than 7% off the Anglo-Dutch firm's share price in both London and Amsterdam. Shell said it does not expect the reassessment to have any impact on its financial results, as 90% of the reserves involved remain undeveloped. But analysts were unconvinced. Shares in fellow oil firm BP also fell 2%.Investors and oil analysts were startled, and puzzled, by the move.

Eventually, the chairman was forced to resign. The effects on the Company’s share price are clearly shown in the chart below. Barely had the shares begun to rise than another reserve cut in March knocked them down again.

Our vulnerability to oil depletion

Modern economies grow only if transportation grows. Less oil, less transportation, smaller economy. More oil, more transportation, bigger economy. The oil increases are about to end forever. Two thirds (69%) of all petroleum consumed by the US in 1999 was burned to power transportation. Natural gas is almost as important, both because it is a possible alternative source of transportation fuels, and because we are already critically dependent on it as a source of energy for industrial processes, and as a feed stock for many synthetic materials.

The price of oil and gas will not signal shortages until the decline is upon us. For many years after the peak we will have progressively less energy at progressively higher prices. This contradicts our usual expectation that rising prices will quickly result in greater supply. Higher prices, no matter how high they are, will not create enough new supplies of transportation fuel to

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prevent sustained contraction of the economy. The resulting paradoxes will create confusion in an economy that depends on economic growth, believes in economic growth.  The economy will contract every time fuel prices rise sharply, knocking the price of fuels down as recession reduces demand for them.  An unregulated market will not invest large amounts of fuel in the deployment of alternative fuels in these circumstances.

Those who most need to understand the function of energy in our economy don't. Energy differs from other commodities. Nothing can be done without energy.  Nothing can be moved, built, manufactured, planted, fertilized, harvested, or mined, without the liquid transportation fuels that petroleum provides so well, and for which no competitive replacement has ever been found. As a consequence, new energy sources require large investments of energy itself. In particular, the energy investments needed to obtain alternative energy sources and fuels are not only large, but they are much larger than the energy investments needed to obtain fossil energy. These energy investments are so large that some forms of alternative energy will never serve as primary sources of energy. For example, solar electricity from photovoltaic cells will not provide enough energy for the mining, manufacturing, transportation, transportation infrastructure, installation,  transmission infrastructure, maintenance, and decommissioning required by the existence of the solar cells. This is not a question of building more solar cells. The ratio of energy returned to energy invested is too small. Solar cells don't work as a primary energy source, although they have other uses. Similarly, ethanol from corn doesn't work as a primary energy source, although it has other uses.

In this regard. A convention of nations is also being considered the issue with a view to agreeing an Accord with the following objectives:

1. to avoid profiteering from shortage, such that oil prices may remain in reasonable relationship with production cost;

2. to allow poor countries to afford their imports; 3. to avoid destabilizing financial flows arising from excessive

oil prices; 4. to encourage consumers to avoid waste; 5. to stimulate the development of alternative energies.

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MY VIEWS AND INTERPRETATIONS

In the end all I want to say is that this is that one problem which more than anything else needs the support & cooperation of each and every individual n this world. Yes, it is a big cause of worry to all but more than panicking we need to think straight and simple, for in my opinion this isn’t exactly that big a problem as it is imagined.

When we talk of the probable reserve, it is an estimate of what will eventually be produced in a given area out of existing and new wells, WITH CURRENT TECHNIQUE AND KNOWLEDGE AND AT PREVAILING PRICES.

Thus, the actions of organization around the world have been to extract oil yes but with a sizable return. Even today there are many reserves that are untouched just because at given technology and prices they are just not profitable.(Saudi Arabia has some 80 odd unexploited regions)

Thus during the course of the next decade the governments around the world must invest positively in improving the science and technology, research facilities

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And regarding the oil I may be wrong to say that when in future oil supply its price will increase. Then reserves which were earlier not profitable to dig will now be profitable and there will be some increase in supply. Yes, it is a fact that oil takes many years to form but it is also a fact that there are many many more oil fields that have not been exploited just because it wasn’t profitable to. This is all assuming that the other variables i.e. political tensions, war, egos, economic instability remain calm.

For e.g. in 1875, john Newberry the chief geologist of the state of Ohio predicted that the supply of oil would soon run out .the alarm has been sounded from time to time. Even in 1973, the same words were said and even today the same is being said. Thus to paraphrase, to solve this issue we need to improve our technology and then there is high chance that in2050 the same dialogues regarding the depletion will be repeated!

But this doesn’t mean that we can be content. There will be fluctuations, and anything can happen over this period of time. Many private organizations and irresponsible cartels may take advantage of these short term fluctuations.

Thus we have to go in a very conservative and careful approach and should strive not to rock the boat!

It matters far less to propose detailed solutions than to get people and governments to accept that radical change will happen.  The tendency of our society, perhaps of our race, is to deprecate problem statements that don't have proposed solutions attached.  Progressive adaptation will come from the collective imagination and experience of thousands or millions of people responding to a clear threat. . The hardest thing will be to agree that action is needed before change is forced on us. If we wait, we will be trapped with too little of the critical resource needed for adaptation to its own disappearance. Acting before the change, rather than waiting for it to happen, will make the difference between great political difficulty on the one hand, and chaotic disruption and misery on the other.

Thus to take care of the predicted oil supply instability, certain. Measures need to be taken.

Government, funding institutions, and universities must promote study and understanding of the function of energy in the economy. Government policy workers must allow an understanding of the function of energy to permeate their view of the world.

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Energy conservation, from better insulation to fuel efficiency, must be encouraged and mandated by government as an investment in a more appropriate infrastructure for the difficult times ahead.

Governments must start encouraging radically more efficient transport for freight and passengers--railways, for example. we should stop using natural gas as a fuel for new electricity generators, or for upgrades to existing electricity generators. Although its lower CO2 emissions are attractive from an environmental perspective, natural gas will soon disappear. We must reduce our reliance on natural gas now, or at least stop increasing our reliance on it, or face much more serious disruption than necessary.  We must reconsider coal and nuclear generation of electricity, looking for ways to make them more acceptable environmentally.  We must provide at least as much economic incentive for wind and solar as for oil and gas.

None of these measures will prevent a great reduction of consumption, but may prevent serious social disorganization.  We need to figure out how to retain social cohesiveness while going through the reduction.

We must learn more about the consequences of oil and gas depletion & Talk about it.. We must figure out how society can be changed to accept what will soon be forced on us--a permanently lower level of consumption…..

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