[Graeme]

Looking Back at Peak Oil: The Coming Crisis in Energy Supplies

$this->bbcode_second_pass_quote('', 'P')eak Oil – the maximum sustainable rate of global oil production – happened in 2012. That’s one of the main conclusions of a new report, Fossil and Nuclear Fuels – The Supply Outlook, released in March 2013 by the Energy Watch Group (EWG). This event will have profound long-term implications for how advisors should manage clients’ portfolios, and how clients should plan their future expenses.

A clear awareness of a client’s resources is essential before developing a forward-looking strategy. Our national conversation around energy has become one of anticipated abundance, despite many who express concerns about limits. Yet all advisors have worked with people who seem prosperous, only to discover that they are living beyond their means. When financial advisors begin working with clients, one of the first tasks is creating an honest balance sheet. We must understand a client’s resources before developing a forward-looking strategy. That understanding is what EWG attempts to provide for America and the whole world in this report.

[ROCKMAN]

Graeme – “Peak Oil…production happened in 2012. This event will have profound long-term implications for how advisors should manage clients’ portfolios, and how clients should plan their future expenses.”

Thank goodness they caught on just in time. LOL. Yes…I’m being a little snippy but at least I’m consistent with teasing folks who think the actual date of PO is significant. How many examples are there showing that the global energy dynamics have been having “profound long-term implications for how advisors should manage clients’ portfolios” long before 2012? Let’s just jump back to the Iraq invasion of Kuwait…I seem to recall some “small” impacts on the market some 20 years ago. Tie such “minor” events, like the US invasion of Iraq (the second time), with the various economic cycles and it seems a tad late in the game for EWG or anyone else to be sounding alarms over the impact of PO happening an some specific date. I haven’t heard even the biggest pessimist argue that the date of PO had occurred before 2000. Yet investors, along with all the industrialized economies of the world, have been dealing with the POD…Peak Oil Dynamic, long before 2012 or any other recent date someone wants to tag on PO. And if tomorrow, by some unexpected miracle, the world suddenly develops a higher oil production rate than ever before we can change the PO date but can’t change the POD. Consider the recent surge in US oil production. Not a new peak but thank goodness we know have cheap/gasoline and a booming economy. What…we don’t…how can that be? We’re producing so much more oil now and the future looks even brighter. As said before: IMHO our increased oil production is a result of the POD…not in spite of it.

There have been probably been $trillions won and lost by investors over at least the last 20 years due to the POD. Fortunately now that someone has officially claimed 2012 as the date of PO these savvy advisors managing those portfolios can take our energy situation into account when they make their recommendations to their clients.

[SeaGypsy]

Funny as Rock.
(Weird how folks like the various incarnations of Shorty can interpret you as a non believer. I find your posts some of the best writing on the subject.)

[diemos]

2008 was the year that oil production could not meet oil demand and the economy was forced to contract. That price spike and collapse marks the end of the couple of hundred years of economic expansion that fossil fuels enabled and the beginning of the endless recession as far as I'm concerned.

[ROCKMAN]

Pstarr – Copy write POD??? Never…Rockman is a river to his people. LOL. Also: extra points if you know the movie I stole that line from.

A plateau…for sure. But when did it start? I think one can make a point it began in the 1970’s which, IMHO, is when the POD began affecting the world. From1945 to 1979 the global oil rate increased over 800%. That’s 800% in about 3+ decades. Since then it has risen only about 30%. That’s about 30% in 3+ decades. The rate has been climbing off and on since the late 70’s but compared to the rates over 60 years ago it looks like just a bump up on a plateau during the last 60 years. A bump up that will probably continue as long as oil prices stay high…but just for a while IMHO. If oil price collapse as they did in the early 80’s we’ll see this latest ramp up disappear. OTOH eventually no oil price will be high enough to bring more oil out of the ground to counterbalance depletion. A $100/bbl price may make the shales viable but $200/bbl won’t create oil where it doesn’t exist. And most agree that eventually we’ll start seeing more downward slides in the rate than upward ones. Debates rage over whether that happens in 5 years or 30 years. But you don’t see many folks arguing that it will never happen.

So from that perspective the POD began over 35 years ago IMHO. My own personal experience confirms this. When I started with Mobil Oil in 1975 my first mentor explained the ramifications of PO we were facing then. He didn’t call it Peak Oil but the “reserve replacement issue”. But the same dynamic. And the POD encompasses low oil prices as well as low production rates. The POD drove oil prices high in the late 70’s which spun the world into a deep recession and brought about huge demand destruction. The $12/bbl price in 1986 has the result of the POD just as the $146/bbl was a few years ago. Just as the $100/bbl recent price of oil has driven the shale plays and increased US production. As I’ve said before: IMHO the increase in US oil production is as good a proof of PO as any I can point to.

OTOH a PO date of 2005 or 2012 doesn’t explain what happened decades ago. But the POD does. Likewise what happens to oil production, prices and the world’s economies in the future will be determined by the POD whether PO happened in 2005, 2012 or not for another 10 years. The date of PO means nothing to me. For others…battle on. The complex relationships of all the components of the POD do.

BTW: the movie was “Lawrence of Arabia”.

[ROCKMAN]

pstarr – I get more aggravated with the oil companies sometimes than Joe6pack. I’ve worked for public companies much of my career and I can promise you I’ve spent more time in meetings discussing how disguise the fact we were having trouble finding big new prospects than discussing where to drill the next well. There were gigs I spent more time massaging my maps to get more proved reserves out of third party auditors than trying to find a new hole to punch. Even when I started in 1975 as an offshore development geologist with Mobil my one bonus came from increasing my areas booked reserves (on paper). And I’ve walked off contract with more than one small pubco because I wouldn’t sign off on some fraudulent analysis.

OTOH should we expect the CEO of ExxonMobil or Shell Oil to lay out the impossible task they know they have in the effort to maintain their reserve base let alone increase it (with the drill bit). The job of upper management of a pubco is to instill optimism in the shareholders for the company’s future. XOM loves to brag about replacing their proven produced reserves every year. Bu they avoid pointing out that much of those additions come from acquiring producing wells and not by drilling up new reserves. The year the bought XTO 80% of their proven reserve addition that year came from that acquisition…no drilling new wells. But it’s not Big Oil’s fault…they’re doing the best they can. They can’t replace their production with new wells…they are just too big.

[Buddy_J]

$this->bbcode_second_pass_quote('ROCKMAN', '
')So from that perspective the POD began over 35 years ago IMHO. My own personal experience confirms this. When I started with Mobil Oil in 1975 my first mentor explained the ramifications of PO we were facing then. He didn’t call it Peak Oil but the “reserve replacement issue”. But the same dynamic. And the POD encompasses low oil prices as well as low production rates. The POD drove oil prices high in the late 70’s which spun the world into a deep recession and brought about huge demand destruction. The $12/bbl price in 1986 has the result of the POD just as the $146/bbl was a few years ago. Just as the $100/bbl recent price of oil has driven the shale plays and increased US production.

[SeaGypsy]

[Revi]

There are lots of peaks. It think the first one we reached was the maximum oil per capita, and that was some time in the 70's. This could be the "real peak" or it might not be, but we are definitely on the plateau now, and falling off of this mesa is going to hurt. I say we should extend and pretend, so that we can hang in the air like Wile E Coyote and then fall off the cliff.

[Graeme]

The journalist who wrote this report got the peak oil date wrong. They misquoted the EWG report (see executive summary, page 7).

$this->bbcode_second_pass_quote('', '�')�� Empirical data shows that world oil production has not increased anymore but has entered a plateau since about 2005.

[ralfy]

Revi is right:

http://earlywarn.blogspot.com/2011/09/p ... apita.html

[Graeme]

Raify, Nice post but I prefer the analysis with oil price factored in. After reading the comments in your post, I found Staniford's consumption per capita plots here.

[ROCKMAN]

Buddy – I see your point. As a geologist one might think I would have focused more on the rocks than the $’s. But consider for the last 38 years I’ve worked in a system that has actually cared much less about what I had to say about the rocks and more about the numbers. Here’s the breakdown of a typical prospect presentation. The first 20-30 minutes going over the geological/geophysical details much of which is only moderately appreciated by management since many aren’t from that background. With complex geology they tend to rely more on the geologist’s credibility than the facts. Then maybe 10 minutes from the land man describing the leases. And then perhaps an hour or more discussing the trade terms if it’s an outside deal, economics, potential reserve addition, potential effects of the stock value if a pubco and how the timing of the drilling can have positive/negative effects on the company as well as management’s bonuses and stock options.

And when it’s all over the management doesn’t tend to remember much about the geology but can talk for hours about the $’s in/out. When I started in 1975 the typical company pyramid was dominated by engineers towards the top and geologists/geophysicists towards the bottom. Once a well was successfully drilled the engineers got to present reserve numbers and cash flows. If it was a dry hole the geotechnical folks would have to explain their mistakes during a post-mortem that the engineers would seldom attend. During the 80’s there was a general shift in the hierarchy of the larger companies: geologists on the bottom, engineers in the middle and economists on top. Always exceptions especially with smaller companies but this was the general trend. Just a WAG but during my career I would offer that for every hour of geologic discussions in meetings there were 5 to 10 hours discussing economics and reserve booking. And for a pubco maybe twice that much.

I’ve been primarily a development/production geologist most of my career as opposed to focusing on exploration. At least 80% of my work has focused on reserve evaluation with the geologic emphasis on how to present a picture with the max amount of proved reserves that I could get an outside auditor to accept. A good geologist can get 10% to 20% more booked reserves accepted from the same data that a less capable on can. I developed a reputation for being very good at this. I never lied but I knew how to pitch optimism.

A long winded answer but you probably get my point: I think in monetary terms and economic trends (essentially the POD) much more than about geology. In truth the geologic aspects have become rather mundane over the years. From a purely rock stand point there really isn't much new in the oil patch. IMHO the last big geologic splash was the recognition of depositional processes that could transport reservoir quality material into Deep Water areas where previously there was no expectation for fields way out there. The general term for the process is turbidity currents. Think of a river transporting sand. Now imagine that river running 2,000’ below sea level and carrying sand 300 miles from the shore line and depositing it is porous sand bars that eventually accumulate oil. That’s essentially the DW GOM play.

But that’s not a concept recently developed. In grad school in 1973 my professor was one of the early proponents of this process in the GOM over 40 years ago. It had been recognized many years before on the west coast. My master thesis was on such a field in the San Joaquin Basin in CA. The professor was using my research to model DW GOM geology. I was looking at seismic data in 1975 that clearly showed such potential in the DW GOM. It just took a while for the engineers to develop the capabilities to drill and produce in those water depths. On other sites I’ve seen folks very surprised to learn that the DW GOM is not some new “magic bullet”: the first DW GOM field was developed in 1976 and more than 160 fields have been developed in the trend since then. And this geologic/engineering dynamic was transferred around the globe. Over 10 years ago I was involved in finishing the drilling of such fields in an area off the coast of Africa.

And the fractured US reservoirs: I’ve mentioned it several times: that exploration model is over 40 years old. The Bakken began development more than half a century ago. I did my first massive frac of a shale in 1979. I frac’d my first Eagle Ford Shale well in 1982. Even the horizontal drilling of the fractured reservoirs is a model that’s over 25 years old. For those that missed the comment before: the Austin Chalk fractured carbonate shale was the hottest drilling play on the planet in the 1990’s and substantially added to oil production in Texas. And all done horizontally with fracs.

A long winded point. LOL. But I think it gets to the root of your remark: no…I don’t have any expectations of something new, big and exciting to develop with respect to geology. We’ve pretty much ID’d all the processes that can lead to oil accumulations and where to go look for them. The only big unknown at the moment IMHO is the Arctic Ocean. But there are a lot of oil reservoirs left to develop. And also older fields that will be reworked for some additional production. In two months I'll be trying that with 20 year old technology in a field discovered in 1946. A project I developed 15 years ago but couldn't sell until oil got above $90/bbl. And some day that 75% drop in rigs drilling for shale gas a few years ago will reverse itself. But not because of some new geologic or engineer development IMHO. It will happen for the most part due to the increasing price of hydrocarbons. I could have drilled and frac’d a thousand Eagle Ford Shale wells in the 90’s…if oil had been selling for $90+/bbl. There will be some gains from areas such as Iraq but only because of access and not geologic or technical issues. When I consider our energy future my focus is on the POD. There’s a bit of geologic aspect to it but more from the increased value of those reserves. The future IMHO will be dominated much by the POD and very little by the rocks themselves. We already know where the rocks are we want to drill but the POD will determine what gets drilled…and who gets to drill them…and who gets to buy that production.

[Graeme]

This thread is about the Energy Watch Group report, which I discovered has already been referred to in this thread by Arthur75. As I've pointed out above, the article which refers to this report has errors in it.

It wasn't meant to be a detailed examination of the history of peak oil but one could always look at the original peak oil paper by Hubbert in this thread. He predicted that peak oil for the US would be around 1970 (Figure 21). ROCKMAN spent most of his career trying to find oil post-peak. I cannot do justice to the efforts of many who have written about global PO since. Multiple authors have summarized the main issues in the wiki article. In this article, it is of interest that the IEA states that production of conventional crude oil peaked in 2006. For those interested in peer-reviewed articles, please read papers listed at the ASPO site.

[ROCKMAN]

Greame – Not taking anything away from Hubbert but his task was relatively easy compared to those beating on global PO. First, his data base was rather accessible thanks to the various public reporting requirements of the states. For most NOC's those stats are state secrets. Second, the geopolitics were fairly predictable. For instance consider what may or may not change significantly with Venezuela now that Hugo has passed. Third, a very different business model followed by small US independence compared to those NOC’s.

The folks beating of global PO deserve more credit than they get IMHO.

[agramante]

ROCKMAN--a quick question. What do you mean by POD? Peak Oil...Debate? Dilemma? Got a few interpretations based on context but since you love your abbreviatns LOL I just want to make sure I understand U.