Takis (2011) defines peak as ''stage where maximum rate of global petroleum extraction is reached, and thereafter the rate of production becomes subject to terminal decline'' The concept of peak oil is based on the recorded production rates of individual oil wells and the combined output of the group of oil wells in a single region. The average production rate from an oil well is observed for a given period of time it show the signs of growing exponentially until this rate reaches the optimum levels and thereafter a decline occurs at a point in time leading to complete depletion. The concept of peak oil has been used when measuring the domestic output of a country with regard to oil production. Therefore, peak oil is not drying of oil well but rather, the peaking and eventual decline of production of oil.
Peak oil theory was created by M. King Hubbert. This has been applied to predict the peak and decline of petroleum in the oil producing countries. According to this theory, the production rate of an oil field would follow a symmetrically bell shaped curve that is influenced by market pressures and the limits of exploitability . This paper will examine peak oil theory, the contradictions to this theory and its impacts on economies of developing economies such as Venezuela and Nigeria. Furthermore, this paper will propose various measures that can help to mitigate the effects of peak oil in developing economies.
Effects of Peak Oil on Global Economies
The concept of peak oil has significant effects on the global economy. Implications of peak oil present numerous problems especially in developing economies . The main problem in developing economies is that the demand for oil exceeds the supply. When this occurs, problems such as inflation, food shortages and transport crises arises. This is because the prices of petroleum products increase significantly thus affecting the economy of the countries. For example in Africa, non-oil producing countries experience more pressures leading to high inflation rates. For example, the government of Nigeria resorted to scrapping the oil subsidies in 2011 due to the high prices of oil . In addition, government of Nigeria resorted to implementation of oil taxes and increasing scrutiny in the oil markets. Even in strong economies like United States, the constant problem of oil peak has necessitated a shift to other sources of energy to reduce oil imports. In the developing countries such as India and South Africa, the governments have continued to put efforts in competing for energy with other big players . As such, the economies of these countries continue to experience pressures.
Nations, such as Kenya and Malawi resort to oil rationing in a bid to help divert the supplies to the highest need areas as well as the highest price purchasers. This helps in controlling the use of oil by allocating the highest portion to economic activities that cannot do without this resource. These measures are taken in order to take account the decrease in supply of oil and to prevent a recession of the economy. Such measures have been implement successfully in Nigeria. The issue of peak oil produces much unpredictability and uncertainty. As such, developing countries establish economic frameworks capable of withstanding the effects of peak oil. Peak oil also has the ability to influence public perceptions and can deter investors fearing the uncertainties associated with the oil industry. Economies react to these uncertainties by adopting the practices that can help the economy from declining. As such, peal oil has become a very serious and the potential challenge to the prosperity and the security of many countries across the world.