Peak Oil: Reserves Nonsense

Peak oil deniers always talk about reserves, not production rates, for the same reason a squid squirts ink when it is threatened. Either they haven’t the foggiest idea what ‘peak oil’ means, nor a grip on production data (let alone the key production/reserves ratios). . . or clouding the issue, and painting peak oil analysts as Chicken Littles, is their explicit intent. After a decade of observing this behavior, particularly in publications which should know better, I’m now inclined toward the latter view. [1]

It’s just not that difficult to understand!

The latest in the seemingly never-ending efforts of some to confuse the public about the state of our fossil fuel supplies comes courtesy of this Reuters article entitled “Peak oil and other fallacies.” [Quotes taken from that article unless noted.]

Why?

Despite repeated efforts by those of us whose reliance on facts—the appealing ones and the disturbing ones—guide our efforts, the author is yet another in a long line of commentators who seem to think that just offering large numbers about resources and/or reserves puts an end to all this talk about peak oil. (The other part of this disingenuous approach of using cherry-picked information is the failure to mention anything at all about some of those annoying facts which tell a decidedly different story about the actual production from those reserves.)

In the most recent case, horizontal drilling and hydraulic fracturing have resulted in a big upward revision in reserves and ultimately recoverable resources. The shale revolution has already doubled estimates of global gas resources and will probably have the same impact on the oil industry.
Peak oilers emphasise the total amount of oil and gas below ground is fixed. While that is true in a fundamental sense, the volume of hydrocarbons is so vast it will last for centuries.

Given how often the same term is used, it’s safe to say that “vast” is the go-to word of choice for those who find difficulty dealing with Peak Oil facts. It’s safe, impressive, and entirely unquantifiable. But perhaps I’m being unkind. If you can’t rely on estimates that will probably double, then what can we rely on?

In fact, reserves/production ratios have actually been rising strongly in recent years as the industry adds new reserves faster than it depletes old ones. Buoyant oil prices and strong corporate cash flows have certainly sharpened the incentive to do more exploration activity….
Proved reserves have continued to rise steadily over the last 30 years, even as record amounts of oil have been produced from new and existing fields. Proved reserves hit a record 1.65 trillion barrels at the end of 2011, up from just 683 billion barrels in 1980, according to the BP ‘Statistical Review of World Energy’….
High prices and the continuing lack of access to the major Middle Eastern fields have encouraged oil companies to turn to other areas to add reserves: shale, deepwater and the Arctic. Recent exploration and production activity has begun to add reserves much faster in other areas, especially North America, Latin America and Africa.

Not one single word in the entire Reuters article to explain the difference between and significance of the terms “reserves” and “resources.” I wonder why?

Not one single word in the entire Reuters article to explain anything at all about whether or not reserves/resources can actually be extracted. I wonder why? Until they are produced, they’re just fancy—empty—numbers.

Not one single word in the entire Reuters article about the rapid depletion rates of tight oil reserves now being produced. No mention about the inferior quality, and no mention about the greater expenditures of energy to acquire the newer sources, either. I wonder why?

Not one single word in the entire Reuters article about depletion rates of existing crude oil fields. I wonder why?

Not one single word in the entire Reuters article to explain that until current production rates exceed current depletion rates, Happy Talk about “vast” anything is more nonsense. I wonder why?

Not one single word in the entire Reuters article to explain anything at all about the “record 1.65 trillion barrels.” Every fact-free commentary about the “myth” of Peak Oil which alludes to the trillion-plus resources total neglects to mention the annoying fact that at least 1 trillion barrels of that total are the estimated amounts of oil shale. The same oil shale which has not yet been successfully produced commercially despite more than a century’s worth of efforts. The same shale oil which isn’t really oil at all, but rather, a pre-cursor called kerogen which requires an astonishing input of energy to convert it into something approximating crude oil’s density and efficiency. [Kurt Cobb has a nice summary here.] Oil shale is every bit as beneficial to us right now as is oil inside of Neptune.

The number attached to the reserves total and/or the resources total don’t matter at all—at all—if they cannot be produced economically. As I noted previously [echoed by many others much more knowledgeable than me]:

‘Reserves’ do not equal available supply; not by a long shot. Quintuple the proved reserves figures if it floats your boat, but what might arguably be buried beneath the Earth’s surface offers exactly zero assurance it will in fact be produced economically, practically, or efficiently….And let’s not forget amid all of this great news the fact that we have been using for decades is being drawn down each and every day, and so much of what will be produced going forward will first have to match depletion rates before we marvel at their substitute potential … while billions around the world strive to improve their conditions … using more of the energy resources still available but depleting by the day.

And as Chris Nelder offered in that same article of his referenced above:

It is not about oil reserves (oil that has been proved to exist and to be producible at a profit), or resources (oil that may exist in the ground, irrespective of its potential to be produced profitably). Those quantities do play a role in estimating the peak, but do not determine it in any way….
[I]f you’re not talking about data on oil production rates, or the general topic of reaching the peak rate, then you’re not talking about peak oil.

Not one single word in the entire Reuters article about production rates, either. I wonder why?

That information is not exactly a state secret, so why is it that none of those details found their  way into the article? What’s the point of making half-baked arguments? Who benefits?

Chris Martenson nails it:

So shale oil discoveries may be massive in terms of the total number of barrels of oil–but what they lack are high and sustained flow rates. And there’s a lot of confusion out there in the press right now, with several analysts that should know better, waving their hands at increasing reserves and then making the utterly wrong conclusion that peak oil is a defunct theory.
Now, to illustrate this, imagine we just found a trillion barrels 40,000 feet down. Yeah, that would awesome, right? No more peak oil, at least for a long time, right? Well, what if due to technological considerations, we could only get a few wells installed, and the max flow rate we could get from that reservoir was 100,000 barrels per day. Oh, that’s it? Well, that’s nice, but it doesn’t really help the overall situation, where we’re experiencing roughly 4,000,000 barrels per day,per year declines in existing conventional crude oil fields. That is, reservoir size and flow rates were well-correlated several decades ago, because the stuff just flowed out of the ground so easily, but now that we have to drill tens of thousands of feet to achieve a single well flow rate on the order of 100 barrels per day/per well in the shale plays, or we even have to scoop up tarry sand in giant machines and then power wash the bitumen off of it, oil just don’t quite flow quite like it used to.
There’s a new relationship between reserves and flow rates, and it’s a fraction of the old rate. And it’s an entirely new world, and this has been missed by the less insightful analysts and commentators out there. [2]

And then there’s this curious comment from the Reuters article:

Once reserves are understood to be a created inventory, not a natural endowment, several other fallacies about the outlook for the oil industry explode.

So if reserves are “a created inventory, not a natural endowment,” then what exactly is the point? Why stop at a few hundred billion barrels of “created inventory?” If the argument isn’t intended to communicate factual information designed to help readers understand, then don’t be so chintzy with the numbers. Six quadrillion barrels of “created inventory” … that’s impressive! (That would be enough to supply us all for almost two million years, by the way.)

The author then goes on to argue that a related “fallacy” about peak oil “is that oil will become ever more expensive in future as reserves run out and oil production shifts to ever more marginal and expensive fields.”

I will be the very first person to admit that my understanding of economics is marginal at best. Simple concepts for many; not so simple for my tiny brain. Having said that, doesn’t basic supply and demand inform us that if the supply of something diminishes (and/or is more costly to provide) and demand persists or even increases, the price will go up? When you include the added comment that peak oil “also assumes new oil is much harder to find and develop than the reserves it replaces,” I’m left with a giant WTF!?

The primary reason we’re seeing a rise in production is because oil prices are high enough to justify the expenditures by the oil industry. Tight oil is not a recent discovery; it only became feasible to produce when prices rose. (High prices aren’t exactly a good thing for consumers.) See how long production continues at its current pace if benchmark oil prices decline. One need only look at gas production in the past year as Exhibit A.

And the reason oil companies are attempting to extract oil from the Arctic, or relying on fracking, or looking miles below the oceans, are because oil today “is much harder to find and develop than the reserves it replaces!” Sorry, but … Duh!

But I’ll end this by actually agreeing with at least one part of this author’s commentary: It is time for analysts and policymakers to concentrate on real problems.

Peak Oil is one of the big ones—assuming facts matter, that is.

Peak Oil Matters