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What is peak oil?
When will peak oil happen?
What will be effect of peak oil?
Will there be peak gas?
And the future?
Conclusion
Further reading

What is peak oil?

Over the last century, there has been a fairly constant increase of demand of petroleum products, in terms of per cent increase per decade. This increase is continuing, especially as large developing countries, such as China, India and Indonesia, are requiring much greater quantities to feed their growing economies. At the same time, the world's crude oil resources are being depleted. While there are still sufficient reserves for a number of decades, it is becoming increasingly difficult to extract and process the oil and production levels are dropping in many places.

In the UK-controlled portion of the North Sea and in the USA, production is already much lower than it used to be, because of the depletion of reserves. Even in the Middle East, some countries are beginning to experience lower production levels. What this means is that we shall, sooner or later, hit a situation where world production will no longer be able to increase, i.e., it will be at a peak level. This could be delayed by exploiting some known untapped reserves, but this will be but a short reprieve with the disadvantage of depleting the reserves faster and leaving less oil for our children to use. This goes against the principle of husbandry.

When will peak oil happen?

Notice that I say when and not if. It will happen and possibly sooner than you think. Some say we are already there, but others quote dates from 2008 to 2015, according to the model used. The consensus is between 2008 and 2010, so it's within the next few years.

What will be effect of peak oil?

It is difficult to be certain, but there will be economic repercussions, at least. As supplies slowly diminish, the bidding for them will result in price increases, possibly even in anticipation. At the time of writing, the price of Brent crude is about $50/bbl, US Sweet, slightly higher. Prices of $100/bbl are quite foreseeable in the future, possibly even by 2006. This will hit the consumer most at the filling station when he has to pay $4/US Gal or €2/l (or more). After that, a 10% price hike per year would not be abnormal, as production diminishes.

This will obviously hit the general world economy and it would be reasonable to assume that the growth rate in developed and developing countries alike will drop or even diminish into negative figures. However, this will not be like recessions we have known in the past because it will hit everyone simultaneously and there will be no recovery, in that petroleum supplies will never be restored to their previous levels. Notwithstanding, countries with a high per capita consumption of oil, like the USA and Australia, will be harder hit than those with a relatively low one, like much of the European Union, including Cyprus. As 65 per cent of the US oil consumption goes into transport, this will obviously be a sector that will take a beating, worldwide. The foreseeable results for Cyprus are increased costs of imported goods and a large diminution of tourism.

There is one mitigating factor for Europe. The USA has an enormous national debt which it cannot pay off. The dollar will drop further in value. At the time of writing, the exchange rate is about €1 = $1.33. By the time the effects of peak oil begin to show, the euro will strengthen further against the dollar and I estimate that the price of oil, paid in dollars, will increase less than half as much when converted into euros. For example, hypothetically, at $50/bbl, we pay about €37.50 for the same barrel. If the price increases to $100/bbl, we shall not be paying €75/bbl but only, say, €55/bbl, because of the difference in exchange rates. Europe will therefore be much better off than the USA. The danger would be if the oil-producing countries sussed this out and switched to euros as their preferred currency.

In the longer term, peak oil will not be catastrophic. Yes, we shall suffer initially, but the world economy will become accustomed to the change and we shall all be poorer, with a smaller volume of world trade, thus a heavier reliance on local goods. It is already aberrant transporting, say, bottled water to the four corners of the globe. This kind of luxury will be the first to go and Perrier should be replaced by Kykko or Ayios Nicolaous water (or, better, tap water). The economy will drive us from 4x4s and pickups with a consumption of 12 - 20 l/100 km to small diesel or hybrid cars drinking only 4 l/100 km, so that motoring will actually become cheaper to match any losses in salary. Equally so is importing pineapples from the Ivory Coast when we grow magnificent fruit and vegetables on this island. We shall have to make small adjustments and grow and consume more local produce.

There are many doomsayers who predict that peak oil will result in total anarchy and a wholesale bloody revolution, especially in the USA. I don't believe this will happen because the effect won't take place overnight, but over several years, allowing people to adjust to the changed circumstances.

Will there be peak gas?

Certainly, natural gas will follow a similar curve. At the present rate of consumption, we have known reserves for well over 50 years. However, this figure may be too comforting. As oil becomes more expensive, many people will switch to gas for heating. Some oil products, especially liquid fuels, could be synthesised from natural gas. This increased consumption means that we could easily hit peak gas within 20 or 25 years and this will exacerbate the economic problems in a second recessionary surge.

And the future?

Obviously, peak oil and peak gas will have a favourable effect on greenhouse gas emissions and public health but there is a grave danger. The four major nations which have not ratified the Kyoto Protocol, the USA, Australia, China and India also happen to be major coal producers and produce a large proportion of their electricity from coal. As other fossil fuels decline, there will be a big temptation to increase their domestic coal consumption for generating electricity and synthesising liquid fuels. This will inevitably increase carbon dioxide and sulfur emissions, because all coal is a dirty fuel, rich in carbon. This is a very real potential danger for the global environment and it is to be hoped that international pressure by the Kyoto signatories will prevent this from happening.

Conclusion

Forewarned is forearmed. Peak oil and gas are imminent, whether we like it or not. Cyprus should reduce its fossil fuel dependence as rapidly as possible and every effort should be made to increase local food production and quality, so that we become more autonomous. Wherever possible, reduce your purchases of imported goods in favour of locally-produced ones. The tourist industry will be hard hit as air fares will rise higher than the aircraft.