Peak oil: Scenarios of oil production peak and decline

Bachelor’s thesis seminar in Economics, 9.6.2015Anna Särkilahti

What is ”peak oil”?

Peak oil: The hypothetical point in time when the global production of oil reaches its maximum rate, after which production will gradually decline

• Demand for oil is continuously growing, due to world population growth and the rise of developing countries

• There is uncertainty in the amount of current oil reserves, especially for those countries in OPEC

• Although oil itself is not necessarily scarce, oil production needs more and more resources and energy when production moves away from easily accessible sources (to e.g. unconventional sources)

• Always talking about demand and supply at a given price

• Question marks: technology improvements in production, oil substitutes, climate change

Assumptions behind the conceptAssumptions behind the conceptDefinition (Oxford dictionary): Definition (Oxford dictionary):

Demand growth strong in developing countriesDemand growth strong in developing countries

Supply growth mainly from unconventionals, substitution

with biofuels and NGLs

Supply growth mainly from unconventionals, substitution

with biofuels and NGLs

Oil supply and demand

Source: BP Energy Outlook 2035 (2014)

Research questions

The thesis will focus on evaluating the possible economic scenarios of the peaking of oil production and the following decline in oil production

Some points to draw from the individual scenarios:• How will oil supply develop in the following decades, including the use of non-

conventional oil resources?• When oil price increases, how will demand and supply for oil change, for example

what is the effect of introducing substitutes or more energy efficient alternatives?• What are the most vunerable sectors of economy for a possible oil shortage following

the peak oil?• What will happen to economic growth in different scenarios of the world after peak oil?

Possible structure of the thesis

Peak oil background

Short introduction to oil supply and demand

Different scenarios about future oil production (especially peak oil and the following decline in production)

Evaluation of the scenarios and their likelihood

Some potential sourcesPeak oil:

Lutz, C., Lehr, U., Wiebe, K. S. 2012. Economic effects of peak oil. Energy Policy 48() 829–834.

Kerschner, C. , Prell, C., Feng, K., Hubacek, K. 2013. Economic vulnerability to Peak Oil. Global Environmental Change 23, 1424–1433

Hirsch, R.L. 2008. Mitigation of maximum world oil production: Shortage scenarios. Energy Policy 36(2), 881-889

Nashawi, I.S., Malallah, A.,  Al-Bisharah, M. 2010. Forecasting world crude oil production using multicyclic Hubbert model. Energy and Fuels 24(3), 1788-1800

Okullo S.J., Reynès F., Hofkes M.W. 2015. Modeling peak oil and the geological constraints on oil production.

Resource and Energy Economics, 40(2), 36-56

Oil supply, demand and oil price formation:

Kilian, L. 2008. The Economic Effects of Energy Price Shocks. Journal of Economic Literature, 46(4), 871-901