The Concept of Peak Oil

The Concept of Peak Oil

Takis (2011) defines peak as ''stage where maximum rate of global petroleum extraction is reached, and thereafter the rate of production becomes subject to terminal decline'' The concept of peak oil is based on the recorded production rates of individual oil wells and the combined output of the group of oil wells in a single region. The average production rate from an oil well is observed for a given period of time it show the signs of growing exponentially until this rate reaches the optimum levels and thereafter a decline occurs at a point in time leading to complete depletion. The concept of peak oil has been used when measuring the domestic output of a country with regard to oil production. Therefore, peak oil is not drying of oil well but rather, the peaking and eventual decline of production of oil.

Peak oil theory was created by M. King Hubbert. This has been applied to predict the peak and decline of petroleum in the oil producing countries. According to this theory, the production rate of an oil field would follow a symmetrically bell shaped curve that is influenced by market pressures and the limits of exploitability . This paper will examine peak oil theory, the contradictions to this theory and its impacts on economies of developing economies such as Venezuela and Nigeria. Furthermore, this paper will propose various measures that can help to mitigate the effects of peak oil in developing economies.

Effects of Peak Oil on Global Economies

The concept of peak oil has significant effects on the global economy. Implications of peak oil present numerous problems especially in developing economies . The main problem in developing economies is that the demand for oil exceeds the supply. When this occurs, problems such as inflation, food shortages and transport crises arises. This is because the prices of petroleum products increase significantly thus affecting the economy of the countries. For example in Africa, non-oil producing countries experience more pressures leading to high inflation rates. For example, the government of Nigeria resorted to scrapping the oil subsidies in 2011 due to the high prices of oil . In addition, government of Nigeria resorted to implementation of oil taxes and increasing scrutiny in the oil markets. Even in strong economies like United States, the constant problem of oil peak has necessitated a shift to other sources of energy to reduce oil imports. In the developing countries such as India and South Africa, the governments have continued to put efforts in competing for energy with other big players . As such, the economies of these countries continue to experience pressures.

Nations, such as Kenya and Malawi resort to oil rationing in a bid to help divert the supplies to the highest need areas as well as the highest price purchasers. This helps in controlling the use of oil by allocating the highest portion to economic activities that cannot do without this resource. These measures are taken in order to take account the decrease in supply of oil and to prevent a recession of the economy. Such measures have been implement successfully in Nigeria. The issue of peak oil produces much unpredictability and uncertainty. As such, developing countries establish economic frameworks capable of withstanding the effects of peak oil. Peak oil also has the ability to influence public perceptions and can deter investors fearing the uncertainties associated with the oil industry. Economies react to these uncertainties by adopting the practices that can help the economy from declining. As such, peal oil has become a very serious and the potential challenge to the prosperity and the security of many countries across the world.

Peak oil has also led to a rapid decline in the standards of living of humans. For example, in undeveloped countries such as Malawi, most people use propane and kerosene for domestic purposes. However, due to peak oil, such products have become unaffordable. Nations such as Nigeria use hydroelectric power for their industries and other energy needs . However, hydroelectric stations are powered by petroleum especially during perennial draughts. Given that the cost of oil is very high, the cost of basic commodities increases. Furthermore, electric shortages results in lower production and financial losses to the agricultural and manufacturing industries. . Therefore, the issue of peak oil cannot be overemphasized in the developed and underdeveloped countries.

Contradictions of the Concept of Peak Oil

Peak oil theory has raised many confusions and contradictions. Some people differ with this theory due to contradictions that have been pointed out. One school of thought holds that peak oil is a swindle aimed at creating artificial scarcity in order to drive the prices of oil up . This claim can be supported by the fact that other types of fuel technologies which have been in existence for a long time continues to be internationally suppressed . In recent years, the rise of global oil prices has been attributed to peak oil . Even though the industry players support peak oil theory, their reasons for supporting it are not clear. This is because just as the ordinary people the effects of peak oil also affect them. As such, may people believe that no one would support a theory that would be harmful to their interests. Thus, peak oil must be a cover of hidden agendas. Previous incidences of artificial scarcity have raised the idea that peak oil is just a myth and should be bashed for what it is.

Many people believe that peak oil is a deliberate excuse by the globalists (those who call shots in the oil industry) to exert more control in the lives of global citizens and sacrifice the sovereignty of the oil producing countries . The price of petroleum continues to rise despite allegations of vast energy shortages in the wake of many disasters and general problems. As a result, most countries have resulted to sensitization campaigns with a view of reducing the energy intakes. Sensitization campaigns involve educating the masses on the alternative forms of energy sources to reduce the overreliance on oil petroleum products. For example in Nigeria, the government has started a campaign to reduce the consumption of oil. People are asked to insulate their homes, turn off the lights, change thermostat settings, drive less and instead use public transport, and so forth. The government believes that such measures would reduce consumption of petroleum. However, the oil companies continue to report huge profits. These companies defend their profits by arguing that the margins are lower compared to other sectors. Furthermore, the profits that these oil companies earn are reinvested back to new productions. Thus, this creates contradictions