Despite boom, peak oil still a concern

Oil and gas production in the U.S. has surged in recent years, leading to a new sense of optimism within the energy industry. Many imagine this recent boom will mean the end of the drive for engineering research in renewables, or at least a major blow, and a stop to the once rampant talk of “peak oil.”

But Brad Plumer, of The Washington Post’s Wonkblog, recently spoke with energy analyst Chris Nelder who outlined the issue of how peak oil is still looming large.

Confusing the terms
As Nelder explains, the concept of peak oil is often confused to imply that the world will simply run out of oil in some dramatic fashion. The term instead refers to the inevitable decline in the rate of production as the world taps the readily accessible and cheap conventional oil deposits.

Mother Jones notes that the International Energy Agency estimates that the globe hit peak conventional oil production in 2006 and is likely to see a long decline over coming years.

Many informed commentators might note that, since 2006, both the U.S. and the world as a whole have seen notable increases in average oil production. The U.S. in particular has experienced a revival brought on by the rise of shale oil production in places like North Dakota and Texas. But Nelder explains that these increases came only at a cost, driven by remarkably high prices.

“In 2005, we reached 73 million barrels per day [worldwide],” Nelder explained. “Then, to increase production beyond that, the world had to double spending on oil production. In 2012, we’re now spending $600 billion. The price of oil has tripled. And yet, for all that additional expenditure, we’ve only raised production 3 percent to 75 million barrels per day (since 2005).”

The problem with ExxonMobil
Nothing highlights the growing issues with the change in oil exploration, Quartz reports, than the case of ExxonMobil, the world’s largest publicly-traded oil and gas company.

While Exxon has been able to reliably replace its produced oil with new reserves for 19 years running at this point – current estimates put the company’s reserves at enough to maintain production for around 55 years. The problem, however, is that output has not risen to match. The company has consistently fallen short of its production targets, as it fails to turn its large reserves into reliable output.

The reason for this discrepancy is that the company has generally been adding reserves in areas where is more difficult to explore and ultimately extract. Shale oil reserves, in the final calculation, are not truly comparable to equally large conventional reserves simply because the costs of production are so much higher and the rate of recovery is often significantly lower.

GE takes action
If it seems like much of the business world is still carrying on as if nothing has changed in the oil industry, that is not entirely true.

Motley Fool notes General Electric recently committed more than $3 billion to purchase oil and gas engineering resources company Lufkin Industries. That company manufactures a variety of tools used to help increase pressure in aging oil and gas fields, helping to eke out a bit more production from reserves that are losing their internal pressure.

It is well known that many oil fields are aging, but because of the added expense it takes to add equipment like that produced by Lufkin, it is not always a given that companies will want to bother with enhanced recovery. That option only makes sense if the prospects for more low-cost oil discoveries are growing slimmer, suggesting prices are likely to remain at the heightened level they seem to have settled into.

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