Its 5:45 AM on a Friday.

I am writing this blog piece when I should be writing an assignment about customer segmentation in Indian markets.

Instead I read an article about "peak oil theory" and thought I should blog something about it.

I had this link from Slashdot.org which discusses an article about the world having passed its peak oil production point.

The wiki article is a good place to start if you want to know more about the peak oil theory. It links to some critics' articles as well. So you can study both sides of the picture.

Basically it says that the maximum oil production rate has been passed and now the productions per year are only going to see a decline. It seems the peak production date was on December 16th 2005. He somehow calculated that we have a total of 2.013 trillion barrels of oil reserves. This is done by some sort of extrapolation from some data points. I don't know if his estimates are right or wrong.

In fact everyone agrees that oil is finite and there will be a peak production point. The debate hinges on the point as to how much of oil actually is there and is retrievable. Doomsday Sayers believe it to be pretty low (2 trillion as above) and their critics peg this figure to be much higher (upwards of 3 trillion barrels) . There are lots of uncertainties in these figures because of various reasons: the major oil producing countries of today, i.e. the gulf countries, do not allow independent audits of their oil reserves, the technological and price pressures may make unfeasible oil reserves feasible and unexplored areas like central Asia and Antarctica etc.

If the doomsdayers are right then, the world today does not have much time before the oil production cant keep up with the demand and the small amount of time available would mean that alternative sources of energy and resource generation wont be available soon enough. This is going to translate into panic and consequent chaos.

But if they are not right, then the world has time to let science and technology find a viable source of energy which can replace oil, thus avoiding chaos.

Actually oil has two major types of uses: as an energy source and as a raw material for multitude of things that are made out of petroleum.

As an energy source, it is viable only till the point the energy cost of extraction of oil is less than the energy extracted in form of oil. Formally this is termed as Energy Return on Investment. It was 1 barrel of oil needed for 50 barrel of production in 1950s. Today it is around 1 barrel of oil needed for producing just 3-5 barrels of oil. So this means that the day when oil will be unviable to be used as energy source depends on how much oil reserves do we have. But anyway, the day when this ratio is going to become adverse does not seem very far off. But I think that even if the doomsayers are right, we will have time to switch to other power sources, most probably nuclear power. France already produces about 80% of its power requirements from nuclear power. The opposition to nuclear power is mostly from dangers of an accident which can be overcome/controlled by technological improvements. As far as nuclear waste handling is concerned, we will simply be storing them up for about 50-100 years. By that time we should have the technological resources to fling these wastes back into sun or out of earth at least.

As a raw material, it is going to be much more difficult to replace oil. And It will continue to be used as a raw material even when it costs much more to produce. There is not much we can do about it right now. There are no substitute products available. And in fact it is as a resource that all the biodiesel or shale oil or tar pit oil is going to be used. They are too expensive to be used as fuel.

So from my point of view, there might be oil shock, but it wont be as severe as doomsayers predict. In fact, I think, in next 10 years, we would see both china and India , the major consumers of oil as fuel switching to alternative energy sources, of which nuclear is the most prominent. That will ease the pressure on oil prices and oil extracted will be mainly used as raw material till science and technology can discover alternative ways (mostly biotechnology related) of producing oil.

But then it does not mean that we need be too worried about conserving oil and all. I think our future generations are going to curse us for wasting so much oil by burning it for fuel. And of course wastage of any resource is never a good thing. Who knows when you might need it for a rainy day.