Peak Oil is You
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Page added on September 12, 2014
Oil and Gas Production – Has oil reached its peak?
To make petroleum takes millions of years and a lot of dead compressed animal and plant matter.
Now unless there is a mass extinction on the horizon, then petroleum is clearly a non-renewable product. Knowing how much oil we have left has caused a fierce debate amongst many scientists. The oil companies say there is plenty of oil left and it would take over 50 years before we start to run out.
However a geologist named M. King Hubbert produced a graph in the 1950s to show how an oil reservoir follows a predictable path from discovery to depletion and the graph made it possible to predict how long the depletion process would take.
When oil production from a reservoir reaches the highest point this is called Peak Oil because the production trajectory will fall sharply. The theory of peak oil has now been applied to the Earth’s oil supplies and some believe we have now reached its peak oil state.
In February 2007, the U.S. Government Accountability Office published a study that examines the steps that would need to be taken in order to protect against a peak-oil fallout. The GAO concluded that there are a variety of factors that will ultimately influence the arrival of peak oil. Consider peak oil as a marathon, one where each of the runners’ progress has an effect on the others. Each of the runners — oil consumption, oil production and alternative fuel technology — is involved in the oil peak, which we’ll call a grim finish line.
In this race, oil production appears to have a tight lead over oil consumption. But remember, in this marathon, each of the runners’ progress affects the others. So every time alternative energy sources have a burst of speed — say, through some new advancement in biofuel technology — oil consumption slows down. The same goes for another runner who is relatively new to the race: conservation. This runner can surge ahead, perhaps through new government regulation, which forces auto makers to increase the fuel efficiency of new cars. In the same way, this would slow down consumption and prolong the race.
The opposite is true as well. Political instability in oil-rich countries could trip up production, causing it to fall behind. The huge economic development that has begun to characterize two of the world’s most populous nations — India and China, each with more than one billion people — could give a boost to oil demand.
The way you look at the peak oil dilemma depends on which runner you bet on. Will alternative fuel sources overtake oil consumption? Or will increasing consumption simply be too much for the upstart to edge out? Will production get a sudden burst thanks to the discovery of a new oil field and leave the others in the dust? One way or another, the only guaranteed loser in this race will be production. It’s how long this race will last that’s up for discussion.
For peak-oil believers, the question is not whether oil production will decline while demand increases, but rather when the peak will take place. The Hubbert Curve of oil production can be extrapolated from individual wells all the way to worldwide production, and its creator, M. King Hubbert, has a history of accurate projections. In 1956, he predicted that the United States’ production of oil would peak between 1965 and 1970. It peaked in 1971 and has been in decline ever since, closely following the curve Hubbert predicted. As a result, the United States imported about 58 percent of the petroleum it used in 2007.
The U.S. isn’t alone in this dilemma. The United Kingdom’s North Sea oil production peaked in 1999. The decline in entire countries’ production may alter the world production bell curve. Many believe we have already reached the peak of world oil production and have entered a plateau. This appears to have happened sometime in 2005, and is being dubbed by peak oil adherents as “peak lite.”
But are peak-oil theorists simply overreacting? After all, no one can say for certain how much oil is left.
In 2006, Cambridge Energy Research Associates (CERA) said “the remaining global oil resource base is actually 3.74 trillion barrels — three times as large as the 1.2 trillion barrels estimated by the [peak oil] theory’s proponents”. The organization went on to say that, rather than peak and decline, the world’s oil supply will eventually resemble an “undulating plateau,” with small peaks and valleys that will continue to meet the needs of global oil consumption for decades to come.
In CERA’s opinion, one to which many of the peak-oil skeptics subscribe, the oil peak theory is just that — a theory — and one that it considers questionable. The organization instead believes the plateau will not occur until at least 2030, and by the time demand surpasses the supply plateau, other forms of energy will be sufficiently advanced enough to “fill in the gaps.”
So how is CERA coming up with such a sunny forecast for oil? They believe we can rely on future discovery and full exploitation of the resources of which we’re already aware.
There are many sources of petroleum that we already know exist.
In the Arctic, oil fields, which could yield as much as 118 billion barrels, were identified in the 1950s. The deep sea is also a source for potentially billons more barrels of oil. And there are also unconventional sources as well. Canada is home to vast fields of oil shale — a rock that when heated releases its oil — and more fields have been discovered in the western United States in 2005. And future discoveries of “superfields” of conventional oil reservoirs could boost world production.
Enhanced oil recovery (EOR) may also help find new petroleum sources. Oil production usually exists in three phases: primary, secondary and tertiary. Primary recovery is the easiest, with oil virtually (and sometimes actually) spurting out of the ground due to pressure from gases within. This was perhaps most famously displayed in the opening credits of each episode of “The Beverly Hillbillies,” when Jed Clampett accidentally strikes oil with an old rifle.
Primary recovery usually draws about 10 percent of the oil in a reservoir. Secondary recovery can remove an additional 20 to 40 percent of the oil. In this process, water or gases are pumped into the reservoir to repressurize the oil. So after these two methods of drilling oil are exhausted, there is still as much as 50 percent of the oil left in the reservoir.
After the first two stages are spent, oil companies generally cap the reservoir, leaving the remaining oil in reserve. But why don’t they just recover it all? The answer is simple economics. Tertiary recovery is expensive. With oil at its current price, it’s simply not economically wise for oil companies to tap these harder-to-exploit resources.
The price for oil hasn’t reached the level where companies will make enough money exploiting resources in places like the Arctic and deep ocean, or to roll out the more expensive technology for enhanced oil recovery.
But when easily accessed oil dries up, the price of oil will increase, since there will be less of it. This may have already begun.
On Jan. 2, 2008, the price per barrel of oil reached $100 for the first time, a landmark many peak-oil proponents have warned of. On July 11, 2008 it reached an all-time high of $147.
When oil suppliers must spend more money to recover oil, the price will rise further. This is one of the possible problems that could face the world if oil peaks or if alternative energy sources aren’t adopted more widely.
Brian Sallery, is the Principal at the Institute of Petroleum Studies Kampala.
23 Comments on "Oil and Gas Production – Has oil reached its peak?"
shortonoil on Fri, 12th Sep 2014 8:44 am
CERA does like to count barrels; that is what they get paid to do. Plus, there is plenty of barrels to count, USGS put the number at possibly 4,200 Gb back in 2000. So, they will have a future in counting barrels. Unfortunately, there happens to be a little more to it than that.
There is a limit to what the end consumer can pay for oil, and that appears to be about $100/ barrel. After $100 the oil is no longer worth what they pay for it. If it cost more than $100/barrel to extract, the end consumer would not, can not, buy it. They just wouldn’t have the funds. The majority of the oil that CERA likes to point out as reserves would cost more than $100/ barrel to extract.
Maybe CERA can send us an email, and explain to us exactly how that is supposed to work?
http://www.thehillsgroup.org/
Beery on Fri, 12th Sep 2014 8:54 am
@ Shortonoil: you say there’s a $100 limit on what the consumer can pay. Who is this consumer? We’ve been told this before, when the supposed limit was $10, $30, $50, $80, etc.
The problem is, there are lots of consumers and each of them has a different oil price limit. Some of them can’t even afford $50 oil and they’re already long out of the game with regards to driving a car etc. Then there are folks out there who can afford $150 oil, $250 oil and even $1000 oil. Sure, in 2008 we found that the absolute upper limit for the price of oil was $150/bbl, but as people get accustomed to higher prices, they adapt and are willing to pay more. We’ve seen this time after time.
So the idea that there’s a hard limit at $100 is just as nonsensical as it was when they said the limit was $50.
ghung on Fri, 12th Sep 2014 8:55 am
Then, again, Short, this is a Kenyan perspective. I expect that they get a lot more utility from a $100 barrel of oil than the US does. Not sure if that makes any difference to the big picture.
Davy on Fri, 12th Sep 2014 8:58 am
Short $100 oil will work as long as the debt Ponzi scheme and parasitic wealth transfer by the global 1%ers continues. There is still allot of low hanging fruit for these folks in the form of poor bastards to be kicked off the BAU bus. Yet, the ship is sinking quick mainly because hyper complexity will not allow wealth transfer and power concentration to go on very long with the predicament of limits of growth and diminishing returns. We have a growth based system that must grow and wealth transfer and market bubbles are not growth. This day is near for a number if reasons especially food issues and short’s thesis on net energy/cost of oil.
Aire on Fri, 12th Sep 2014 9:04 am
The 100 dollar maker is more of the expense in relation to everything else. I mean the effects of how much a dollar is really worth – sure Beery some people can afford higher price but that can be mainly attributed to their position to the source of freshly printed money – are most people gonna be lucky enough to get this money as wealth disparity continues – I would say of course not
poaecdotcom on Fri, 12th Sep 2014 9:39 am
$100 for a barrel of oil for almost 6 millions BTUS is an ABSOLUTE STEAL!!!!!
rockman on Fri, 12th Sep 2014 9:45 am
So many words in this piece and so many misconseptions I won’t bother beyond pointing the continuing obsessions with dates amd reserve volumes while ignoring the productiom rate/demand/price dynamics.
JuanP on Fri, 12th Sep 2014 9:47 am
“Now unless there is a mass extinction on the horizon, then petroleum is clearly a non-renewable product. ”
Does this mean that since there is a mass extinction going on with species going extinct 100 to 1000 times faster than during the Holocene now oil will become a renewable product?
Thank God! We are saved! Back to the TV then.
Solarity on Fri, 12th Sep 2014 9:47 am
CERA claims that oil supply will “resemble an [slowly declining] undulating plateau,” The decline rate is a rather critical concept, which was conveniently omitted.
As stated, a lot of crude remains in the ground in ‘expended and deactivated’ wells. Future innovations and technology will most likely render some (maybe much) of this oil recoverable with reasonable EROEI.
Northwest Resident on Fri, 12th Sep 2014 10:17 am
“Future innovations and technology will most likely render some (maybe much) of this oil recoverable with reasonable EROEI.”
Yep. About the same time they get fusion power generators installed worldwide to replace all of the coal burning plants, and about the time they replace all of the gas stations worldwide with NG and electrical rechargers for the one billion new NG and electrical powered vehicles that will replace all the current private passenger vehicles on the road today, and about the time that cows learn how to fly — that’s about the time they’ll be ready to deploy all that future innovation and technology. All we have to do is sit tight, keep consuming and wait for all that good shit to happen.
Plantagenet on Fri, 12th Sep 2014 10:32 am
Its not even clear that the US has reached its peak. M. King Hubbert famously predicted US oil production would peak in 1970. Its looking like he was wrong—-the US may well pass the 1970 peak in 2-3 years thanks to fracking.
steve on Fri, 12th Sep 2014 10:53 am
Look the fact is the world needs to come up with 30 percent more oil in addition to where it is now…it ain’t going to happen. We will have wars soon all over the world. In the future people printing false stories about oil, will be brought to trial—if they are still alive.
tahoe1780 on Fri, 12th Sep 2014 11:13 am
or cars run on saltwater: http://thechronicleherald.ca/wheelsnews/1225941-a-car-that-runs-on-saltwater
oh, wait…
http://www.manufacturing.net/news/2014/09/saltwater-powered-sportscar-approved-for-road-use-in-europe
http://mediacenter.nanoflowcell.com/en/mediacenter/videos/
Plantagenet on Fri, 12th Sep 2014 11:47 am
@steve
Your claim that the world needs to come up with 30% more oil does’t make any sense. There is a glut of oil right now due to the increasing US production thanks to fracking and the worldwide economic slowdown. Oil prices are at four year lows.
Davy on Fri, 12th Sep 2014 11:58 am
Sorry, Planter, glut is a poor adjective to use. More like constrained demand.
Northwest Resident on Fri, 12th Sep 2014 12:30 pm
Davy — I liked the point you made in one of your other recent posts, where when it comes to demand destruction, there are still lots more people left to throw off that fine sailing vessel known as the good ship BAU. That ship is sinking fast, and the only way to keep it afloat is to throw passengers overboard as fast as possible. People like Plant and Nony are standing at the stern, confident, yelling “damn the torpedoes, full speed ahead, technology and fracking will save us all”, even as the boat sinks slowly into the dark water and the engine chokes from lack of fuel and the passengers are being tossed overboard screaming as fast as “the crew” can toss them. It is a pathetic and humorous sight to behold at the same time.
shortonoil on Fri, 12th Sep 2014 12:40 pm
“you say there’s a $100 limit on what the consumer can pay. Who is this consumer? We’ve been told this before, when the supposed limit was $10, $30, $50, $80, etc.”
Who we are talking about is the “average consumer”. Who are they? They are you, me, and the oil companies (they are now consuming over half of the energy that they produce – to produce the oil, and that is increasing with every barrel they extract, and process). So the economy contracts as the energy flow to it contracts. As the economy contracts the consumer has less, and less to spend on oil, and fewer and fewer consumers can afford it. The last customer will be the oil industry. In the meantime things will slow down, and the price the consumer can pay will go down. At the present that is about $100/ barrel.
http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2014/09/20140912_oil.jpg
$10, $30, $50, $80 was what some economist estimated. What they didn’t take into consideration was that the value of the dollar in energy terms has been going down for a long, long time:
http://www.thehillsgroup.org/depletion2_008.htm
So they kept coming up with the wrong answer. Not surprising!
When you calculate the economy’s activity from an energy perspective, then convert to dollars, you come up with an entirely different conclusion than when you calculate it in dollars, and then convert to energy. The reason is that the relationship is NOT linear. You can’t use a 1980 dollar to calculate energy today (which is what economist using a standard bookkeeping system have been doing all along).
$100 oil surprised the crap out of us also. We have been using the theoretical maximum efficiency to calculate what the end consumer could pay. It is not that high. It is on par with the same efficiency that the average internal combustion engine operates (about 20%). Theoretically, using the maximum efficiency, the end consumer should be able to afford $177 oil, in reality it is presently about $100.
The oil industry now has a serious problem. There are fewer, and fewer reservoirs remaining that can be extracted at a price that the consumer can afford pay. Reserves will continue to fall as they have been, and margins will continue to be squeezed as we see them being today. The day of King Oil is coming to an end!
http://www.thehillsgroup.org/
nemteck on Fri, 12th Sep 2014 2:18 pm
$100 oil is just a round number like Dow 10,000, or $5 per gallon of gasoline. People get hung up on those “threshold” numbers as if they have special meanings. The price of oil is dynamic with up and downs and it just happened that presently we are at $100 for now.
As mentioned in an above comment, some countries can afford different oil prices. Curiously, poor countries (e.g., Bangladesh) will not be affected that much by higher oil prices as compare to a rich western country because the former uses less and much more efficiently than a wasteful society like the US.
WelshFarmer on Fri, 12th Sep 2014 2:20 pm
CERA are just performing their political function of bolstering faith in BAU. Don´t take their reports any more seriously than the hacks paid to write them. Any inventory of fossil resources that fails to mention the associated EROIE is clearly just a propaganda piece.
For anyone on this blog who would dispute this, I would ask them to consider what the world economy will look like when fully one third of all industrial activity is employed in generating the energy needed for the other two-thirds. With an EROIE of 3:1, which is typically for most of the bitumen/shale 4.2 Terabarrels equivalent still remaining, this is the reality demanded by thermodynamics – she´s a real bitch.
It is generally considered that a complex technological urban society is only possible with surplus energy ratios of about 10:1.
See Tainter: the collapse of complex societies.
trickydick on Fri, 12th Sep 2014 7:56 pm
Is this salt car real? Or is this a joke?
or cars run on saltwater: http://thechronicleherald.ca/wheelsnews/1225941-a-car-that-runs-on-saltwater
oh, wait…
http://www.manufacturing.net/news/2014/09/saltwater-powered-sportscar-approved-for-road-use-in-europe
http://mediacenter.nanoflowcell.com/en/mediacenter/videos/
rockman on Fri, 12th Sep 2014 7:58 pm
“…a lot of crude remains in the ground in ‘expended and deactivated’ wells.”. Yes and no. First, wells are ever “expended”: they are either producing at an economic level or they are not. If a well ceases economic production the lease expires and the well is plugged and abandoned. It is very rare for abandoned wells to be re-entered. In addition to the cost and mechanical difficulties new leases have to be bought. Also wells aren’t “deactivated”. They are either producing, shut in or plugged and abandoned.
But yes: lots of oil left in those reservoirs. Typically they are classified as “unrecoverable”. It might range from 20% to as high as 90% of the original reserve volume. But unrecoverable at a certain price level. Increased oil prices can transform an amount of those reserves into a recoverable category. Typically produced via some form of EOR…Enhanced Oil Recovery. Very successful EOR efforts typically recover only 3% to 12% of the original production. That’s the good news. The bad news: that additional recover can commonly take a much longer time then the initial production. So while those very large potential recoveries at higher oil prices may be real notice how it’s very rare for such projections to include the time frame for the additional production. Recovering an additional X billion bbls of oil might sound impressive and a potential rescue for the economy. But when one factors in the decades it would take to produce that oil it greatly reduces that enthusiasm.
WelshFarmer on Sat, 13th Sep 2014 1:57 pm
The salt car appears to be the latest machine to defeat the laws of thermodynamics. Congratulations to all concerned.
Michael Dwyer on Wed, 17th Sep 2014 5:58 am
I may have missed it but I was looking for the discussion on what cost of oil an economy can tolerate.
Economies run on oil and oil cost is a ‘tax’ on growth. without looking it up, growth becomes near impossible when the cost of oil approaches about 6% of GDP.
A better way to look at it than looking at a consumer.