Peak Oil is You
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Page added on August 20, 2012
We’re still on the slippery slope to peak oil
Technology and exploitation of unconventional sources can’t defer the long-predicted decline in global oil production
IN 2007 former US energy secretary James Schlesinger claimed the arguments in favour of peak oil – the key theory that global production must peak and then decline – had been won. With production flat and prices surging towards an all-time high of $147 per barrel, he declared, “we are all peakists now”.
Five years on and production has risen by 2.7 million barrels per day to 93 mb/d, prices have recently slumped to around $100 a barrel and those who dismissed the idea that the rate we extract oil from the ground must inevitably decline jeer in delight.
In June a much-touted report by Leonardo Maugeri – an Italian oil executive now at the Geopolitics of Energy Project, based at Harvard University and part-funded by BP – forecast that far from running out of oil, this decade will see the strongest growth in production capacity since the 1980s and a “significant, stable dip of oil prices”.
So is that it, panic over, as some commentators who once agreed with the peak view have declared on the basis of Maugeri’s report? Ironically, such shifts come just as some economists – traditionally hostile to peak theory – were coming round to it. Peakonomics, if you will. Unfortunately, any reasonable reading suggests Maugeri is wide of the mark.
The recent hysteria rests heavily on the rise of shale oil in the US, which was unforeseen and is significant. After four decades of decline, US oil production turned in 2005 and has generated the bulk of the global supply growth since then. But to brand this a “paradigm-shifter”, as Maugeri does, is wrong.
He forecast that this boom will lead to an astonishing 4 mb/d of additional US shale production capacity by 2020. By contrast, the US Department of Energy, usually optimistic, predicts total US shale oil production will peak at just 1.3 mb/d in 2027.
One reason Maugeri’s forecast is so high is that he assumes production from existing shale wells will decline by just 15 per cent per year.
Industry consultant Art Berman puts decline rates at around 40 per cent. Analysis by Bob Bracket of US market analysts Bernstein Research shows similarly steep declines, and also that the average shale well takes just six years to become a “stripper well” – producing just 10 to 15 barrels a day. Such declines are far higher than for conventional wells, effectively meaning the industry must drill furiously just to stand still. It is this factor that will limit future production growth.
It is distressing that Maugeri’s report – which appears to contain glaring mathematical mistakes – got so much attention, but he insists the gist of his report is right. In contrast, an excellent International Monetary Fund working paper in May received much less attention.
The IMF’s paper sets out to test the idea that the recent 10-year rise in the oil price – it hit a low of $10 a barrel in the late 1990s – can be explained by geological constraints. The team took an approach which expresses mathematically the idea that oil becomes harder to produce, the less there remains to be produced – the basis of peak oil theory. This is clearly right: why would we be scraping out tar sands if there were easy oil left?
When they combined this with the impact of global GDP and oil price, the results were striking. By testing their model against historical data, they found their production forecasts were more accurate than those of both peak oilers, who are traditionally too pessimistic, and authorities such as the US Energy Information Administration, which is generally far too optimistic.
Their price forecasts were also far more accurate than traditional economic models that take no account of oil depletion, predicting a strong upward trend that closely fits what has happened since 2003. “When you look at the oil price [over the past decade], the trend is almost entirely explained by the geological view,” said Michael Kumhof, one of the authors, when I interviewed him earlier this year.
The IMF paper also slays the belief that rising oil prices will liberate vast new supplies and vanquish peak oil. The team found that production growth has halved since 2005, and forecast that even the lower rate of growth will only be sustained if the oil price soars to $180 by 2020. “Our prediction of small further increases in world oil production comes at the expense of a near doubling, permanently, of real oil prices over the coming decade,” write the authors. In this context, shale oil is not a “game-changer” but a sign of desperation. “We have to do these really expensive and really environmentally messy things just in order to stand still or grow a little,” says Kumhof.
It is true that global oil production has not yet peaked, but that is almost beside the point. The people who fixate on this need to wake up and smell the fumes we are reduced to running on. The IMF paper shows clearly we are supply-constrained. The oil price itself ought to be a clue: persistently above $100 per barrel, 10 times higher than it was at the eve of the 21st century.
Price spikes in recent years and recessions are the inevitable outcome of rising competition from fast-growing developing economies for limited supplies. Domestic consumption among major producers such as Saudi Arabia is also soaring, reducing supply to others. While global production rose in the five years to 2010, global net exports fell by 3 mb/d, according to independent US geologist Jeff Brown. How much worse would you like it?
In the film No Country for Old Men, two lawmen find the aftermath of a drug deal gone bad, with corpses strewn about the desert. The deputy remarks, “It’s a mess, ain’t it, sheriff?”, to which the sheriff replies: “Well, if it ain’t, it’ll do til the mess gets here.”
Likewise, if peak oil has not yet arrived, what I call the last oil shock certainly has. It’ll do til the peak gets here.
24 Comments on "We’re still on the slippery slope to peak oil"
James A. Hellams on Mon, 20th Aug 2012 10:19 pm
For you people who love to live in the dream world that we have enough oil to last for 200 years, you are dead wrong.
At 93 million barrels per day oil production, this is 34 BILLION barrels of oil production per year!
According to the an article by the USGS, the total worldwide oil supply left is 1.5 trillion barrels. With the 34 billion barrels produced every year, this 1.5 trillion barrels of oil would last just 44 years. This does not account for the energy return on energy investment (EROEI) factor; which will sharply reduce the number of years of production to less than the 44 years I have mentioned!
It is HIGH TIME to wake up from your dream worlds; and face the nightmare energy future that is coming at us!
As one person has said, “Deal with reality or reality will deal with you”. Reality is rapidly coming; and you peak oil deniers are GOING to have the harshest reality blow delivered to you! It will cost you every thing you have!
MarkR on Mon, 20th Aug 2012 10:46 pm
That USGS report is 1.5 trillion conventional barrels, it did not include all that shale and tar sands. I think unconventional will give us another 2-3 decades of breathing time, with oil averaging $75-$90 per barrel. By then I am optimistic there will be better batteries for electric cars and cheaper solar, perhaps even thorium nuclear.
You people do serve a purpose-to wake people up that oil isn’t going to last forever. That will spur people to start developing alternatives so the economy can resume growth.
However, this hopeless doom mentality gets rather annoying -it is almost like you people want it to happen. You (and I) would probably be dead within days if civilization collapsed. It is the psychopaths and thugs who will survive in such a world. I prefer to think of solutions so I can continue to survive and live in my so-called “dream world” as opposed to your Mad Max dark ages “reality”.
destroyb4new on Mon, 20th Aug 2012 11:53 pm
living in the past you’re self $75-$90 you like NeverLAND?
Kenjamkov on Mon, 20th Aug 2012 11:57 pm
I agree with conventional at about 1.5 trillion, non-conventional around 3 or 3.5 trillion, but there is no way non-conventional will ramp up to keep pace with conventional decline. The decline rate, higher EROEI, and consumption increase from “emerging economies” will decimate future production.
There is no way consumption is going to stay flat for 5 years let alone 20 or 200. We are going to come up short very soon.
The resource wars started well before 9/11 and you can bet to some of these ravaged areas in the World “Mad Max dark ages” ARE reality.
MarkR on Tue, 21st Aug 2012 12:20 am
“I agree with conventional at about 1.5 trillion, non-conventional around 3 or 3.5 trillion, but there is no way non-conventional will ramp up to keep pace with conventional decline. ”
It depends on whose decline rate figures you are willing to accept. New technology is now slowing and in some cases even reversing the decline rate of many older fields in places like California and the Permian basin of Texas.
I said 75-90 dollars because that is the level that makes unconventional oil profitable. If there is three times as much oil that can be produced for that price, then it logically follows that there will be enough production at that price point to keep the world supplied for at least a few decades. Of course there will be spikes and dips, but the long term average should be in that ballpark.
I am not a denier of peak oil. The concept is obvious that oil is a finite resource, and I realize that oil production isn’t going to keep expanding for the next million years or even thousand years. Probably not even 100 years…
but I differ in that I don’t think the decline will be as soon or as severe as the doomers think. I also think human ingenuity will invent new ways to replace oil in the decades to come.
If it doesn’t I would rather die than live in a post apocalyptic doomer fantasy land. We all might as well kill ourselves right now if there is no hope for the future. The idea of humanity, including my children and future grandchildren, living in a Hobbsian medieval world full of cruelty, suffering, and death until the next sufficiently large asteroid or supervolcano causes human extinction is not a very appealing one.
James A. Hellams on Tue, 21st Aug 2012 12:42 am
In response to MarkR, we had the opportunity to avoid the reality that is coming to us 39 years ago.
In 1973, we had the Arab oil embargo. This should have taught us a lesson; but the Arabs opened up the spigot, and we reverted back to the status quo of building highways and airports; putting more, and more cars on the road, and airliners in the air. At the same time, our political leaders were actively trying to destroy the most energy efficient, and most energy alternative means of transportation that we will ever have (trains). Now, it is 39 years TOO late!
It will take DECADES to create the rail systems we will need to carry us through the end of the oil age; which is coming!
When I said the end of the of the oil supply will end every thing for us, I was not kidding. Not only will the loss of the oil supply cripple our transportation system, it will affect us in many was. An example is our modern health care system.
With the onset of oil, for example, hospitals have become heavily reliant on oil. The days of mostly using steel and glass instruments are long gone. Now, hospitals use multitudes of disposable plastic items (which are made from oil). When the oil is gone, these plastic instruments will be gone. The days of the extensive use of autoclaves are gone, as well, for all but the steel and glass instruments which are still essential.
Another example is the grocery store. Look at all the products that you see in the grocery store; and you will see that the vast majority of these products are packaged in plastic (made from oil). Long gone are the days when grocery products were packaged in either paper or glass. Today, you will find VERY few groceries are packaged in either paper or glass.
If you closely take a look at your daily living, you will see even more items that are made with plastic, or that use chemicals that are oil based.
There are more numerous ways that oil is involved in our daily living.
In regards to the USGS article, the statement was made, if memory serves; that the barrel count was for the total worldwide oil available for being “technically” recoverable from all sources. If I am misquoting, then I stand corrected.
tahoe1780 on Tue, 21st Aug 2012 1:10 am
93 mb/d ALL LIQUIDS. About 74 mb/d conventional crude. Almost all of the growth since 2005 has been in natural gas liquids and ethanol, not crude. As for tar sands replacing crude production, what percent of that 74 mb/d can tar sands replace?? How much NET production over that amount can be produced to support economic growth??
James A. Hellams on Tue, 21st Aug 2012 1:22 am
In response to MarkR, electric cars are, and will always be a novelty; and never a serious mode of transportation.
First, with the present technology, an electric car has a very limited range. The car can go, at tops, 100 to 120 miles before needing to be recharged. A gasoline powered car, by comparison, can go several hundred miles before it ever needs to have a fill of gasoline.
Even with the new technologies, with more modern batteries, electric powered cars will still never be more than a novelty. You still have a problem with recharging the car. This will take several hours at the least. Contrast this with a gasoline powered car, which can get a complete tank full of gasoline in under 10 minutes.
Also, you CAN NOT get away from dependency on oil by using electric powered cars. You still have to be reliant on highways, particularly those that are asphalt paved (a lot of local streets are paved with asphalt). This asphalt is made from oil.
You don’t consider the fact that there is extensive use of plastics in the throughout the car. Even the very tires you ride on, are partly made from oil, if I am not mistaken.
In terms of economics electric powered cars are indefensible. If you or I were given $16,000 to spend on a car, and we had a choice on whether to spend the money on an electric or gasoline powered car; we would spend it on a gasoline powered car. Very few people would spend the money on an electric car. Who would want to spend money for a car of limited mileage that would require waiting for hours to recharge; when they could spend the money on a gasoline powered car, that would have significantly less limitations on mileage, and require only a few minutes to fill at the local gasoline station?
BillT on Tue, 21st Aug 2012 2:51 am
MarkR is just an example of the huge number of deniers that refuse to accept reality and prepare for it. We once had a President tell us that we had to change, conserve, and cut our energy use, but he was booted out and laughed at. Well, he is the one laughing now.
Cars killed the chance we had as a species to go to the stars. Instead we chose to go to Walmart and McDonalds. Thanks capitalism and the elite for making that decision for us 100 years ago. Now they are destroying the world in their last ditch attempt to have it all before it ends.
Landseven on Tue, 21st Aug 2012 5:01 am
To me, the chief oversight of many who have written about peak oil is the assumption that global oil scarcity will hit industrial societies “on all cylinders” all at once–transportation, agriculture, industry, etc.–instead of supposing that high prices will sequentially eliminate the most demanding uses over a period of several decades. A rising tide may lift all boats, but an ebb tide strands vessels with the deepest draft first.
At present, all uses of oil are impacted by price increases because no uses have been abandoned. But if the largest, most intensive use is eliminated at some point, then an enormous amount of demand is also eliminated and prices will relax for the remaining uses.
Clearly, the automobile, as the single most demanding use of oil, will be the first casualty of high gas prices. The pertinent question is, “How high do gas prices have to rise before the automobile ceases to be an affordable mode of transportation for the masses?”
Whenever that point is reached and the private car is abandoned by a sufficiently large number of people, popular pressure will force the public and private sectors to make the necessary shifts toward a local economy.
Once Americans stop driving, a huge consumer of oil will go offline. By the time Americans give up their cars other drivers in poorer nations will have also. World oil demand will then be more than adequate for every other non-automobile use for the next few decades, including chemical synthesis, agriculture, and military operations.
Business and industry will, perforce, have to follow workers and consumers into the smaller, more distributed economy or fail altogether. Big box, discount, and department stores will have to convert to the local dollar-store model. Lord knows there is plenty of empty business real estate in small towns just waiting to be turned into a neighborhood Sears hardware or Wal-Mart dollar store.
In short, we will revert to a status quo ante-1950s and probably coast along in that groove for awhile. That might not be so bad. Yes, incomes, GDP, and economic activity will be sharply curtailed, but life will be far from unbearable. In many ways, it will probably be superior to the lifestyle we presently enjoy/endure.
What is unclear to me is how abruptly such a transition will occur. If gas prices rise precipitously in a short period of time, economic collapse will ensue. But if gas prices creep higher over several years, as they have been doing, with occasional scary spikes, people are going to begin making adjustments ahead of time. Young people especially are far more ready and willing than Boomers to abandon the automobile in favor of electronic communication and telecommuting, and many have already done so. In a few more decades, the voluntarily anti-auto crowd might reach a political critical mass before rising oil prices actually force the abandonment of the car.
BillT on Tue, 21st Aug 2012 1:41 pm
We will NOT gradually stop using oil over decades. It will happen quickly in a dominoes collapse. The cost is NOT going to drop because demand drops. The cost in energy to produce energy is going up all the time. EROEI. When it costs a billion dollars plus per well, they cannot sell the oil for $50 a barrel. Those days are gone.
MarkR on Tue, 21st Aug 2012 4:56 pm
I think technological substitution will replace much of the oil when it is needed. Bioplastics are one example of this substitution. Things like asphalt can still be made from low grade oil that is otherwise uneconomical to extract. There is plenty of low grade oil still out there. When you use it for another product EROEI is not as much of a factor. Iron has an extremely low EROEI and humans still use it to build things on a massive scale.
Newfie on Tue, 21st Aug 2012 6:30 pm
Never ending growth is a fairy tale.
MarkR on Tue, 21st Aug 2012 8:09 pm
Here is an alternative theory that suggest growth can be infinite, at least until we exhaust all the resources in the galaxy-
http://en.wikipedia.org/wiki/Kardashev_scale
BillT on Wed, 22nd Aug 2012 1:32 am
Mark, Tech will NOT save you. It is a lot of BS pushed to sell products and take suckers money. You must not live on the same earth the rest of us do. You live in the “American Dream” that never existed and never will.
Arthur on Wed, 22nd Aug 2012 10:42 am
Bill, in the past you have driven likely hundreds of thousands of miles in your private car, you say you are still living in a city, you probably browse the internet for at least a couple of hours a day, you enjoy electricity, airco and soon you will fly to the US to visit your family and friends. You are only preparing for a rural life because you expect a shtf scenario, not because you enjoy that lifestyle. In other words, you enjoyed the advantages of modern technological modern life yourself.
Technology is the difference between the cave man and modern man. Most here realize that much of that technological lifestyle is unsustainable, or in the words of Richard Heinberg: “The Party is Over”. Even Heinberg called it a ‘party’, not a nightmare. In other words, technology was pleasant, but helas, society runs out of fuel.
The conclusion must be: technology is positive. The challenge for the future must be, to get rid of all those technologies that are unsustainable en keep those with a low energy footprint.
The vision must be: an Indian village, with merely a glass fiber connection to the nearest regional capital, not necessarily a maintained road, let alone a railway track, not to mention an airport. All kids have a government provided 40$ Android tablet…
http://www.naaptol.com/price/876887-HCL-Sakshat-Tablet.html
… from which they get all their information, education, communication with authorities and doctors, exams, trade, etc. The entire new IT-infrastructure will be the backbone of the new society and can be powered by a few square meter solar panels per village and a handful of wifi access points.
SOS on Wed, 22nd Aug 2012 2:42 pm
MarkR! Hats off!
SOS on Wed, 22nd Aug 2012 2:45 pm
Anybody can start, and live in an Indian village now. Heck, move to the jungle or something. Stone age tribes still exist you know.
SOS on Wed, 22nd Aug 2012 2:50 pm
EROEI isn’t a factor at all unless you are looking for a sudoscience foundation for peak oil. The equation is totally subjective. When I supply the variables based on a reality we have I am very optimistic about our energy future.
SOS on Wed, 22nd Aug 2012 2:52 pm
A billion dollar well? LOL! Show me a billion dollar well and I will show you thousands of new wells coming in fully developed under 15 mill. Those wells get the investment back in less than a year.
Arthur on Wed, 22nd Aug 2012 3:00 pm
I obviously was describing how life ***for Indians*** in an Indian village could look like after the Indian government makes the right choices, after acknowledging the dire energy situation of that country.
About Mark’s “Kardashev scale”… nobody knows how the world will look like in 1, 2 or 3 centuries. What we do know is that fossil fuels will run out during the life times of those younger than 30.
Peak conventional oil: now
Peak natural gas: 2025-2040
Peak coal: 2025-2050
Additionally the planet is stuck with an American government that wants the conquer the entire world. And since they could not even defeat North-Vietnam (even with the aid of South-Vietnam) a child can predict that the US will be destroyed by the rest of the world. But before that happens we can expect so much death and destruction that most of the fossil fuel production and refining capacity will be destroyed before the US has understood it is pursuing impossible goals. And before the world has run out of fossil fuels.
SOS on Wed, 22nd Aug 2012 3:17 pm
Very levelheaded analysis by Landseven. I read yesterday that young people are buying fewer cars. This is mostly an urban phenom sice autos are and will remain a necessity in more rural areas.
SOS on Wed, 22nd Aug 2012 3:26 pm
The reality of available reserves is terribly understated and only useful in the context of short to mid term financial planning.
The USGS did say the Bakken formation is the largest they have ever studied. The amazing thing about the Bakken is the expansion in three dimensions. Not only is the geographical area of the field boundaries expanding but the payzones below the Bakken and Spanish Fork are now being acknowledged effectively doubling or tripeling published available reserves.
If recoverable reserve estimates were reliable we would have been out of oil long ago.
Arthur on Thu, 23rd Aug 2012 12:18 pm
SOS, you refer to USGS, that USGS?
http://richardheinberg.com/peak-denial
1998, when the modern Peak Oil discussion was just hatching, the International Energy Agency, the US Department of Energy, and the US Geological Survey all issued forecasts that world oil production would grow steadily to achieve 120 million barrels per day by 2020, while prices would remain at the level of $20 per barrel (in 1998 dollars) even beyond that date.
Neither the IEA, nor the DOE, nor the USGS, nor Daniel Yergin foresaw a situation in which crude oil production would flat-line for seven years beginning in 2005, or in which prices would whipsaw to record highs of up to $147 a barrel as they did in 2008.