The skyrocketing gasoline and diesel fuel prices of winter and early spring 2000 are the direct result of a deliberate, if modest (about 4 percent), reduction in global crude oil production by the OPEC cartel.

The demonstrated sensitivity of oil product prices to a relatively small reduction in supply should serve as a sober example of what could well happen in the relatively near future when global crude production begins its inevitable decline, not as a result of an OPEC decision, but of an inability of producers to continue expanding production of what is, ultimately, a finite resource.

The likely timing of this peaking and decline is the subject of this paper.

Fossil fuels -- oil, natural gas, and coal -- account for the vast bulk of global energy supply.

• These fuels, formed over millions of years, are finite and non-renewable.



• In due course, they will become scarce and costly, requiring the introduction of replacement energy sources.



• The role of fossil fuels in powering modern economies is so vital as to warrant a review of ultimately recoverable reserves and of plausible future consumption patterns.



• So doing will help decision-makers determine when replacement sources and new technologies might be needed.

As a starting point in such a process, future supplies and consumption patterns of crude oil are assessed here.

Over the past fifty years, many oil companies, geologists, governments, and private corporations have performed scores of studies of Estimated Ultimately Recoverable (EUR) global oil. (EUR oil is the total amount of oil that will eventually be pumped from the earth.)

Taken together, the great majority of these studies reflect a consensus among oil experts that EUR oil reserves lie within the range of 1,800 to 2,200 billion (10⁹) barrels. As of the end of 1999, the world had consumed about 857 billion barrels of these ultimately recoverable reserves.

Given these estimates of recoverable oil, and plausible assumptions of moderate growth in demand (about 2 percent per year), we can use a simple model to calculate when world oil production might begin to decline, driven by resource constraints.

• At the low end, for EUR oil equal to 1,800 billion barrels, peaking could occur as early as 2007;



• at the high end (2,200 billion barrels), peaking could occur around 2013. (An implausibly high 2,600 billion barrels for EUR oil would postpone peaking only another six years -- to 2019.)

If oil demand were held constant at today's level -- through some such measure as a carbon tax or a cap on carbon releases -- the time of decline could be delayed by decades.

As the peak of global oil production approaches, world oil prices will rise from their present still relatively low levels, though by how much and how fast remain uncertain. The economic impacts will depend largely on the price and availability of energy alternatives.

The transportation sector, almost totally dependent on oil, could be especially hard hit unless vehicles fueled by sources other than petroleum are developed and rapidly deployed. As the peak and decline of world oil production comes within sight, policies to encourage more efficient oil use and a switch to alternative energy sources, especially in transportation, become urgent.

Unfortunately, because oil prices are still relatively low, few decision-makers appreciate how little time remains, and efforts on both of these accounts are weak and overdue.