Peak Oil is You
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Page added on July 15, 2014
Put 53 Years on the Clock: The End of Easy Oil Is Within Sight
Love it or hate it, British multinational oil and gas company BP (NYSE:BP) is one the world’s top institutional experts on energy. Besides being a business leader in its industry — the sixth largest integrated oil company (IOC) by market cap in 2013 — the supermajor is at the forefront of the semi-commercial, semi-academic conversation about the future of energy use at large. Since 1952, BP has offered a share of its two cents in the form of an annual statistical review, the aim of which is to share data and insight about current energy markets and where the world could be heading.
The report proper is somewhat dense and is generally only partially digested, if at all, by the media, but the 2013 review contained a few salient points that were thrust into the spotlight. First, and most broadly, was this insight: Demand growth for fossil fuels outpaced supply growth.
“For each of the fossil fuels, global consumption rose more rapidly than production,” states the report. In 2013, total global oil consumption increased by 1.4 percent, or by 1.4 million barrels per day (b/d), while oil production increased by “just” 0.6 percent, or 560,000 b/d. Total global natural gas consumption also increased by 1.4 percent, but production only grew by 1.1 percent. Global primary energy consumption increased by 2.3 percent in 2013, up from 1.8 percent growth in 2012. Although growth accelerated for major energy sources like oil, coal, and nuclear power, overall energy consumption growth is still below its ten-year average of 2.5 percent.
In the chart below, you can see how production and consumption has changed overtime for various regions. Note that Asia Pacific consumption (on the right in orange) has exploded, not only outpacing production growth in the region but also outpacing demand growth in nearly every other region. Emerging economies, which make up a large share of the Asia Pacific profile, accounted for about 80 percent of new consumption in 2013. Also note the relatively sharp increase in North American production (on the left in lime green.)
While shifts in supply and demand are definitely important to understanding the energy market at any level, the BP review made one claim that kind of trumps any other topic of conversation. The claim is this: there are about 1.69 trillion barrels of proved oil reserves in the world, enough to meet global production for only the next 53.3 years. The calculation didn’t appear to attract much attention in the report itself, but the number was quickly picked up by media and framed as a prediction for the peak oil event.
Peak oil was an idea championed by American geologist M. King Hubbert. Hubbert worked at the Shell research facility in Texas between 1943 and 1964. During that time he advanced the idea that given that oil is a fossil fuel, production will inevitably peak and inexorably decline. The idea is fairly intuitive — a limited resource will eventually run out if it is continuously gathered — and it gained a lot of traction with environmentalists.
But one of the biggest problems with the peak oil idea is information — there is never enough of it. When Hubbert was first popularizing the idea, proved oil reserves were just a fraction of what they are today. As technology advances, we not only find more oil, but we are able to extract oil that was previously out of reach. Think hydraulic fracturing and oil sands. Despite our best efforts to calculate how much oil is technically recoverable at any given point in time, we have to accept that we really just don’t know. At best we are estimating, and oftentimes it feels like we are outright guessing.
But the thinking behind peak oil is solid. Here’s Hubbert himself talking through the idea in 1976. Note that his prediction at the time called for production declines beginning in the late 1990s.
If you were to look around and stop at fracking, it would be easy to believe that oil and gas extraction is easier now than it has ever been — and in many cases, this is true. From a production standpoint, fracking is an incredible technology that made viable an enormous amount of resources previously thought to be not commercially recoverable.
But shale gas reserves aren’t the whole picture, and all over the world oil and gas companies are reaching farther and deeper in order to access oil. Ben Ayliffe of Greenpeace is understandably biased, but he view this reaching as a sign of desperation. Commenting in 2013 about Exxon Mobil’s (NYSE:XOM) efforts to drill for oil in the arctic, Ayliffe said that, “Exxon’s staggering Arctic investment is proof that the age of easy oil is coming to an end. The oil industry is being pushed into increasingly remote and marginal areas where costs and risks are commensurately higher, and all to chase the last remaining drops of a fuel that causes pollution, corruption, and climate change. You have to ask what it means for global efforts to combat climate change when the world’s biggest oil company is pumping these kinds of sums into the Arctic, a region that’s opening up to exploitation because rising temperatures are causing the ice to retreat. World leaders need to create conditions that would see hundreds of billions invested in clean energy projects instead of frontier oil.”
While the oil and gas industry is often quick to dismiss the criticism of environmentalists, there is no escaping the logic of peak oil and there is no doubt that oil and gas industry executives see it plain as day. The issue is not “Will we ever run out of oil?” It’s when, and what’s be the best strategy for carrying us through in the meantime? Part of the answer is certainly to use oil, gas, and coal as an interim energy source — after all, it’s what the global infrastructure is built around. Where the peak oil criticism is most relevant is in the design and implementation of new infrastructure or means of transportation. Industry should be embracing what fossil fuels can do for us today while moving toward a post-peak oil future.
But these are just a few of the insights from the report, and although they represent some of the most interesting parts of the energy conversation they account for just a small share of what there is to talk about. If you’re interested in getting beyond the headlines and seeing what the real experts have to say, check out the video below. This is BP Chief Economist Christof Ruhl speaking at the Columbia SIPA Center on Global Energy Policy in June. The whole thing is nearly 90 minutes long, but Ruhl is one of the world’s top energy experts. If you want to understand global energy production and consumption — if you want to understand the energy market so that you can invest or conduct business in it — then it’s worth listening to what this guy has to say.
One of the biggest questions in the energy conversation right now is about prices (really, when are prices not one of the biggest pieces of the conversation), and in particular why prices have behaved they way they have given shocks to supply and shifts in consumption. If you’re not interested in sitting down for the whole talk, skip to about 12:30 to hear Ruhl address this topic.
16 Comments on "Put 53 Years on the Clock: The End of Easy Oil Is Within Sight"
Nony on Tue, 15th Jul 2014 9:56 am
If you go to the BP site, they have pdf of the speech and the report. Lot easier to get the info that way, versus 90 minute speech.
rollin on Tue, 15th Jul 2014 10:21 am
The end of easy oil is not on the horizon, but is right under our feet right now. Price is up by 10 times in less than 2 decades.
shortonoil on Tue, 15th Jul 2014 10:56 am
BP has seen its own production fall 31% in the last five years. If BP can’t even run its own company, how is anyone supposed to take their 53 year estimate seriously. With the legacy fields that provide the overwhelming majority of the world’s oil supply in bad condition, and declining rapidly a 53 year estimate is nothing more than unicorns and fairy dust. If new field production could account for 20% of consumption there might be some hope. They don’t, and there is no reasonable projection that they are ever going to attain that level again. BP is talking its book. It is all about keeping company stock values elevated, as the industry goes into terminal decline!
http://www.thehillsgroup.org/
Gary Bruce on Tue, 15th Jul 2014 11:21 am
End to easy oil in sight. This is misleading since easy oil drilling slowed many years ago. Now with fracking and oil shale production (not easy oil) we have a new boom. These companies HAVE to make an excuse for keeping oil prices high. Misleading stories help their bottom line.
tim on Tue, 15th Jul 2014 11:35 am
Att: Editing
but he view this reaching as a sign
Northwest Resident on Tue, 15th Jul 2014 11:42 am
“… global consumption rose more rapidly than production,” states the report.”
Uh-oh.
And by the way, what is up with that increasing global consumption. Here in America, we are doing a spectacular job of decreasing our fossil fuel consumption (choke, cough). Maybe it is the folks in Saudi Arabia that are consuming ever more of their own production — gotta keep those air conditioners running and that salt water turning into potable water. Or maybe it is China, those dirty dogs, just growing their economy all the time taking on all that debt seen and unseen — they certainly are burning more fossil fuel. Or could it be all those 3rd world people who have the nerve to start driving their own cars, plugging in their own refrigerators, running some of their own farm equipment maybe?
All of the above, actually. And more.
Point being, as long as BAU continues and people keep reproducing (a given), there will continue to be a constantly increasing demand for more oil/fossil fuel.
But if we aren’t finding enough oil to compensate for that increasing demand now because there isn’t any more (worth mentioning) to be found, how much more true will it be every day from here on out that “global consumption (will rise) more rapidly than production?”
We’re at the 2:00 a.m. mark of what has been one hell of a party. The keg has just a few drops left in it. Pretty soon, we’ll all have to crawl back home and prepare for the EPIC killer hangover that is next on the agenda for all of humanity.
JuanP on Tue, 15th Jul 2014 12:02 pm
NWR, IIRC there has been a discrepancy between BP’s production and consumption numbers in their reports for years, because they use different definitions of “oil” for production and consumption statistics on their report.
I can’t remember exactly what the difference was, but it’s a combination of biofuels, refinery gains, and other things. The experts, like Rock and Short, here should be able to be more specific.
rockman on Tue, 15th Jul 2014 12:08 pm
I always get a chuckle when I see references to the “days of easy oil”. In the 4 decades I’ve been hunting for oil it has never been easier than it is today TO FIND WHAT’S LEFT. And from conversations with coworkers who were doing it decades before I began it was never easy for them either. In reality it’s much easier to find commercial oil/NG deposits today than it ever has been. Even 25 years ago it had become much easier. Exploration technology has advanced greatly in the last 30 years. And advances in seismic data have been one of the keys. Not only 3d but also the more conventional 2d seismic.
As an example in the 80’s I was exploring in a trend of NG stratigraphic traps. Very difficult to do using just the geologic data…success rate 10% to 15% at most. But using more modern 2d seismic and amplitude analysis (“bright spots”) I hit 23 out of 25 wildcats…a 92% success rate. The bright spot technology had already begun to radically increase the success rate in the offshore GOM by the mid 70’s.
Other technologies developed I won’t go into detail on. The old heritage fields that still supply a significant portion of today’s production weren’t easy to find. It might look simple when seeing a map with a bunch of productive wells on it. But if you were to look at maps drawn long before those fields were discovered you would see a predominance of dry holes and a whole lot of “goat pasture”…large areas with no data so you can’t tell if there’s anything there are not.
Those old oil fields weren’t easy to find. But when you did discover one it was often very large. In the earliest days that one high risk wildcat might lead to 50 to 100 very low risk development wells as that field was drilled up. Those are the days of big onshore reservoirs that are gone…not days of “easy oil”.
The trend I’m drilling my hz recovery wells in has produced 4.5 billion bbls of oil. The larger fields made on the order of 150 million bbls of oil each. But today between the producing fields and the dry holes you can’t find a large enough undrilled area to put more than 50,000 bbls of oil. There is zero possibility of finding even a 1 million bbl field in this trend: not enough blank area anywhere on the map.
One of the biggest boosts in exploration actually came from the engineer side of the equation: Deep water drilling and production. In 1975 at Mobil Oil I saw 2d seismic in the DW GOM trend that indicated some potential. At the time I was drilling wells in the deepest waters of the GOM: 600’. Then we were limited to fixed platforms set on the sea floor. Jump way ahead and we are drilling those prospect we saw hints of 4 decades ago in water depths exceeding 5,000’.
One might argue that the current shale plays are “easy oil”. The EFS production was just as easy to find and drill in the 90’s as it is today. What wasn’t easy back then was to come up with an economic justification to drill it when oil was $30/bbl. About 6 months ago drilled a hz well in a “nearly depleted oil field” where the 6 remaining wells were each averaging 2 bopd and 100 bbls of salt water today. My hz well has been doing 125 bopd since I completed it. I generated this idea more than 12 years ago and couldn’t get anyone to finance it. Not for oil at $30/bbl. My approach made sense (at least to me) on a technical level but it was very expensive. My very radical idea was no less risky/expensive than it was a decade ago. But $100/bbl oil made it doable.
La. is to NG what Texas is to oil: a hell of a lot of it has been discovered there. About 40 years ago in La I was drilling at depths of 10,000’ to 12,000’ testing exploration targets that covered area of 2,000+ acres. About 5 years ago, with the aid of very advanced (and expensive 3d seismic) I was drilling 16,000’ to 18,000’ drilling exploration targets that covered 150 acres. And well costs don’t increase linearly: an 18,000’ well might cost 2X to 4X as much as a 12,000’ well. It was working well enough until NG prices fell. In the last 2 years we’ve not spent $1 drilling deep NG wells.
Oil/NG, be it onshore or in the DW plays around the world, is being found. These days it’s much easier to find commercial production than it ever was. What isn’t easy is finding large accumulations of oil/NG in the onshore plays especially in the US.
If you weren’t in the oil patch you would look at how much oil/NG we’ve produced decades ago and naturally assume it was all easy to find…it wasn’t. When you see how much less oil/NG is being discovered you would naturally think it’s more difficult to find those reserves. In fact it isn’t that difficult. What is difficult is finding what little conventional production is left in the US because there are so few places that haven’t been thoroughly drilled. And when you do find it the accumulation is typically much smaller then what has been found in the past.
blindsquirl on Tue, 15th Jul 2014 12:41 pm
Why would any sane person believe this report was anything (other than a marketing platform), from which to launch their PRICE HIKES, for the next 50 years..?
Northwest Resident on Tue, 15th Jul 2014 1:07 pm
Before rockman destroyed my previously held belief on “what is easy to get oil” with his analysis posted above, I used to think “easy to get” oil was that which, when a hole was poked in the ground, up came the bubbling crude Beverly Hillbilly style. You know, just poke a hole, then collect all the oil gushing out into a tanker truck and deliver it to the refiner — no extra effort needed other than perhaps poking more holes to multiply the effect. And I am guessing that there aren’t very many of those types of undiscovered/unexploited oil deposits left in the world.
Are there?
Calhoun on Tue, 15th Jul 2014 2:20 pm
Maybe easy should me “easy to afford”.
J-Gav on Tue, 15th Jul 2014 2:39 pm
Short – Exactly. And BP aren’t the only ones. The big 4 (or is it still 5?) have all suffered the same fate: dwindling reserves, and meagre exploration results.
Northwest Resident on Tue, 15th Jul 2014 2:41 pm
Calhoun — Maybe… I’ll have to leave it to the experts to define the difference between whatever that oil was that industrial civilization was built on — conventional crude maybe??? — as opposed to what we are getting out of the shales and tar sands these days. Maybe “easy to get” isn’t the best way to describe the difference. Maybe “easy to afford” is a better way to describe it. Whatever we call it though, there is a huge difference between that stuff we built our civilization on and the “tight” oil that is being used to keep us from sliding directly into world production declines today.
rockman on Tue, 15th Jul 2014 2:53 pm
Calhoun – Yes. And not just easy to afford to buy but also affordable to drill for. And thus the vicious cycle that some still refuse to accept. Back when oil was $30/bbl and gasoline was 1/3 the current price it was affordable to buy…but not to drill for. So the oil patch didn’t and production declined. And then, thanks to China et al, demand goes up with prices to follow with drilling to follow. So now it’s affordable to drill the shales which we’ve known for decades contained producible but not affordable oil to development. And the unavoidable feedback: oil and its products have become less affordable.
The Eagle Ford is easier to find the any other oil in the US: have you heard of many dry holes drilled in the EFS? Of course not. But that also doesn’t mean there have been a lot of money losing wells drilled either. That’s one of the cruel aspects of such plays: one has to not just drill a well and determine if there’s a commercial hydrocarbon accumulation there. You have to run casing and spend millions to frac it and then produce it for at least 6 months before you know if it’s going to turn a profit. So even in this case of “easy oil” it doesn’t necessarily prove to be either affordable to the buyers or very profitable to the producers. Perhaps we should classify such plays as a form of “STD”: fun and exciting at first but eventually can become very painful for everyone involved. IOW the US refined product buyers were better off financially when we were importing more oil than we are today. Back then the country was paying around $225 billion/year for oil. Today it is well above $600 billion/year.
John on Tue, 15th Jul 2014 7:50 pm
What is gone is clearly the cheaper to extract oil – which is certainly what industrial civilization was built on. Inflation adjusted prices for oil were remarkably stable at around 20$ prior to 1970. Anyone who thinks 100$ per barrel is cheap and allows as many people to live as well off as they did previously needs to rethink things. More expensive oil means more people have less buying power. Governments have trouble subsidizing prices for large populations that can’t afford market prices. These factors cause unrest and turmoil to manifest. And using a R/P ratio to state that we have 53 years of oil left is simplistic. The key is when production will begin to decline – which will be long before the R/P number. If we were replacing reserves faster than we were using them, the R/P number would grow. That used to be the case – but doesn’t seem to be now. We have definitely reached the peak of cheap oil (the rise started in about 2002 and we haven’t looked back). If the article is accurate, Hubbert was pretty close on forecasting a peak in the conventional/cheap oil in the ate 1990s. If not for the 1980’s recession and associated reduction in demand he may have been spot on.
ralfy on Wed, 16th Jul 2014 2:39 am
The Hubbert 1976 forecast was 1995 + 10 years, or 2005.