THE IMPACT OF OIL

DEPLETION
ON
THE WORLD
ECONOMY

By
VINEET H
VIJ AYAN
( 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 YOU
INTR ODUCTION T O THE PR OBL EM
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 relativ e 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 PRIMAR Y PR OBLEM OF THE DEVEL OPED

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 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 us e therefore continued access to this resource or an equivalent or
an improved replacement is essential to continue the world as we know it.

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Oi l de pl etion 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 doo ms da y scenario created by long term lack of growth to
faith that the mar ket econ om y will allow a relatively smooth transition to
other energy sources through tec hnolo gical solutions.

USE S OF OIL
Transport
Petrol 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 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.

Farming
One 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.

Plastics
It 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.

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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 SC AL E OF THE PR OBLEM

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 Forecas ting future produ ct ion from past
disco ver y. It predicts a startling rate of decline of our oil supply between
2010 and 2050.

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HO W O IL RE SER VES A RE ES TIM ATE D
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:

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

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 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.

ER OEI a nd EP R
An 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.
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.

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RE SER VE GR OW TH
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 ad d 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.

RE PL ACE MENT S AS A POSSIB LE

SO LUTI ON
In addition, the globally dominant and most widely accepted scientific view is
that combustion of oil and other fossil fuels is causing cli mat e change ,
and that the potentially-catastrophic effects of this require alt ernativ es 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.

• Hydr ogen
• Natural gas
• Tar sands
• Coal
• Coal-bed methane

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 • Biofuels e.g. ethanol
• Nuclear f is si on (Upcoming: LWR, FR, IFR, ADS and other closed fuel
cycles)
• Contr ol led f usion
• Hydro power
• Solar power
• Wind power

But the main pr oblems wi th th e alt erna tiv es to oi l an d ga s 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); misuse of fissile material
by terrorists; spread of nuclear weapons

PR OBLEMS WITH MANY AL TERNA TE RESOUR CES

Biom ass Effect of landscape of and biodiversity; groundwater pollution

due to fertilisers; use of scarce water; competition with food production

Wi nd p ower Noise; visual intrusion in sensitive landscapes; bird

strikes; TV interference
Tid al p ower Destruction of wildlife habitat; reduced dispersal of
effluents

Geo therm al Release of polluting gases (SO2, H2S, etc); groundwater

pollution by chemicals including heavy metals; seismic effects
Sol ar e nerg y Sequestration of large land areas; use of toxic materials
in manufacture of
PV cells; visual intrusion in both rural and urban environment
•

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 MEC HANIS MS OF OIL DE PLE TION
Oil 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.

Oi l w ell p roduction d ecline

Typical oil well production decline curve.

Oi l 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 re ser ves 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 pr od uction cost s and will be
shut in as non-econo mic . In the United States, these low-production wells
are referred to as marginal or st ripper 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 lo w 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 wat er 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
st ee per de cl ine than it otherwise would.

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• the field may undergo an enhan ced oil reco ver y project, such as
drilling of wells for injection of solv ents , car bon di oxide , or
st eam . This can be very expensive

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OIL PRICE HIST OR Y
Intr od uction
Crude 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 V er y Long T erm Vie w

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 "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.

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Post W orld W ar II
Cr ude Oi l Prices 1869-2 00 7

World Ev ents an d Cr ude Oil Price s 198 1-19 98

16
 World Ev ents an d Cr ude Oil Price s 19 97-2 003

World Ev ents an d Cr ude Oil Price s 20 01- 200 7

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18
OP EC- THEI R ROLE IN OIL SU PP LY &
MA NA GEME NT
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 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 St at ut e, is the determination of the best means for

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safeguarding their interests, individually and collectively; devising ways and means
of ensuring the stabilization of prices in international oil mar kets 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. dollar s,

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 eur o, pre-invasion Ir aq
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 19 73 energy c risis OPEC refused to ship oil to western
countries that had supported Israel in the Yom Kip pur War or Oc tober
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
Oct ober 17, 19 73 , and ending on Mar ch 18, 19 74. OPEC nations then
agreed, on Janua r y 7, 19 75, 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 ne w int erna tiona l econo mic order to
be initiated by coalitions of primary producers. Concluding the First OPEC
Summit in Al gier s they called for stable and just commodity prices, an
international food and agricultur e program, technology transfer from North
to South, and the democratization of the economic system.

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
19 73 oi l 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 Me xico and the Nor th Sea , the opening
up of Rus sia , 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-

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So vie t stat es 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.

Ho w to Avoi d Oi l War s, Terroris m, an d Econom ic

Col la pse

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 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

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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.

PE AK OI L (THEOR Y OF HUBBERT CUR VE)

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 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

22
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 li ving stan dard s 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.

Ca tas tr ophe

Ec onom ic gr owth and prosperity since the indus trial revoluti on have,
in large part, been due to increased efficiencies in the use of better and
higher concentrations of energy in fossil fuels. The use of fossil fuels allows
humans to participate in tak edo wn , 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 ag riculture "
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 su bur bs , a type of
low-density settlement designed with the aut om obile in mind. Current EV
technology would allow these living arrangements to continue well into the
next millennia but some commentators such as James Ho war d 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 "Ne w Urbanism ," seeks to develop the suburbs into higher density
neighborhoods and use high density, mixed-use forms for new building
projects.

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Rece ssion

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 rece ssion or depre ssion due to higher energy prices.
Historically, there is a close correlation in the timing of oil price spikes and
economic downturns. Inf lation 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 19 70s and early
19 80s were associated with a relatively brief period of somewhat dwindling
energy availability; the possible future increase in oil prices might be much
higher and last longer. See Energy crisi s.

EX AMPLE OF PR OBLEMS DUE T O 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 vuln era bil ity t o o il de ple tio n

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

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they are, will not create enough new supplies of transportation fuel to
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 VIE WS AN D INTE RP RE TATIO NS
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

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!

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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.

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.

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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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