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Looking Back at Peak Oil: The Coming Crisis in Energy Supplies

April 23rd, 2013

by Richard E Vodra, JD, CFP®

Peak Oil – the maximum sustainable rate of global oil production – happened in 2012. That’s one of the main conclusions of a new report, Fossil and Nuclear Fuels – The Supply Outlook, released in March 2013 by the Energy Watch Group (EWG). This event will have profound long-term implications for how advisors should manage clients’ portfolios, and how clients should plan their future expenses.

A clear awareness of a client’s resources is essential before developing a forward-looking strategy. Our national conversation around energy has become one of anticipated abundance, despite many who express concerns about limits. Yet all advisors have worked with people who seem prosperous, only to discover that they are living beyond their means. When financial advisors begin working with clients, one of the first tasks is creating an honest balance sheet. We must understand a client’s resources before developing a forward-looking strategy. That understanding is what EWG attempts to provide for America and the whole world in this report.

EWG is a group of independent scientists funded by a private German foundation. From 2006 through 2009 EWG issued a series of reports on supply projections for uranium (2006), coal (2007), oil (2008), and wind (2009). The group’s stated mission is to provide objective information about energy and the limitations of energy supplies, to assist in good decision-making at all levels.

Based on close examination of data from all over the world, EWG concludes that the world reached its maximum level of oil production in 2012. The report also states that US natural gas production has gone about as far as it can go, and the world will see peak everything – the highest level of fossil-fuel production globally – by the end of this decade. In their words, from pages 13-14 of the report:

According to our study, coal and gas production will reach their respective production peaks around 2020. The combined peak of all fossil fuels will occur a few years earlier than the peaking of coal and gas and will almost coincide with the beginning decline of oil production. Therefore, the decline of oil production – which is expected to start soon – will lead to a rising energy gap which will become too large to be filled by natural gas and/or coal. Substituting oil by other fossil fuels will also not be possible in case gas and coal production would continue to grow at the present rate. Moreover, a further rise of gas and coal production soon will deplete these resources in a way similar to oil. Total world fossil fuel supply is close to peak, driven by the peak of oil production. Declining oil production in the coming years will create a rising gap which other fossil fuels will be unable to compensate for.

For those who prefer pictures, the graph below shows their prediction of global production of key energy-related natural resources:

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