Peak Oil : A Look At “Peak Demand” # 5

U.S. oil demand rose 2.7% year-on-year in September to 18.571 million barrels a day, reflecting modest economic improvement in the world’s biggest oil consumer, the American Petroleum Institute said Friday.
For the entire third quarter, demand gained 1.7% from a year earlier, to 18.909 million barrels a day, the trade group said.
‘Demand for petroleum products remains consistent with a gradually improving economy,’ said John Felmy, API’s chief economist.
Demand for gasoline, the nation’s most widely used petroleum product, increased 2.1% in September from a year earlier, to 8.737 million barrels a day, and rose 1.2% to 8.951 million barrels a day in the third quarter from the year-earlier period. [1]

PEAK DEMAND?

As I’ve noted previously in this series, Peak Demand has a nice ring to it. But like so much else that passes for reassurance from the fossil fuel industry supporters, there’s another side to the “all is well” story. The public will almost never get any of the relevant information with which to make informed assessments about what’s at stake and what sort of messages they’d like their industry and political leaders to act on. Getting the information too late will be much worse than  getting it too early.

For all the talk about the recent production increases here in the U.S. (attributed to the genuinely impressive technological innovations of fracking shale formations), there’s a distinct downside to deriving all of our production increases to that.

“REALITY IS A BITCH”

The other thing about extraction from shale is that it ends quickly. A conventional well’s production declines at about 5-8% per year, and it can remain productive for decades. By contrast, the first-year decline in shale wells is over 60%, and about 90% of a well’s production occurs in the first five years. That creates a ‘drilling treadmill,’ as new wells are needed simply to replace production from wells drilled a few years before.
Further, studies by Arthur Berman, David Hughes, and Rafael Sandrea have analyzed well-by-well data from existing mature oil and gas shale fields and concluded that the ultimate production from these sources is likely to be much more limited than optimists claim. While fields are large, covering many counties or even states, most production comes from a few ‘sweet spots,’ where drilling opportunities are limited by quality acreage. (links in original quote). [2]

As Wall Street, CNBC, and feckless politicians tout American energy independence from the miracle of shale oil, reality is already rearing its ugly head. Production grew by 24% over the first six months of 2012. Production has grown by only 7% over the first six months of 2013. That is a dramatic slowdown. The fact is that these wells deplete at an extremely rapid rate. Oil companies will always seek out the easiest to access oil first. They have already accessed the easy stuff. This explains the dramatic slowdown. Peak Bakken oil production will be below 1 million barrels per day. The last time I checked, we consumed 18 million barrels per day. I wonder when that energy independence will be achieved? Reality is a bitch.
By the end of the first year of production, a new well is producing at a rate that is 30% of where it was the year before. That means a huge amount of drilling each year has to be done just to offset the production lost due to these steep decline rates. [3]

Unpleasant detours along the road to energy independence and a worry-free energy supply future, to be sure. But facts will do that to the best of stories.

No one disputes that fossil fuel production has increased in the last few years, more so than peak oil proponents envisioned. There’s also a lot of conversation about impressive increases in reserves. For instance (my comments are included in [bracketed red italics]):

SOUNDS GOOD … BUT….

With billions of Chinese and Indians growing richer and itching to get behind the wheel of a car, the big oil companies, the International Energy Agency (IEA) and America’s Energy Information Administration all predict that demand will keep on rising. One of the oil giants, Britain’s BP, reckons it will grow from 89m b/d now to 104m b/d by 2030.
We believe that they are wrong, and that oil is close to a peak. This is not the ‘peak oil’ widely discussed several years ago, when several theorists, who have since gone strangely quiet, [such as?] reckoned that supply would flatten and then fall. We believe that demand, not supply, could decline. In the rich world oil demand has already peaked: it has fallen since 2005. [Is this a permanent trend or a reflection of difficult and ongoing economic times? Should we assume we do not want more growth—itself a conundrum?] Even allowing for all those new drivers in Beijing and Delhi, two revolutions in technology will dampen the world’s thirst for the black stuff.
The first revolution was led by a Texan who has just died (link to article in original). George Mitchell championed ‘fracking’ as a way to release huge supplies of ‘unconventional’ gas from shale beds. This, along with vast new discoveries of conventional gas, has recently helped increase the world’s reserves from 50 to 200 years. [Sounds wonderful right up until the moment a few questions pop up: Rate of production? Depletion rates? Expenses? Costs? Until the reserves are out of the ground and in our tank, the numbers are just numbers] In America, where thanks to Mr Mitchell shale gas already billows from the ground, liquefied or compressed gas is finding its way into the tanks of lorries, buses and local-delivery vehicles. Gas could also replace oil in ships, power stations, petrochemical plants and domestic and industrial heating systems, and thus displace a few million barrels of oil a day by 2020. [“Could”? And the infrastructure and technology for this is ready to go?] [4]

Reality, geology, technology, and economics are all part of the mix, and too often the pesky details are ignored in pursuit of a self-serving narrative ensuring fossil fuel industry dominance in the marketplace. There will be a reckoning at some point, and that too will be an unpleasant fact-based, context-rich reality we will all have to deal with.

Putting plans into motion in advance seems like a wiser strategy than hoping.

Happy Veterans Day, and thank you to all our veterans (a special thanks to you, Dad)

Peak Oil Matters