OIL SUPPLY 223
around 2015. If the decline in oil production exceeded the ability of
alternative technologies to displace oil, energy consumption would
be constricted, and as consumers competed for increasingly scarce
oil resources, oil prices would sharply increase. In this respect,
the consequences could initially resemble those of past oil supply shocks, which have been associated with significant economic
damage. For example, disruptions in oil supply associated with the
Arab oil embargo of 1973-74 and the Iranian Revolution of 1978-79
caused unprecedented increases in oil prices and were associated
with worldwide recessions. In addition, a number of studies we
reviewed indicate that most of the U.S. recessions in the post-World
War II era were preceded by oil supply shocks and the associated
sudden rise in oil prices.
Ultimately, the consequences of a peak in oil production and permanent decline in oil production could be even more prolonged
and severe than those of past oil supply shocks. Even then the
decline rate is the subject of speculation. The only certainty is that
the decline rate is happening. The most important variable is the
amount of oil left in the reservoirs, but, even then, this is subject
to debate and error leaving the decline rate for fields in production difficult to assess (Eagles, 2006; Gerdes, 2007; Jackson, 2007). At
best, generalities can be calculated. For example, for current fields
in production a low decline rate of 2% per year would result in
peak oil around 2018 while a more moderate decline rate at 4.5%
per year would result in peak oil around 2015 and a high decline
rate of 8% per year would result in peak oil around 2010.
In addition, because the decline would be neither temporary
nor reversible, the effects would continue until alternative transportation technologies to displace oil became available in sufficient
quantities at comparable costs. Furthermore, because oil production
could decline even more each year following a peak, the amount
that would have to be replaced by alternatives could also increase
year by year.
8.3 Economic Factors
The economics of oil is dominated by the proximity of oil production to the so-called peak oil. The decline in the discovery of oil over
the past decades means that production, too, must decline. While
there may be short-term fluctuations in oil prices, when there is a
around 2015. If the decline in oil production exceeded the ability of
alternative technologies to displace oil, energy consumption would
be constricted, and as consumers competed for increasingly scarce
oil resources, oil prices would sharply increase. In this respect,
the consequences could initially resemble those of past oil supply shocks, which have been associated with significant economic
damage. For example, disruptions in oil supply associated with the
Arab oil embargo of 1973-74 and the Iranian Revolution of 1978-79
caused unprecedented increases in oil prices and were associated
with worldwide recessions. In addition, a number of studies we
reviewed indicate that most of the U.S. recessions in the post-World
War II era were preceded by oil supply shocks and the associated
sudden rise in oil prices.
Ultimately, the consequences of a peak in oil production and permanent decline in oil production could be even more prolonged
and severe than those of past oil supply shocks. Even then the
decline rate is the subject of speculation. The only certainty is that
the decline rate is happening. The most important variable is the
amount of oil left in the reservoirs, but, even then, this is subject
to debate and error leaving the decline rate for fields in production difficult to assess (Eagles, 2006; Gerdes, 2007; Jackson, 2007). At
best, generalities can be calculated. For example, for current fields
in production a low decline rate of 2% per year would result in
peak oil around 2018 while a more moderate decline rate at 4.5%
per year would result in peak oil around 2015 and a high decline
rate of 8% per year would result in peak oil around 2010.
In addition, because the decline would be neither temporary
nor reversible, the effects would continue until alternative transportation technologies to displace oil became available in sufficient
quantities at comparable costs. Furthermore, because oil production
could decline even more each year following a peak, the amount
that would have to be replaced by alternatives could also increase
year by year.
8.3 Economic Factors
The economics of oil is dominated by the proximity of oil production to the so-called peak oil. The decline in the discovery of oil over
the past decades means that production, too, must decline. While
there may be short-term fluctuations in oil prices, when there is a