What is peak oil?

He based his theory on what he observed occurring in US oil fields at that time, and accurately predicted the peak in Lower-48 US oil production in the early 1970's.

His method has been validated by production patterns in other countries, and by extension has been applied to global oil production.

His theory shows that a peak in oil PRODUCTION typically follows the peak in oil DISCOVERY by about 30 years.

It also predicts that we will find progressively fewer new oil fields, and that they will be smaller, more technically challenging, cost more, and be located in more environmentally sensitive, climatically hostile, or geopolitically unstable areas.

In this context, the new US oil discovery in the Gulf of Mexico is completely congruous with his theory (deeper water than ever before, much more expensive, in a hurricane zone, and only has enough reserves to supply world requirements for six months). The increasing percentage of remaining oil reserves located in politically unstable countries (such as Nigeria and Angola) provides even further support.

According to his theory, world oil production will eventually peak and then enter a permanent decline. Back in the 1950's world oil discoveries were around 30 billion barrels per year, while annual consumption was 4 billion barrels. Currently, these figures are roughly reversed: we now burn 7 or 8 barrels of oil for each one that we discover.

When global peak oil occurs, there will not be enough crude oil to satisfy progressively increasing world demand (especially from countries like China and India). Prices must then increase (due to supply and demand), and may reach relatively astronomical levels (US$200 a barrel has been suggested).

Such price increases will have a profound impact on our society, and are thought likely to trigger global recession or depression (akin to the 1930?s). Unfortunately, there are no ready oil-substitutes on the scale required: one US study (called the Hirsch Report) suggests that it will take 20 years of urgent and massive mitigation action to avoid significant economic impacts.