Peak Oil: Caused by Geology, Politics or Infrastructure Issues? 22 comments
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First, many thanks for the kind words that I received. It has been an awfully long time since my last article, due to opening up a new business.
I was reading the article on the “IEA Whistleblower” who claims that the IEA has been intentionally “underplaying” the onset of Peak Oil, and that the likelihood of the world’s Oil Supply keeping up with the upcoming demand is small. Most of this demand will come from the developing world, including countries such as India and China, but also Africa, the Middle East and Latin America.
I started to wonder... if we are indeed entering a period of Peak Oil, is it truly being caused by strictly Supply/Demand numbers, or is there more than meets the eye? There are a few reasons why we could be entering Peak Oil… Here is a closer look:
1) Not Enough Oil to Meet Demand
The Theory of Peak Oil (namely based on Hubbert’s Peak) had little to do with the actual amount of Oil in the ground (whether Proven or Probable reserve levels), but rather the production level itself. Hubbert correctly called US Peak Oil almost 40 years ago, but the US is still producing Millions of barrels of Oil daily… it simply was not able to increase/maintain its production to meet the demand.
Is there enough Oil to meet the demand, putting aside Political Motivations? I would say undoubtedly yes. If places such as the Alberta Oil Sands, ANWR and Saudi Arabia were ever able to fully “open things up”, we would see a dramatic spike in Supply for many years. This leads to the next point.
2) Not enough Political or Financial Motivation to Allow for the Required Production Increases
Ok, so if my theory is that we are entering Peak Oil, yet there is likely enough places to increase production to hold this off, there must be something holding this up, and that is Political pressures. Pressures can come for a variety of reasons:
Environmental Concerns
The Alberta Oil Sands (with the right amount of Capital investment) would be able to produce 10+ Million barrels a day… so why aren’t we doing it? Well, first, it would burn so much natural gas that most of us couldn’t be able to afford to heat our homes. Next, the Environmental impact would be staggering (incredible drain on the Water supply in Canada, off the charts level of Greenhouse gas production and huge impact on the Natural habitat). The same can be said for increased drilling in places like ANWR. Politicians simply could not let that happen.
Capital Investment
In the ideal world, Oil would flow cheaply like it does in Saudi Arabia, and the cost to pull a barrel out of the ground would be sub-$10. Now, the reality is that the costs for many Offshore and Oil Sands projects often only make sense with a long-term Oil price that is north of $80 to $100 a barrel, and even then the Return on Capital might not be spectacular. With the current capital environment, and the instability of the Oil price, it doesn't make sense for Oil Companies to make the investment. The same holds true for National Oil Programs.
Political Motivation
As weird as it may sound to some, there isn’t a lot of motivation for many State owned Oil companies to greatly increase the flow of Oil. Simply, their main goal is not to create extreme wealth for their residents, but rather to maintain a consistent level of tax revenue. As well, it is also a fact that as a country increases its Production Output, their own Internal usage tends to climb at a pace that is higher than the rate of the increase in output… so, the more they produce, the more they use themselves (defeating much of the purpose). As well, while the purpose of this article is not to introduce Political opinions, it likely goes without saying that many countries enjoy the Political control that their Oil has over many nations... opening up the taps wouldn’t help that situation.
3) Insufficient Infrastructure Will Limit Supply Increases, Regardless of Point 1 or 2
When speaking with a Senior Oil Operations Director, I heard a unique way to describe the world’s Energy Infrastructure. When I asked him if we were in Peak Oil, he said “I have no way of knowing the production side, but it doesn’t matter anyways… We’re using Bubble gum to stop the leaks on the flow that we have now, what makes you think we can handle more production even if it was available?”
Many of today’s refineries have very old technology and are in desperate need of overhauls. As well, much of the World’s pipeline infrastructure is in serious decay. Even if we were to have unlimited funding and manpower to fix these issues (and add more capacity), would we even have the capacity in Steel production to handle the trillions of dollars in repairs that are needed? What would the impact be on the price of things such as Cars? What about the other infrastructure projects, such as Bridge repairs, that also need the same materials?
So, to recap, are we entering Peak Oil? The answer is undoubtedly yes, we’ll just never know the true reason why…
Disclosure: Very long on Oil (many holdings in Oil Producers, Pipelines and Service companies).
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The oil supply is governed by economics. This is what I tell people. IF YOU WANT TO KNOW EVERYTHING ABOUT THE GLOBAL PEAK, STUDY THE PEAKING OF THE OIL SUPPLY IN THE U.S. That peak took place at 9.5 mb/d, and now - almost 40 years later . it has declined to 5.6 mb/d. Accordingly, had it not been for economics, the peak would have been much higher. Incidentally this is EXACTLY what you say when you said that there is not enough financial motivation to raise output, but even so you have missed the details, and in this case they are important..
'IF YOU WANT TO KNOW EVERYTHING ABOUT THE GLOBAL PEAK, STUDY THE PEAKING OF THE OIL SUPPLY IN THE U.S. That peak took place at 9.5 mb/d, and now - almost 40 years later . it has declined to 5.6 mb/d. Accordingly, had it not been for economics, the peak would have been much higher. '
What? Oil production in the US followed a normal distribution curve. Of course it does not decline rapidly to zero.
As for the peak being 'much higher' 'but for economics' , production of any resource is governed by the price you get for it.
Since at the time the US peaked oil elsewhere was still plentiful, in order to have higher prices in the US you would have needed to tax imports, and that is a notoriously leaky process.
No doubt some extra production would have been forthcoming, but 'much higher' seems unlikely.
In our present circumstances where oil constraints worldwide are looming, higher prices will indeed lead to higher production, but again the question is 'how much higher prices, for how much extra production?'
Since oil is fundamental to the economy, in practise very high oil prices seem to choke off growth, killing demand and the oil price.
IOW until we move on to altering the energy demands and sources of our economy then it seems unlikely that higher prices are going to call up vast new supplies.
They are much more likely to kill the economy, as it can't sustain the prices needed.
'Why not spend the money needed for new oil infrastructure on new infrastructure for wind. solar & natural gas.'
Shale gas is the exciting new supply that has come on line. Rocks are fractured in this technology, and horizontal drilling leads to gas release much more economically than had been possible with previous technologies, although prices might well have to rise from current levels to make much of the production economic.
The production from this sort of well peaks within around 12 months, and declined rapidly, meaning that yopu have to keep drilling to keep up supplies.
Now it may all pan out, and some argue that supplies will be ample for many decades.
It doesn't seem a good idea to bet the farm on this though.
In practise renewables rely on heavy gas burn to make up for when they are not available.
One other use for natural gas may be to use for long distance journeys, where electric is more difficult.
It all boils down to very large demands for a very good, premium fuel.
All we really need to do is to use each resource where appropriate, and to stop trying to use resources where they are not the best answer.
For the south-western US, unlike much of northern Europe, solar seems likely to being a good resource for peak use to provide cooling on hot days, for instance, in Arizona.
This is a very different proposition to trying to use solar for base load, and even to pipe it all round the country as some try to advocate, as even in the Mohave desert sunshine in the winter is only around 25% of that in the summer - so it is not really suitable for heating for the North East.
Opponents argue that nuclear is too expensive, and it's wastes are not capable of being dealt with.
Well, the wastes can actually be used as fuel in rather more advanced designs, if only the regulatory authority would decide that their function is to facilitate rather than hinder and increase costs at every stage, and American engineerring companies would stop just accepting that their costs are totally incommensurate with what others can do elsewhere, and get to grips with factory producing reactors at good costs.
Thnis means that much of the base load can be produced by nuclear power, which is where it is really good, and mountains in Appalacia don't need to be dismembered.
We have all we need to get over the technological hump caused by oil shortages and transition on, providing only that unrealistic prospectuses are not taken on for idealogical reasons.
So in short natural gas can help a lot, but it would be unwise to try to do the whole job with it.
Asking what causes Peak Oil is as meaningless as asking what causes 2+2=4. What makes 2+2=4, not 2+2=5. Was it political, Obama said it? Was it because the earth has just one moon, not two? Was it because we happen to have 10 fingers? No, 2+2=4 is simply a mathematical truth, it has no reason to it.
Oil is a limited resource, because earth itself is limited and the mechanism that caused oil to form on earth produced limited amount to start with. For any limited amount of resource, you produce a certain quantity each year, there has got to be one particular year you produced most, every other years produce less.
A peak production MUST exist for anything that is limited. It is a mathematical truth that can be rigorously proven.
Dr. Hubbert King proves, that the peak production occurs at approximately when half of the original recoverable resource has been produced and removed. It's not at10% or 90%, when it's 50% gone that's when the production peaks, from that point on it's all decline year by year, until it is totally gone.
His mathematical proof is one of the most elegant and simple mathematical derivation I have ever seen. The elegant part is it does not have to depend on technology progress or undiscovered oil, it only needs to look at historical productions:
www.hubbertpeak.com/hu.../
'A peak production MUST exist for anything that is limited. It is a mathematical truth that can be rigorously proven.'
Technically true, but the implications for different resources are very different as they vary in size by orders of magnitude, and so does their ability tol be recycled.
Iron, for instance, is both abundant and easily recycled.
We may have to move to lower grade ores but as long as you have plenty of energy that is not a problem.
Even after 'peak iron', if one can possibly peer that far into the future, the iron produced will be recyclable just as cars are today.
Substituability also comes into it, as for instance for iron and steel basalt fibre from in practise imexhaustible basalt rocks could substitute for most uses.
Gold prices may continue to rise in the long term, as that is getting harder and more expensive to find, and is a very useful resource, so it is at the opposite end of the spectrum from iron.
Phosphates and helium are also of concern.
Back to the immediate concern though, oil is burnt and so is non-recyclable, and is in relatively limited supply, so shortages have practical as well as theoretical implications.
Fortunately some energy resources fall into the other category, as being for practical purposes inexhaustible for the forseeable future.
Thorium is in this class. it can be burnt at around 100-300 times the efficiency of current reactors, and so about 15,000 tonnes of it a year would provide all the energy the US uses.
Reserves are vast, and the contribution of fuel costs to the total cost of energy would be miniscule, so that it couls always be obtained from seawater.
Since so-called 'renewables' are in fact no such thing, but rely on energy input from the sun or the heat of the earth to balance, and so on a very long time scale are not renewable at all, the dichoitomy between renewables and other very large resources is false.
IOW we can use resources like thorium indefinitely on any human time scale - but we have to watch out for resources such as oil and gold.
Perhaps if you wish to point people to articles on other blogs you would reference the relevant article directly - readers are hardly likely to go more than one reference deep, and certainly not to search the whole blog.
The one article I did see wa dissing nuclear power.
Apparently it is not enough to have to wean ourselves off oil and onto other energy resources unprecedentedly quickly, we have to do it with one foot in a bucket of cement by not making use of our only dense, high EROI resource.
The criticism mentioned:
'John Steinbach said...
Nuclear energy is much too capital and time intensive to make a significant difference.'
is only valid to the extent that anti- nuclear power people have managed to install an absurd regulatory regime, and to make advancing construction techniques prohibitively expensive.
Renewables aren't going to ride to the rescue whatever the fantasies are.
They can help, but there is no chance on God's green earth of them filling the gap in the time needed.
So if we wnat to come off oil and not rip up more of the Appalacian mountains by topping the mountains for coal, perhaps we ought to face reality and use the technology which is proven to be able to provide most of an advanced countries electricity, and has done so safely, cheaply and cleanly for many years in France - low carbon nuclear power.
Cheers,
To answer the comments:
Dave - The crux of the article is that we may be entering Peak Oil for reasons that go beyond simple Geology. The Canadian Oil Sands (in theory) could sustain incredible production increases without causing any long term effect on production (unlike Conventional Wells that could have their long-term flow rates affected by over producing, the sand in the Athabasca Oil Sands is not pooled). So, you could (again, in theory, if money and environmental impact was not an issue) produce many times what they are doing now for many years (it is expected that the Oil Sands will be revised up to 300-400 Billion recoverable barrels before 2015, with newer technology). However, this will never happen, not because of Geology, but because of financial, Political and environmental concerns (which was point 2).
The same (to a lesser extent) would happen if Obama would open up ANWR and drilling on the coasts. The other problem is constructing the incredible pipeline and refinery upgrade that would be required to use this extra production. No one wants a pipeline/refinery in their "backyard", so aside from the Costs/resources/skilled labour restraints of building this new infrastructure....where would you put it?
I do agree with a comment above as to the fact that it doesn't matter WHY we are in peak oil, we just are. The point of the article was just to point out a few reasons why.....but I agree, it is more important to act than to ask WHY.
Ferdinand - I'm kind of surprised that more hasn't been brought up in the news as to how the world's oil supply could follow the peak of the US Oil supply, and how Hubbert was correct in predicting that once a field (or supply) yields about 50% of its total return, its production rate will inevitably decline.
Cycling - I hope that you are right, but I have my doubts. China is going to pass the US over the next few decades for Auto use, India is adding millions of new vehicles and North Americans keep on building new suburbs to create more urban sprawl. I think that we won't be able to change our habits in time.....again, I hope you are right, however.
Kool - Look at Boone Pickens. The smart "energy" companies are already following his lead of adding Green energy. The problem will be that those technologies may not be developed in time to help us ween ourselves off of Oil.
Mark Anthony - Valid points. The point of the article was to point out what Oil Companies have been saying for years....Peak Oil is being brought on prematurely by factors that go beyond simple Geology. You can have all of the latest technology, and all of the money in the world, but if the Canadian Government (as an example) puts a clamp on Oil Sands development, you can't increase production. I saw Rick George (CEO of Suncor) speak and he said (rough quote), "We would not be entering Peak Oil for a long time if Oil Companies had access to all of the world's reserves and less Government restrictions".
Bruce - Thanks for plugging your own page on my article. In response to your comment, you are correct. When you have to expend 1.2 barrels of oil to get one out of the ground, it doesn't make sense. The same can be said if the cost of Oil goes beyond the point where consumers can afford to use it.
www.tsl.uu.se/uhdsg/Pu...
It boils down to the IEA raising the assumed depletion rates for fields without saying why, which would mean that more oil would be available faster.
Note that the Uppsala University posits similar depletion rates to those in the past - the least hypothesis - and comes out to total production falling from around 85mb/d to around 75mb/d by 2030, which has profound implications for economic growth - it is unlikely to happen, in fact we will be facing falls in gross economic output, until we can do something to de-link from oil - as the text remarks the correlation between oil use and economic growth is pretty much 1:1
This is in the context of a population which will increase from around 6 billion to around 8 billion over the same time period.
Putting the numbers together, that gives us a per capita oil supply of around 2/3rds of present supplies.
This fall will not be evenly distributed, but will hit hardest the very poor, of course.
So disruption, warfare and famine seem likely in Africa and many other poor countries.
The oil exporters and Bric countries will likely increase their share at the expense of everyone else.
Next to the very poor countries, the biggest losers are likely to be Western countries, as that is where most oil is used.
We are talking of maybe 50% of current oil usage in the Western countries, with incalculable disruption.
Best guess at the moment is that GDP might decrease almost proportionately in affected countries, with adaptation to less oil use offset by the losses from disruption caused by such a massive economic contraction.
Best placed Western countries may include France, which due to it's heavy use of nuclear power and very good public transport system has already made part of the transition which others will have to slowly and painfully follow.
Sweden, with it's combination of nuclear and hydro power, is also relatively well placed.
To the above massive shortage of oil we have to add the demographics having turned unfavorable for growth - worse for Europe than the US.
Tough times, folks.
Lets stop the politically inspired,massage of the Bambi intellect part of our society, which admittedly is huge, gov't funding for stupid solar panels and wind and get that gas and nuclear infrastructure built and stop with the silly and environmentally ugly toys. As for truth and wisdom I continue my search for it and hope to aquire some of it.
On Nov 12 11:06 AM Mark Anthony wrote:
> When you ask what causes Peak Oil, you are asking the wrong question.
> It is a question you should NOT ask. Peak Oil is a natural Mathematical
> Derivative of TRUTH.
>
> Asking what causes Peak Oil is as meaningless as asking what causes
> 2+2=4. What makes 2+2=4, not 2+2=5. Was it political, Obama said
> it? Was it because the earth has just one moon, not two? Was it because
> we happen to have 10 fingers? No, 2+2=4 is simply a mathematical
> truth, it has no reason to it.
>
> Oil is a limited resource, because earth itself is limited and the
> mechanism that caused oil to form on earth produced limited amount
> to start with. For any limited amount of resource, you produce a
> certain quantity each year, there has got to be one particular year
> you produced most, every other years produce less.
>
> A peak production MUST exist for anything that is limited. It is
> a mathematical truth that can be rigorously proven.
>
> Dr. Hubbert King proves, that the peak production occurs at approximately
> when half of the original recoverable resource has been produced
> and removed. It's not at10% or 90%, when it's 50% gone that's when
> the production peaks, from that point on it's all decline year by
> year, until it is totally gone.
>
> His mathematical proof is one of the most elegant and simple mathematical
> derivation I have ever seen. The elegant part is it does not have
> to depend on technology progress or undiscovered oil, it only needs
> to look at historical productions:
>
> www.hubbertpeak.com/hu.../
If the US opened up the north slope we would easily exceed the US peak from 40 years ago. That was caused by a change in US government policy to not drain the US first.
We have enough oil for 200 years, and anyone that thinks we will be powering our anti-gravity flying cars with oil is an idiot.
Wood is renewable, and coal is much more abundant than Oil. Again, hope you are right, but you may be putting your head in the sand just a bit.....
My chief concern, however, is a global crisis of competence. Mergers and deployment of reservoir modelling software sidelined traditional petroleum geology. There has been a subtle, persistent decline in the number of qualified explorationists and a tilt toward "button-pushing" that over-estimates potential in certain plays and misses it entirely in nearby structures. Management gets committed to a Big Idea (like Gorgon or Tupi, for instance) based on probablistic models.
In the U.S., I think there is a distinct risk of industry failure leading to a nationalized "United States Oil Co" bail-out, which will go the way of Amtrak.
There is no perfectly accurate way of knowing what the proven reserves are, and that is scary. Even if we could get past the Political motivations to overstate one's reserves (to allow for a higher quota), I agree that we don't have the expertise to know the exact number anyways.
thanks for reading!