3.1. Supply-demand dynamics
Fossil fuel resources are far greater than reserves, which are defined as a function of economic conditions and technology. Fossil uel supply has historically responded to price incentives as is evident in the proven reserve base that has nominally grown or remained static. Fossil fuel depletion concerns two principal issues namely:
1. The logistically3 achievable rate of production.
2. The energy–profit-ratio (EPR) or the ratio of energy yield per unit of energy expended in the production of the energy source. There are models with strong empirical roots, such as Peak Oil theory, that describe logistical production constraints in fossil fuel commodities .It is important to distinguish between Peak Oil arguments and so-called fixed-volume-constraint arguments such as discussed by Bradley .Although the full treatment of these models is beyond the scope of this paper, logistical impacts of resource depletion is demonstrated to supplement the arguments presented. shows the distribution of oil fields grouped by percentage of reserves. The trend in is of particular significance because
the larger oilfields were discovered first and more than 70% of oil production in the 1990s was from fields older than 30 years . An extrapolation of the trend in predict that the next ‘‘10%- equivalent” of oil would be found in 100,000 fields with an average field size of 2 million barrels (Mbl). In comparison, oil consumption amounted to 85 Mbl/day in 2007 . The associated amount of exploration, the geographical expansion in infrastructure, general expansion and demands on materials and capital are obvious. EPR is the ultimate constraint on the production of fossil fuel as a source of energy. Regardless of the remaining underground resources, if more energy is not gained from the proceeds than expended in the supply cycle (exploration, drilling, production, transport and refining), the operation would be a net consumer of energy. Production would still be possible under such conditions if an alternative source of energy were utilized. Price incentives over the last few years have not increased the production rate . The slow-down in the global economy has since resulted in downward revisions in oil demand outlook and associated price corrections. It is plausible that the inflationary pressure caused by the high energy-price regime in recent years played an important role in the current economic crisis. The debate on whether the recent decline in demand is the result of the high price regime or whether there is a forced market balance because of supply constraints is circular and cannot be resolved here.