By Dave Brown - Exclusive to Oil Investing News/The time when the rate of maximum global petroleum extraction from an economically viable perspective is realized has been coined “Peak Oil”, after which the rate of production enters a period of terminal decline. The theoretical notion was originally conceived from the production rates of individual oil wells, and the combined production rate of a field of related oil wells. Aggregate production rate from an oil field over time usually grows exponentially until the rate peaks and then declines, sometimes rapidly until the field is depleted from an economically viable perspective.This concept is derived from the Hubbert curve, named after M. King Hubbert, who successfully created and used mathematical models in 1956 to accurately predict that United States oil production would peak between 1965 and 1970.Global forecastsOptimistic 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 oil production operate on the thesis that either the peak has already occurred, or that peak oil production is imminent. The International Energy Agency (IEA) has theorized production of conventional crude oil may have peaked in 2006.Some oil and gas analysts believe the high dependence of most modern industrial transport, agricultural, and industrial systems on the relative low cost and high availability of oil will trigger the post-peak production decline. Many expect the potential for severe increases in the price of oil could have negative implications for the global economy. If economic and political changes primarily occur as a result of increasing prices and supply shortages rather than in reaction to the threat of a peak, then the degree of economic damage to importing countries will be dependent upon how rapidly oil imports decline from a post production peak.Collaborating evidenceThe increasing investment in harder-to-reach oil is often cited as a sign of oil companies' belief in the end of easy oil. Additionally, while it is widely believed that increased oil prices catalyze an increase in production, an increasing number of oil industry insiders are now coming to believe that even with higher prices, oil production is unlikely to increase significantly beyond its current level. Among the reasons cited are both geological factors as well as “above ground” factors that are likely to see oil production plateau near its current level.According to the Energy Watch Group, global production surpassed total oil discoveries on an annualized basis in 1980. Some industry analysts indicate worldwide production is near or even past its maximum capacity. As a result of the world population growing faster than oil production, it has been argued per capita oil production peaked in 1979 (preceded by a plateau during the period of 1973-1979).Conflicting positionEnergy demand is dispersed amongst four broad segments: transportation, residential, commercial, and industrial; of which transportation is the largest sector in terms of oil use and the one that has seen the largest growth in demand in recent decades. According to the Hirsch Report, the transportation segment has the highest consumption rates, accounting for approximately 55 percent of oil use worldwide and more than two thirds of the oil used in the United States.  Transportation is therefore of particular interest to those seeking to mitigate the effects of peak oil. If current and future political administrations commit globally to significant policies based on environmental impacts of burning fossil fuels may be realized.Miles driven by US motorists have fallen over the last couple of years for the first time since such statistics have been collected, indicating that the American love affair with the automobile could be waning. And gasoline demand in China, the world's largest automotive market, may not skyrocket after all, as the government ramps up its drive to replace internal combustion engines with electric vehicles.  Last year, the US also made a significant financial commitment to infrastructural development of alternative fuel sources and South Korea recently released its long term energy policy framework.Longer term forecasts for oil supply and demand fundamentals calls into question the concept of peak oil, at least in the near future, along with the whole science of forecasting future oil supplies. Adam Brandt, a professor at Stanford's Department of Energy Resources Engineering, released a study last month examining the various models that have been used to predict the future of world oil supplies. “Data do not support assertions that any one model type is most useful for forecasting future oil production,” Brandt concludes. “In fact, evidence suggests that existing models have fared poorly in predicting global oil production.”Implications for energy alternatives Several global secular themes emerge as countries move policy towards energy sources which include a declining dependence on traditional petrochemicals. Demand for energy will continue, and the mix may continue to slowly shift towards alternatives as economics combines with administrative policies. With China currently supplying almost 80 percent of its energy from coal, it has been the most popular energy source on a weighted average basis for the production of electricity, but is now seen as less attractive due to the carbon emissions.Nuclear energy has enjoyed a tremendous increase in activity lead by interest from India and China. Other alternative fuel technologies, including: hydrogen, solar, wind, wave, tidal, fusion, ocean thermal and  biomass may be more suitable in particular contexts; however, they will require technological development to be scalable to have considerable global impacts.

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