Have We Reached Peak Oil? 23 comments
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The Energy Information Administration [“EIA”] is the “statistical agency of the U.S. Department of Energy and as such is the Nation’s premier source of unbiased energy data, analysis and forecasting”[1]. As mentioned in its webpage, it aims to “provide policy-neutral data, forecasts, and analyses to promote sound policy making, efficient markets, and public understanding regarding energy and its interaction with the economy and the environment”.
In fact, should there be an imminent decline in global oil production, as feared by a growing number of energy experts, the EIA is the one responsible for warning the U.S. government about it.
Let’s not forget that a 2005 report[2] commissioned by the US Department of Energy (the “Hirsch Report”) concluded that the world would need at least 20 years to prepare for Peak Oil. Otherwise, “the economic, social, and political costs will be unprecedented”[3].
In fact, should there be an imminent decline in global oil production, as feared by a growing number of energy experts, the EIA is the one responsible for warning the U.S. government about it.
Let’s not forget that a 2005 report[2] commissioned by the US Department of Energy (the “Hirsch Report”) concluded that the world would need at least 20 years to prepare for Peak Oil. Otherwise, “the economic, social, and political costs will be unprecedented”[3].
Publicly, the EIA argues that Peak Oil is “decades away”. In one presentation they even gave the date of 2044 for conventional Peak Oil[4]. An assumption many will find optimistic at best. Indeed, according to the US Joint Forces Command, “By 2012, surplus oil production capacity could entirely disappear, and as early as 2015, the shortfall in output could reach nearly 10 MBD… The implications for future conflict are ominous...”[5]
Stephen Harvey, the Director of the Oil and Gas Office at EIA, who supervises the Petroleum Division and the Reserves & Production Division kindly accepted to read my degree’s dissertation (How Peak Oil will Affect international Relations[6]) and give his feedbacks. In his email answer (that was not off the record), he declared that:
“There are many compelling arguments regarding the increased difficulty in reaching oil reserves which may well result in a future view of historical production that looks sort of like a bell curve. And, it is quite plausible that the peak of that curve is around now”.
While some people may find this sentence anecdotal, it is a remarkable statement from a top EIA official; an agency which is one of the strongest deniers of Peak Oil, well at least publicly. At this point, one can think of many questions.
What does “quite plausible” mean? Does it mean a 10% chance that we are facing Peak Oil now? Or does it mean a 50% chance? a 90% chance?
Does this statement represent only a personal opinion (from perhaps one of the best informed energy experts) or does it represent a broader shift in the EIA’s view on Peak Oil?
The fact that Mr. Harvey forwarded his email to Stephen Durbin (Director of the Office of Resource Management, EIA) may indicate that this is at least not a private opinion.
The fact that Mr. Harvey forwarded his email to Stephen Durbin (Director of the Office of Resource Management, EIA) may indicate that this is at least not a private opinion.
Why would the EIA publicly say that Peak Oil is “decades way” while one of its most senior officials argues it may well be happening now?
This statement from David Fridley, a scientist from the Lawrence Berkeley National Laboratory (US Department of Energy) gives a possible explanation:
“(Steven Chu, US Secretary of Energy) was my boss," Fridley says. "He knows all about peak oil, but he can't talk about it. If the government announced that peak oil was threatening our economy, Wall Street would crash. He just can't say anything about it."[7]
However, in his email Mr. Harvey seems to believe that somehow, we will mitigate the consequences of Peak Oil:
“I do think you back into a bit of a problem, though. In both the assessment of peak oil and the assessment of the response by states to a peak oil situation, you constrain your analysis by not considering the important roles of economic responses and technological development.”
My assessment relies on the “Hirsch Report” which was, as previously mentioned, commissioned by the US Department of Energy. Nevertheless, the optimistic view of Mr. Harvey may sound odd to many followers of the Peak Oil debate.
In fact, Peak Oil deniers, the “optimists” such as Exxon Mobil, Saudi-Arabia or CERA deny any problem regarding oil simply because they believe that oil production will continue to rise until at least 2030. While you may doubt that oil production could rise until that date, at least their argument is coherent: No Peak Oil = No crisis.
In fact, Peak Oil deniers, the “optimists” such as Exxon Mobil, Saudi-Arabia or CERA deny any problem regarding oil simply because they believe that oil production will continue to rise until at least 2030. While you may doubt that oil production could rise until that date, at least their argument is coherent: No Peak Oil = No crisis.
But believing that Peak Oil = No Crisis as Mr. Harvey does seems to me, very intriguing. In fact, I wonder on what grounds, if any, this belief relies on.
One can see a parallel here with what happened with the financial crisis and the failure of regulative authorities at that time. The same seems to be happening now in the energy sector: over-confidence rules.
To quote Dr. Robert Hirsch:
“The problem is that it takes a very long time to build the machinery that is necessary to exploit oil shale, oil sands, coal-to-liquids or heavy oil. In our 2005 analysis we looked at a worldwide crash program to bring these things into being as fast as possible. We made a number of aggressive assumptions, because a crash program is different from business as usual.
But the problem is that the magnitude of oil production loss each year will be so large and the time required to implement these alternatives is so long that the problem runs away from you if we wait too long. And we have waited too long to seriously start. Eventually, these options and energy efficiency will catch up. It is not as if the world is going to die. But right now, we are looking at a global recession that deepens each year for more than a decade because we are not prepared.”[8]
[3] Ibid
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This article has 23 comments:
The full report is available at j.mp/bsqio
Very much recommended read!
remember 1981-85 with r.reagan. all the existing projects were killed on orders from the houston oil millionaires.
> jack
The consensus seems to be that the peak will arrive around 2015, but I think that for this to happen the global macroeconomy will have to get back on the rails. M. Margerie of Total was apparently at some meeting, and challenged his fellow directors and experts to dispute his belief that no more than 100 mb/d could, etc etc. Given the present output and likely growth rates, I think that the best guess is between 2015 and 2020.
The point is though that with the oil price doing what it is doing, a peak is not particularly interesting. That oil price is too high! Furthermore, I remember telling an ignorant woman in Rome who is widely recognized as an "oil expert" that in l974 the message was sent out from Washington that if the oil price got out of hand, the reaction would be in the form of marines and paratroopers. She of course was too dumb to believe me, and unfortunately I no longer have the official US Congressional document showing where in the Middle East those marines and paratroopers would do their thing, but I can assure you that such a document existed.
As Len Gould on EnergyPulse once said, there are a lot of Americans/people who would prefer a war to doing without their motor fuel.
There are no new sources of Oil, which will now prove sufficient in size to overcome the depletion of the existing, but decaying old super fields.
If we were just treading water, with no growth, we would need 1 new Saudi Arabia every 3 years, just to stay where we are!
If Production were to keep up with inflation, Demand & Population growth, then another 2 Saudi Arabia's would need to be found & put into production every 3 years.
Unconventional sources such as Canadian Tar Sands & Shale and the newer deep water fields are simply not significant enough to offset the depletion rates at the old super fields, such as Ghawar & Burgan.
I suspect the current Production plateau may continue, for a short period, but production will fall behind Demand. However, as Demand outstrips Supply and Prices rise, those very Price rises will trigger the Global Oil Cost/GDP Ratio to run ahead too much, thus triggering another Economic & Share Market pullback.
The old rules are changing, the return on Money & Energy are being irreversibly delevered. The EROEI (Energy Return On Energy Invested) was 100/1 in the early days of Oil, it is now less than 10/1 and falling. New Oil is going to be much more costly to find & Produce and the Investment return is not going to be anywhere near what it used to be.
When the general perception finally accept that Oil has Peaked, then the rush away from Oil will begin, into the search for something else, which may not be there. This process will also severely dilute the capital needed for Oil Exploration and the EROEI will be further eroded!
In fact, even though Demand and Price has been rising, the investment in new Exploration has already been falling!
In the interim, Oil producing countries, particularly OPEC, refuse to verify or even discuss their actual level of their reserves.
If that happened, then the conjecture & uncertainty would come to an end.
There are a few likely scenario's -
1) The levels of reserves are substantially UNDERSTATED, THE IS MUCH MORE OIL THAN COMMONLY THOUGHT.
Whilst this is a very unlikely outcome, in this instance the result would be the usual where Supply exceeds Demand, the Price of Oil would fall!
An outcome not favoured by major self interest groups!
2) The levels of reserves are substantially OVERSTATED, THE IS MUCH LESS OIL THAN COMMONLY THOUGHT.
This would be the likely outcome and in this instance that would spark a MASSIVE & URGENT MOVE AWAY FROM OIL, towards other possible Energy sources, particularly for the transport sector.
That would result in a massive fall in Demand for Oil, in the near term and as usual where Supply exceeds Demand, the Price of Oil would fall!
An outcome not favoured by major self interest groups!
3) The levels of reserves REMAINS UNKNOWN, UNVERIFIED & SUBJECT TO CONSTANT CONCERN.
This is the current Status Quo outcome and the result is as usual where Demand appears to exceed Supply, there is constant pressure on the Price of Oil to rise!
THE PREFERRED OUTCOME for major self interest groups!
There are no guarantees in life, but the likely outcomes suggest that in 5-10 years, the Global Economic outlook, will be significantly different to today and I am not talking of upside!
The biggest risk is not "peak oil" itself, but that politicians will undoubtedly take steps to try and "fix" the problem -- thereby impeding the free market's ability to respond to the situation.
I agree with perceptions as it was proven in June08 when every possible well was producing every possible drop of oil and couldn't keep up.
Anyone betting on peak oil being in the future is going to lose.
Why do you think oil is hitting $80/bbl now when there is plenty of supply because of the downturn? It's because speculators know as soon as the economy recovers next yr, oil is going to hit $150/bbl or whatever it takes to put us back into recession.
And we will repeat that again and again until we get off imported oil.
The best way to get off oil is put the full price in it by removing their direct subsidies and put a tax on them for their indirect subsidies like Persian Gulf military, oil wars, trade deficit costs which is in our income, other taxes with an oil tax of about $1.50/gal spread over the next yr.
The beauty of this is it will collapse the price of oil so Iran, Russia, oil dictators pay most of it as our consumption drops. Not doing it means recessions, more oil wars and make us broke. This is basic econo 101.
Since 2005, world production of raw crude has not topped 2005's output and in fact have declined. Factor in the decline rate of current oil fields, declining new oil discoveries, insufficient projects in the pipeline and ever-growing high-birthrate population demand from the Middle East, developing countries and China and India -- and it should seem obvious that soon population demand will outstrip suppy everyday.
This is why it is so important for America and those countries blessed with oil sands, oil shale and other unconventional heavy oil resources to start developing these new oil resources as soon as possible.
While I understand the strong environmental opposition to the current type of heat-based oil extraction methods used in the Canadian oil sands -- I am on an quest to inform the public and oil industry to seriously pursue much cleaner and cost-effective alternatives to this dirty oil sand technology.
Here's one such clean oil technology that seems promising enough to do the job:
See the videos at EncapSol.com/media
and see the scaled-up equipment actually extracting oil from Utah tar sands:
EncapSol.com/tar-sands.../
The EncapSol chemical-based oil extraction technology uses 21st geochemistry to break the molecular bonds that bind oil to sand, clay, rocks and water -- releasing the oil and encapsulating it within its low-viscosity solution for easy withdrawal from an oil well or extraction from tar sands or oil shale.
This is the kind of technology that America and the oil industry need to deploy to enable us to produce more oil here at home in an environmentally friendly way that does not waste huge amounts of water to make steam or wash rocks, does not burn huge amounts of natural gas to make heat to boil water and does not create huge amounts of tailing pond waste effluence which current heat-based retort and in-situ technology does to their detriment.
I'm not saying it necessarily makes up for the slower production from conventional oil, but disregarding it paints a darker picture than reality.
Even if you & I may reduce our personal consumption by say 10% each year, there are some 2.5 Billion in China & India, who are eagerly trying to become 1st world consumers.
So, if the current Oil based Energy economy were to continue in a status quo mode for another 10 years, what do you think may happen, as the current 1 Billion 1 world consumers save 10%, but the 2.5 in Chindia increase their comsumption by 50%?
And, yes, I know!
On Oct 28 02:08 PM sethmcs wrote:
> Forget Peak Oil and think peak oil consumption. Every year I consume
> less oil. Oh by the way there is no shortage of oil nor paper oil
> contracts. Looking at the price of bonds and the price of oil somebody
> is terribly wrong. Maybe we will find out who shortly.
Unconventional sources such as Canadian Tar Sands & Shale, as well as the newer deep water fields will contrbute, but they are simply not significant enough to offset the depletion rates at the old super fields, such as Ghawar & Burgan.
In addition, their EROEI is substantially lower and their higher cost structure will force the end user price to escalate.
That, in turn, would raise the spectre of increasing the Oil Cost/GDP ratio past the point, where it tips the Global economy back into recession?
On Oct 28 04:14 PM ValueInvestor wrote:
> The problem I have with peak oil is that its based on conventional
> oil production which means nothing IMO. The only thing that should
> be talked about is total world production. How can people completely
> disregard unconventional production? It counts for a couple million
> barrels a day and growing.
>
> I'm not saying it necessarily makes up for the slower production
> from conventional oil, but disregarding it paints a darker picture
> than reality.
Have you ever looked at how much the price of gas at the pump is actually taxes. I have no data, but I think that if the taxes went away, and the subsidies went away, the price at the pump would be less.
I am long oil in the form of VGENX
Tar sands barely washes its face on ERoEI. Shale is a complete non starter and CTL is like eating your own legs so you can save up for a bus ticket - how desperate would you have to be?
Take the fossil energy subsidy out of manufacturing and installing wind and solar installations and they're still OK but not, like, a solution to the energy hole opening up under our feet. The mice are arriving when we need the cavalry.
How did we get into this mess? Oh yes, human ingenuity and Econ 101. Pardon me for not wishing to rely on the same self-regarding and complacent ideas that brought us here to lead us out.
James Howard Kunstler has written a speculative, but insightful book about the future when the absence of cheap oil unhinges our society. It is worth a read. The Long Emergency was written in 2004 or 2005 and much of what he suggests will happen seems to be coming true.
On Oct 28 09:48 AM perceptions_now wrote:
> Regrettably, I am of the opinion that Oil Production has already
> effectively Peaked in 2005, in that it has subsequently failed to
> keep up with inflation, Demand or Population growth.
>
> There are no new sources of Oil, which will now prove sufficient
> in size to overcome the depletion of the existing, but decaying old
> super fields.
>
> If we were just treading water, with no growth, we would need 1 new
> Saudi Arabia every 3 years, just to stay where we are!
>
> If Production were to keep up with inflation, Demand & Population
> growth, then another 2 Saudi Arabia's would need to be found &
> put into production every 3 years.
>
> Unconventional sources such as Canadian Tar Sands & Shale and
> the newer deep water fields are simply not significant enough to
> offset the depletion rates at the old super fields, such as Ghawar
> & Burgan.
>
> I suspect the current Production plateau may continue, for a short
> period, but production will fall behind Demand. However, as Demand
> outstrips Supply and Prices rise, those very Price rises will trigger
> the Global Oil Cost/GDP Ratio to run ahead too much, thus triggering
> another Economic & Share Market pullback.
>
> The old rules are changing, the return on Money & Energy are
> being irreversibly delevered. The EROEI (Energy Return On Energy
> Invested) was 100/1 in the early days of Oil, it is now less than
> 10/1 and falling. New Oil is going to be much more costly to find
> & Produce and the Investment return is not going to be anywhere
> near what it used to be.
>
> When the general perception finally accept that Oil has Peaked, then
> the rush away from Oil will begin, into the search for something
> else, which may not be there. This process will also severely dilute
> the capital needed for Oil Exploration and the EROEI will be further
> eroded!
>
> In fact, even though Demand and Price has been rising, the investment
> in new Exploration has already been falling!
>
> In the interim, Oil producing countries, particularly OPEC, refuse
> to verify or even discuss their actual level of their reserves.
>
>
> If that happened, then the conjecture & uncertainty would come
> to an end.
>
> There are a few likely scenario's -
> 1) The levels of reserves are substantially UNDERSTATED, THE IS MUCH
> MORE OIL THAN COMMONLY THOUGHT.
> Whilst this is a very unlikely outcome, in this instance the result
> would be the usual where Supply exceeds Demand, the Price of Oil
> would fall!
> An outcome not favoured by major self interest groups!
>
> 2) The levels of reserves are substantially OVERSTATED, THE IS MUCH
> LESS OIL THAN COMMONLY THOUGHT.
> This would be the likely outcome and in this instance that would
> spark a MASSIVE & URGENT MOVE AWAY FROM OIL, towards other possible
> Energy sources, particularly for the transport sector.
> That would result in a massive fall in Demand for Oil, in the near
> term and as usual where Supply exceeds Demand, the Price of Oil would
> fall!
> An outcome not favoured by major self interest groups!
>
> 3) The levels of reserves REMAINS UNKNOWN, UNVERIFIED & SUBJECT
> TO CONSTANT CONCERN.
> This is the current Status Quo outcome and the result is as usual
> where Demand appears to exceed Supply, there is constant pressure
> on the Price of Oil to rise!
> THE PREFERRED OUTCOME for major self interest groups!
>
> There are no guarantees in life, but the likely outcomes suggest
> that in 5-10 years, the Global Economic outlook, will be significantly
> different to today and I am not talking of upside!
For the most part, I still believe the real threat to oil production has nothing to do with geology, and everything to do with politics, which is why it will not follow Hubbert's Curve. We may be approaching peak political oil much sooner than we reach true peak oil production capacity. There are still many billions of barrels of oil that are not reachable due to political constraints all around the world.