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First, here is a fast summary of Peak Oil. “Peak Oil” is a shorthand way of describing a “peak” in mankind’s ability to extract conventional oil from the crust of the Earth due to certain absolute limits on the petroleum resource base. In other words, you cannot extract oil that does not exist or that has not been discovered.

The Oil Age commenced in 1859, ushered in by the establishment of the Drake well in Titusville, Pa. For the past 15 decades, people have been getting better and better at lifting conventional oil out of the ground. We have progressed to the point where, in the past two years, daily global oil production has hovered around 81-82 million barrels per day (b/d), plus the 3-4 million b/d of natural gas liquids and synthetic crude from Canadian tar sands. Hence you often read of current world oil output of about 85 million b/d. If you follow the production curve back over the years, you will see that oil output has risen steadily almost every year over the past century, with some interruptions by the Great Depression, World War II and, more recently, the Iranian Revolution in the late 1970s. But now, in the past year or so, it appears that world daily output has reached some sort of peak or plateau.

Exxon Mobil’s (NYSE:XOM) position is to disagree that the current state of affairs represents any sort of present or imminent “peaking” in world oil output. In fact, Exxon’s stated position is this:

A peak in petroleum liquids production, resulting solely from resource limitations, is unlikely in the next 25 years. Predictions of an imminent peak based on [the methodology developed by Shell Oil Co. geologist M. King Hubbert] in 1956 do not adequately account for resource growth from application of new technology, knowledge and capability, which combine to increase recovery, open new producing areas and lower economic thresholds.

Supplies from OPEC and non-OPEC countries, gas-related liquids and unconventional resources are growing. Furthermore, nations with the largest remaining resources produce under long-term restraints not envisioned in Hubbert’s method. The ultimate peak in petroleum production may result from factors other than resource limitations.

Exxon Mobil forecasts an increase in demand for petroleum liquids from about 85 million b/d in 2006 to 115 million b/d in 2030, or average growth in demand of about 1.2 million b/d per year. Worldwide, over the next 25 years, the ability of the petroleum industry to meet this demand will depend, in great measure, on what Exxon calls “adequate access to petroleum resources.” This latter term includes ensuring that the oil industry has access to drill in areas not previously explored or exploited, such as geographically or politically isolated areas, as well as areas of deep water or extreme climate, that require the development of new technology.

Exxon Mobil challenges the Hubbert methodology on two fronts. Hubbert’s methodology rests on two interconnected assumptions. First, the methodology assumes that the size of the ultimate resource base can be known with some degree of accuracy. And second, the methodology assumes that the peak in production occurs when approximately 50% of that resource base has been extracted. According to Exxon Mobil, “An analysis of resource assessments and production history suggests that neither assumption is necessarily valid.”

First, “there appears to be a systematic bias that underestimates the size of the resource base by ignoring the future increase in recoverable volume.” That is, new petroleum discoveries, plus what is called “reserve growth” continue to add to the original resource base, thus pushing the extraction and decline curves out to future years.

Second, if the ultimate size of the resource base is systematically underestimated, it is not possible to state when 50%, or anything near that percentage, of the oil resource has been extracted.

The Exxon Mobil thesis is that Hubbert’s methodology worked when he applied it to the U.S. as an oil province, because the U.S. was extensively explored during the time period that covered Hubbert’s career. “Hubbert’s 1956 prediction turned out to be right; lower-48 U.S. production peaked in 1970,” just as he said it would, according to Exxon Mobil. But Exxon Mobil criticizes attempts to extend the application of what it characterizes as Hubbert’s “simple approach” to the entire world. And due to a misunderstanding of the Hubbert approach and its misapplication to a poorly defined world resource base, “a popular view has emerged that the world faces an imminent decline in global liquids production resulting from depletion of resources.”

Thus, according to Exxon Mobil, “the Peak Oil theory has raised questions about the future of the oil and gas industry, how resources are estimated, the current supply situation, the role of technology and other factors in determining future supply.”

Most previous estimates of a peak in oil extraction have been wrong, noted Mr. Vierbuchen. For the most part, these previous estimates “missed the concept of reserve growth,” which refers to the process by which the initial identified reserves of an oil province “grow” over time as new drilling and new knowledge make it apparent and quantifiable that there is more oil down there than was first thought.

There are numerous examples of new technology, as well as novel ways of thinking, that have and will in the future contribute to reserve growth. First, the more wells that are drilled in any region, the better the geological control over that region. More wells equals more knowledge of the exact types and depths of rocks, as well as subsurface structures and rock and reservoir conditions. This greatly facilitates expanding the resource base.

Second, new advances in seismic processing have given geologists better imagery of the subsurface. It is now possible to identify features that were formerly simply unknown and unknowable with previous technology. Even with older seismic methods, these features were indecipherable on the best of days. This new look from seismic processing facilitates improved reservoir modeling and better well placement.

In addition, new drilling techniques have enabled geologists and engineers to “extend” their reach, in terms of vertical depth and horizontal distance from the surface wellbore, and into certain identifiable "sweet spots” that were formerly the province of pure chance.

Once a well is completed, there are new methods to stimulate production, over and above classical pressure-maintenance techniques such as water flooding. These include new methods to fracture the reservoir rock and increase the surface area of rock face, from which oil can migrate toward the borehole. The new methods include advanced chemical mixtures that can dissolve the rock matrix, as well as enhance the oil recovery with chemicals such as “surfactants” that essentially wash the oil out of the rock pores.

In essence, the new technology that is expanding the petroleum resource base is a function of many truly novel scientific and engineering developments, coupled with economic incentive to apply resources to the unique problems of every oil province, and every oil field in that province. “There was never an age of ‘easy oil,’” Vierbuchen said, a statement with which almost every head in the room was nodding in agreement.

One of the greatest constraints on future oil production, according to Exxon Mobil, is the political fact that much of the world is essentially “off-limits” to exploration and production. These limitations vary from region to region and from country to country, but cumulatively, have a potentially large negative effect on future oil output.

In the U.S., large areas onshore, and essentially all of the offshore areas outside of the western Gulf of Mexico and parts of Alaska, are off-limits to new drilling. In the U.K., the government has just raised tax rates to an onerous level that will inhibit future exploration in the North Sea. Issues of resource nationalism in nations from Russia to Venezuela are making future investment by any but the national oil companies (NOCs) - or politically favored outsiders - problematic. War in Iraq is preventing almost any petroleum development at this time. Insurrection in Nigeria makes for tough going in that part of the world. And the list goes on.

At the end of the argument, however, Exxon Mobil is not stating that there will never be a peak in rates of oil extraction. Instead, the company is arguing that any valid predictive methodology should properly place that event 25 or more years in the future. Specifically: “It does not follow that there is unlimited potential for production growth, rather that the eventual peak in global production is likely to be much further in the future than is commonly suggested.”

Exxon Mobil also notes that “it is possible that the peak, when it occurs, may result from a cause other than resource limitation (e.g., government policies, lack of access to existing resources, competition from alternative energy sources, improvements in energy efficiency).”

So Exxon Mobil is not claiming that there is no Peak Oil problem. It is just a question of timing and time frames, and according to the world’s largest publicly traded oil company, the time for Peak Oil is not now or in the immediate future. To the extent that there is an oil supply problem anywhere on the near horizon, the Exxon Mobil view is that it derives from limited access to prospective regions and under-investment in exploration, development and other related extractive infrastructure. To the extent that prices are rising, it is because global demand for liquid hydrocarbon has been strong and growing, particularly in the developing world, and certainly in China and India.

Whether Mr. Vierbuchen and Exxon Mobil are correct or wildly incorrect about the timing of a peak in world oil production is something that many of us will probably live to see.

Source: Exxon Mobil Says Peak Oil Unlikely Within 25 Years