Peak oil is an important concept for the oil market. Peak oil is the moment in time at which the maximum extraction rate of oil is reached. From this moment on, production will decline. Basic economics tells us that the oil price will tend to rise from then on (unless demand were to fall faster), but the complexities of the demand and supply for oil dictate that there will not be a simple inverse relationship between the supply of oil and the price. In the articles below George Monbiot interviews Faith Birol, the Chief Economist of the International Energy Agency and the Asia Times article looks at the extent to which world economies rely on oil for energy and other needs. Oil prices may be low at the moment and the market may be awash with excess oil and not enough demand for it, but this is a short term phenomenon; there is little doubt about the long-term direction of the price.
- Write a short paragraph explaining what is meant by peak oil.
- Using diagrams as appropriate, explain the changes that took place in the oil price in the last six months of 2008.
- Analyse the likely impact on the UK economy of arriving at peak oil output in (a) the short term and (b) the long term.
- Discuss when peak oil is likely to arrive.