Peak Oil - What does it mean?
When global extraction of crude oil reaches maximum levels, it is referred to as Peak Oil. After this Peak rate of production, crude oil production enters a terminal decline. The concept and theory of Peak oil is based on the production levels from individual oil fields and oil wells and combined production levels of related oil fields and wells.
The aggregated production rate over time from an individual oil field generally grows till the rate of crude oil extraction and production peaks and after this peak, production begins to decline - some times rapidly - until the oil field is finally depleted. Peak oil is also confused with the depleting reserves of oil. Peak oil is just the maximum level of crude oil extraction and production, while oil depletion means falling oil reserves and oil supply.
M. King Hubbert was the one who created and used the models behind peak oil in 1956 to accurately predict that United States oil production would peak between 1965 and 1970. His logistic model, now called Hubbert peak theory, and its variants have described with reasonable accuracy the peak and decline of production from oil wells, fields, regions, and countries, and has also proved useful in other limited-resource production-domains.
According to the Hubbert model, the production rate of a limited resource will follow a roughly symmetrical logistic distribution curve (sometimes incorrectly compared to a bell-shaped curve) based on the limits of exploitability and market pressures. Various modified versions of his original logistic model are used, using more complex functions to allow for real world factors. While each version is applied to a specific domain, the central features of the Hubbert curve (that production stops rising and then declines) remain unchanged, albeit with different profiles.
Predictions vary greatly as to what exactly these negative effects would be. If political and economic changes only occur in reaction to high prices and shortages rather than in reaction to the threat of a peak, then the degree of economic damage to crude oil importing countries will largely depend on how rapidly crude oil imports decline post-peak. According to the Export Land Model, crude oil exports drop much more quickly than production drops due to domestic consumption increases in crude oil exporting countries. Supply shortfalls would cause extreme price inflation, unless demand is mitigated with planned conservation measures and use of alternatives.
Optimistic estimations of peak production forecast the global decline will begin by 2020 or later, and assume major investments in alternatives will occur before a crisis, without requiring major changes in the lifestyle of heavily oil-consuming nations. These models show the price of oil at first escalating and then retreating as other types of fuel and energy sources are used. Pessimistic predictions of future crude oil production operate on the thesis that either the peak has already occurred, oil production is on the cusp of the peak, or that it will occur shortly.
As proactive mitigation may no longer be an option, a global depression is predicted, perhaps even initiating a chain reaction of the various feedback mechanisms in the global market that might stimulate a collapse of global industrial civilization, potentially leading to large population declines within a short period. Throughout the first two quarters of 2008, there were signs that a global recession was being made worse by a series of record oil prices.