Peak oil "theory" refers to the point at which global oil production will peak. That precise point hasn't been narrowed to a particular year, so it can only be theorized. The certainty that global oil production will peak, however, is not a matter of disagreement: oil is a finite, physical, non-renewable resource. At some point, oil producers, including colossal ones such as Saudi Arabia and Iran, will no longer have the capacity to increase production, and global production will begin to decline.
Why Is Peak Oil Controversial?
The controversy of peak oil is over timing, political and economic implications. Those who believe peak oil is near advocate less reliance on fossil fuels so as to immunize economies as much as possible from the shocks of declining oil supplies and consequent price rises.
Those who dismiss peak oil are usually oil-industry and fossil-fuel advocates who believe that supplies are still plentiful and potentially cheap and fears of decline more alarmist than justifiable.
M. King Hubbert and the Origins of Peak Oil Theory
Peak oil was first theorized by M. King Hubbert, a Shell geologist who died in 1989. Hubbert predicted in 1948, and again in 1956, 1962 and 1967 that U.S. oil production would decline by the 1970s and force the United States to depend on foreign oil. The oil industry heard his predictions with contempt. But Hubbert was right: the production decline began even sooner than he'd predicted.
More recently, Hubbert's peak oil ideas have been revived by the likes of Matthew Simmons, an oil analyst, author and member of the Council on Foreign Relations. In Twilight in the Desert: The Coming Saudi Oil Shock and the World Economy, Simmons concluded that Saudi projections of abundant oil fields with capacity nearly double that of 2009 (around 9 to 10 million barrels per day) are based on more wishful thinking than evidence, with potentially cataclysmic consequences on the world economy.
The Consequences of Post-Peak Oil
As Peter Maas summarized Simmons' points in Crude World: The Violent Twilight of Oil (Knopf, 2009), "Saudi Arabia may have enough oil to last for a generation, but that is not the issue. Crunch time comes long before the last drop of oil is sucked from the Arabian desert. It begins when producers are unable to increase their output. If we do not know when that moment will arrive--and it may arrive any day now--we cannot know when to begin preparing for it, so as to soften its impact. The blow may come like a sledgehammer from the darkness. That's why the debate over peak oil is not just about numbers. It is about the future."
The Saudis do not reveal how much oil their kingdom sits on. They project figures that cannot be independently verified. Recent discoveries of oil's tar-sand variation in Canada and of new heavy-oil deposits in Venezuela have swelled overall global oil reserves, but deceptively so: only fractions of that oil is recoverable, and at immense environmental and energy costs.
Those Who Dismiss Peak Oil
Oil industry analysts such as Daniel Yergin of Cambridge Energy Research Associates dismiss peak oil.
"This is not the first time the world has run out of oil," he said in an interview with Germany's Der Spiegel magazine. "It is more like the fifth. Cycles of shortage and surplus characterize the entire history of oil. We experienced similar fears in the 1880s, at the end of World War I and II. And we ran out in the 1970s. People always underestimate the impact of technology. To give you an example: In the 1970s the frontier for offshore development was 200 meters, today it is 4,000 meters.
"[...]The North Sea was supposed to run out in the 1980s. Then in the 1990s. And now production is still on-line. Nobody thinks that oil supply is infinite, but the point is: The sky is not falling. We have done a worldwide field-by-field-analysis of exploration projects, which indicates that the production capacity could increase by as much as 20 to 25 percent over the next decade, including greater output of nontraditional sources like Canadian oil sands, and increased recoverability from existing wells."
"So the whole idea of peak oil is nonsense?" Der Spiegel asked Yergin. Yergin's answer: "The image is misleading. A more relevant description would be a plateau in production capacity that might be reached in the fourth or fifth decade of this century. So the major obstacle to the development of new supplies is not geology but what happens above ground: international affairs, politics, investment and technology."
Nevertheless, Yergin's assessments have been more optimistic than warranted by oil's jarring price fluctuations and the effects of rapidly increasing energy demands from Asia and the Middle East.