IEA To Study Peak Oil As Supply Falls Short of Demand

Photo: Andrew Penner / Istock

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The International Energy Agency, whose forecasts of world energy supply are perhaps more influential than any other, has expressed deep concerns that the world's oil supply can no longer meet demand. In other words, that peak oil may be here.

"We are entering a new world energy order," chief economist Fatih Birol told The Associated Press.

To assess whether or not the world is at or near peak oil, the IEA will study the depletion rates of 400 oil fields, the AP reported.

The timing of the statement might send further shockwaves through the oil market, which had retreated somewhat from its unprecedented peak of $135 per barrel earlier Thursday.

What is Peak Oil?

Oil is a finite resource – it is produced by subterranean pressure over the course of millions of years. So what we've got is all we've got. Oil drillers go for the easy and most profitable crude first – the stuff that requires the least energy to pump out of the ground and the least refining to make into a usable product. When that is gone, what's left is harder and more expensive to get at and deliver to the market. Examples of the hard-to-reach stuff include deep-water deposits, oil shale and tar sands.

The peak oil theory says that when we've pumped about half the crude in the world, demand for oil keeps rising but the supply falters. Maybe it hits an "undulating plateau." Maybe it falls in fits and starts. Maybe it drops like a stone. Off a cliff. But it falls – leaving a widening gap between supply and demand.

That will not only mean higher gas prices, but higher prices for just about everything because petroleum is the basis for many of the products we use. If oil runs short before there are alternatives available, expect big geopolitical shifts as nations vie for control of the oil reserves that remain.

Are we there yet?

Some say we've reached, or are near to reaching, that point -- the peak, when the earth's geologic formations no longer yield enough oil fast enough to meet the world's ever-growing demand. After all, most nations outside the Middle East have already peaked, according to the Government Accountability Office. The United States peaked in 1970 and now pumps half of what it did 35 years ago. The question is whether big producers like Saudi Arabia have as much as they say they do, and whether new sources can be developed in time to meet the ever-growing demand from developing nations like China and India, where automobile use is only just taking off the way it did in 1950s United States.

Birol told the AP that he doesn't expect full cooperation from secretive oil regimes, so the report won't be the definitive word on the subject. It will, however, be the most definitive word available from a source of this stature.

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