Peak oil

Sunday 10 July 2005This is nearly 18 years old. Be careful.

The phrase “peak oil” refers to the moment when oil availability is at its maximum, a moment after which the world gets squeezed between ever-increasing demand and ever-shrinking reserves. Martin Sereno has an information-packed presentation on the topic. It includes many graphs, charts and maps, and many dire predictions (for example, “slow collapse of global industrial civilization begins 2030”). I fear that he is all too right, and we are too comfortable in our oil habits to adapt without a great deal of pain.


Nathaniel Mallet 3:19 AM on 11 Jul 2005
I've read a lot of these doom and gloom scenarios, and it always makes me laugh how far authors will go to try and justify their "global collapse" of whatever it is they're trying to prove on that particular day.

First, no one can predict the future. I just don't know where they get their data, and how they expect it to come about. For example, in slide 12, the author has a nice steady decline of oil and gas, when history has shown that it simply isn't the case.

Second, the data used is inaccurate, so how can it be used to predict future results? The author says on slide 23 that reserve estimates are unreliable and semi-secret, so how can he use reserves to predict when we'll be out of oil.

Third, the author goes on to say that replacement energy source (like hydrogen, tidal generators, etc) just won't work. Sure, maybe they won't work now, but scientists are pouring tons of money into energy research. Just think of all of the discoveries that were made in the past 50 years, and just imagine what discoveries will be made in the next 25 years. Does anyone seriously expect that we won't be better off in terms of energy supply? Just look at how efficient homes have become, and how much better educated people are. (The most laughable statement is how he compares oil production from conventional sources to Thermal depolymerization, without taking into consideration that oil production has been going on for what, 150 years now, and TD is a technology that's 5-10 years old, and isn't even out of the lab yet).

He doesn't talk about hybrid power, he doesn't talk about energy conservation, etc.

With all that said, it doesn't mean that we should pretend that there are no problems. Oil is not a renewable resource, and we need to manage it properly, like we should manage all resources on the planet. But we also need to stop pretending that we're doomed and that it's the end of the world as we know it.
I spent the better part of a decade consulting in the petro industry for the upstream side - oil and gas exploration companies. While my work was in change management and app development/implementations we spent a lot of time with the exploration folks and with the people who make multi billion dollar investments routinely. You won't find lots of CEO's willing to talk about Peak Oil but some of their staff will in the lunch room or over a beer...

The best of these companies are growing their proved and probable reserves at rates faster than depletion, but not all are and of the charts in the ppt that are useful are those that deal with depletion vs replacement.

Are we out of oil? No, but we are out of 10$ oil and likely out of 25 and 35$ oil if not now, very soon. Is Peak Oil as a concept likely? Probably but this society is so hooked on the stuff that I don't see the habit being broken any time soon except by a culture shock of surprising proportions.

Mind you it wouldn't take much to put the system into a tailspin right now. Depending on which analyst you believe or if you believe the Saudis, there easily available extra capacity, today, to add as little as 600,000 bpd to perhaps as much as 3 mbpd. A bad storm in the right part of the Gulf of Mexico can take 500,000 bpd off line for many weeks, not to mention one of the key ports for off loading middle eastern oil. Demand is surging ahead of DOE estimates for this year; China's demand growth while not as rapid as last years is still significant and off a larger number this year. China simply can't get enough of the stuff to satisfy its needs and as a result there are and will be future shortages this year. Last year they imported 35% more crude than in 2003!

And India has its own demand challenges.

Not all the world is growing demand at 3 or 9% but the less developed economies use more oil to fuel growth than more advanced economies, and the less developed are growing faster. China's stated goal is to double GDP by 2020 and to achieve that they have to continue 9% GDP growth year in year out, much as they have been doing recently.

Last year's increase in Chinese demand took a lot of slack out of the system. The big question I have right now is which side of China's import growth is the chicken and egg - is it high prices causing a slow down in import growth (they have unfilled demand as evidenced by oil shortages in energy and transportation sectors), or are high prices being caused by them sopping up all the easily available (uncommited to other customers) excess supply.

Some middle eastern analysts are questioning how much spare Saudi Arabia really has to offer, and most (correctly it seems) discount the possibility of Iraq's production coming quickly back to pre-war output.

The current situation has been fueled by high demand and a tightness of supply.

Why is there not more supply then?

At these prices - which have been high for a very long time - do remember that at any price > 18 most traditional (non oil sands) oil exploration and production cos were making money and sufficient cash flow to explore for more of the stuff - therefore there has been a favorable investment climate for new exploration for eons - one part of the peak oil argument seems to be holding up here - depletion from existing fields is greater than first expected.

With some restatements of reserve life (such as the notable Shell restatements) we've seen hint of this. Could there be others lurking out there to spring on us Enron-style? I tend to believe there are some companies milking the current environment that are not as transparent as they should be.

UK production is down more than 10% last year.

Russia production is down significantly, although quite a lot of this can be pinned on Yukos issues and lack of trust from international community to invest in Russia (can you blame them?).

oops, better stop rambling. Here's the bottom line for me - I am unwilling to state that peak oil is here or just around the corner, but I am willing to accept that its possible it could be. There's no hard evidence of this but plenty of circumstantial evidence not to mention tales from the exploration cos I used to work for, not to mention my father in law was in the biz - roaming the world looking for the stuff for one of the big cos - for his entire working career; to reinforce the notion in my mind that its possible.

Markets are not the be-all end all but they do tend to signal when there are problems in the supply-demand relationship and clearly there are problems right now.

So peak oil now? Perhaps, perhaps not. Peaking oil over some undefined span of time? Very hard not to buy into that one.

The only thing seperating the world from the "doom and gloom" scenario is how long that span of time is. If its surprisingly short, then there are indeed going to be significant societal changes not to mention an energy war or two. If its long, and we recognize the issue long before that time becomes short, then I tend to have faith that we'll adapt.

ramble off...
Look up which companies own the most patents in regards to renewable energy sources, and who pumps quite a lot of money into research of alternative fuels.

We as a society may not be prepared. Most likely the big enery multis may not grasp it fully either.
Sure enough though they know the signs stand for storm, and they're determined not to go out of business quitely just because the basis of their livelyhood is drying up.

Oh and one thing. Do not underestimate human creativity when presented with immidiate crisis. Sure if such a gloomy scenary hits, it's not going to be pleasant. Peope will die, economies will crumble. In the end we'll learn to live with the situation, and make the best of it.
I have no doubt that we'll learn to live with the situation (see the last slide in the deck: a guy using the back half of a station wagon as a cart, pulled by two donkeys). But that's "we" as in the human race. In aggregate, humans will do fine. But "we" as individuals will likely hit some very rough patches indeed.
Next up! Why business cards make the best kindling...
>> But "we" as individuals will likely hit some very rough patches indeed.

I've got trust that I'll either live and put up with all sorts of unpleasant situations, or die and don't have to worry about it altogether.
Buy guns.
Unless the oil companies are incredibly, exceedingly stupid, we're not going to have oil today and then no oil tomorrow. They'll know when they're getting short way ahead of time. If oil is going away, so is the profit for oil execs, and they're not going to let that happen. Instead, they'll keep raising prices so that demand slows, so they can wring every last dollar out of each barrel, and everyone will realize that we're running low.

The high price of gas alone will be enough to spur independant innovation. If investors know that people will actually spend $5000 more for a hydrogen car, then they'll actually start putting their money into serious research. At the moment, most people won't buy hybrid because it's just financially stupid. Pay $3000 more now so you can save $1000 in gas over 5 years? Whoopteedoo.

Everything will balance itself out. We're not in the dark ages here, people. In 10 years computers went from things that took up an entire room to something you could put under your desk. I'm sure that with the proper economic and social pressure, we could have hydrogen powered cars as the rule, not the exception in just 10 years. There's just no pressure right now, so it won't happen.

Yes, there might be a decade where inflation is pretty high... but I highly highly doubt that we're going to crash and burn.
It is also worth noting that there are significant energy reserves that are currently too expensive to process (e.g. Alberta oil sands) but which will arrest any drop in the supply curve if the price actually gets up into the stratosphere. If oil hits $100/bbl you can be certain that companies will start throwing billions of dollars into improving the efficiency of extracting oil from these inconvenient locations. (Last I had heard the oil/tar sands had enough oil available, albeit at a high extraction price, to put Canada ahead of Iraq and just behind Saudi Arabia in terms of proven reserves...)

This is how most of the North Sea oil came on line back in the 80s. After the shock of the 70s price spike it became profitable to bring these hard to reach reserves online, and once the money has already been sunk into doing the research necessary for deep-sea drilling and building the platforms it does not cost too much more to keep pumping out more oil as long as it lasts, even the the per bbl price drops below what had originally been the break-even point for that particular source.
Nathaniel Mallet 3:07 AM on 12 Jul 2005
>> Pay $3000 more now so you can save $1000 in gas over 5 years?

It's actually a far greater saving than this. I have a fairly fuel efficient car, and it costs me about 100$ Canadian a month in fuel. Assuming a hybrid is twice as efficient, it would cost about 50$ a month. Over 5 years, that's 3000$. Also, in many places, you get a government tax credit for buying fuel efficient cars. Here in Ontario, the government gives you a 2000$ . The cars are more expensive, however, and sometimes, a lot more expensive.

But the best aspect to buying hybrids (in my opinion) is to know that you're reducing pollution and the dependency on foreign oil. I'm already taking public transport and/or walking everywhere I go to do so (my wife uses the car a bit more than I do), and I'd be willing to pay big bucks to eliminate that dependency entirely.
The problem is that right now hybrid cars don't double the mileage, at least over similar size cars - take the honda civic vs. civic hybrid. The civic gets 37mpg, the hybrid 51. Now, that's what the company states, but I've seen many people complaining that in real life testing, the hybrids get in the low 40s. Let's assume 51 for now, though.

Now, some math - say you drive 15000 miles per year for 5 years, and gas is $2.40 per gallon (that's just slightly more than regular is going for here in Mass).

Hybrid: $3529 in gas over 5 years
Non-Hybrid: $4864 in gas over 5 years

Savings: $1335 over 5 years for the hybrid. I guarantee you that it costs more than that to get a hybrid over a regular civic.

Yes, there's a tax credit, but I think it's likely that it's still not actually saving you any money (I don't know exactly what the tax credit is here, nor the exact difference in price... I tried looking it up, but given all the different styles of car, it's hard to find out which one matches the hybrid the closest).

In order for people to drive hybrids, there needs to be a better reason that "it's good for the environment". That's especially true of people who would otherwise drive a regular civic - they're already great on mileage and actually have exceedingly low emissions.

Sorry for the extremely long post. As a background, I got an undergraduate degree in geology in the 1970's, but eventually turned to neuroscience, where I currently use neuroimaging to study the visual system.

Well of course I'm for conservation! And I'm for more efficient vehicles. As an aside about those hybrids, they're quite a bit more efficient for city driving. But for smooth freeway driving, the hybrid part doesn't help much, since all the power ultimately has to come from the gasoline engine. Any savings at smooth freeway speeds are due to a lighter chassis, thinner tires, better aerodynamics, and the fact that the gasoline engine is smaller -- all things which could be done with non-hybrid cars. Also, you have to consider the cost (in oil) of producing the car, which is a substantial fraction of the amount of oil it will use in its lifetime. If you have a somewhat less efficient car that is relatively new, it is probably better to continue driving it. And if you sell it, somebody else will just drive it anyway. Just for reference, the NiMH battery in the Prius has 1/45 the energy density of gasoline used in the same car (this assumes that an average automotive engine converts about 25% of the chemical energy in the gasoline into useful work).

I don't feel I am twisting arguments to support a doomsday scenario, I don't wish ill upon anyone else's children, and I continue to hope for the best. I am just deeply worried given what I have been able to find out about fossil fuel energy, its relation to industrial civiliation and world population, and possible alternate energy sources.

There is an interesting discussion over at econobrowser:

about how to talk to economists about resource limitations. The discussion was started by James Hamilton from UCSD, who argues that Peak Oil must be wrong because if it was right, people/investors would have collectively perceived these resource limits and oil futures would already be at $200 now, predicting the coming shortages (this is triple of what oil futures are now). A poster who complained that this in fact is just what actually happened over the last two years (oil prices tripled). But the poster was dismissed with the comment that those increases were mere 'volatility'. Perhaps.

Though I might have thought it to myself sometimes, I'm not arguing that economists are stupid. I'm just arguing that they are not considering data from enough fields, which includes physics, geology, engineering, and human decision making. I always find it easier to think about something with a concrete example. Before the fast fourier transform algorithm was discovered, fourier transforms took a lot of time to compute. Part of the market forces that led to the discovery of the FFT was the fact that people wanted to do very large numbers of fourier transforms. And they still do. For instance, in my field of neuroimaging, all the major scanner companies moved toward multiple receiver-coil systems (partly made possible by cheap cell-phone based RF A/D converters). This multipled the number of fourier transforms that had to be calculated, increasing the demand for even faster fourier transform code. But no such thing has been discovered despite the demand for it. So GE, for example, engineered a proprietary set of parallel processor boards to take over the load. This is a great example where there was a demand for one thing that could not be met by mathematicians and engineers, but then it was circumnavigated by engineers getting the same thing done in a different way.

That is what everybody is hoping will happen -- especially economists -- with currently abandoned oil fields, yet unfound oil fields, and alternative energy sources. But reality (mathematical or geological or physical) can be recalcitrant. The Maxwell equations aren't going to change because the market demands it. The market can't make hydrogen easier to compress (even at 12,000 psi, it still has only 1/3 the energy density of gasoline). The market may increase the cost of oil, but it is very unlikely in my view that the market can substantially decrease the *energy* required to retrieve oil from oil field previously abandoned because the left-behind oil was uneconomic because oil prices were too low. As price increases, of course some previously-abandoned-as-uneconomic fields will be revisited. But a problem usually not considered by economists is that no matter what the price, once it takes more energy to get the oil out than you get back from burning it, that oil will never be an energy *source*.

Economists and others are hoping that us more applied scientists will come up with something to save the day, since we always have. So after getting over the shock of finding out about the state of oil/gas/coal production and reserves (and dusting off all those geological words I thought I had forgotten), I started reading about alternatives.

It was very unsettling to find that there is not appear to be anything on the horizon that will allow us go on as we have been for the last thirty years. On the basis of current knowledge, oil will decline first, eventually followed by gas and coal as we reach the middle of this century. As oil declines, synfuels will be generated from coal with a 50% loss of energy. The increased coal use will substantially increase greenhouse gases and aerosols (the aerosols inhibit global warming). Eventually, the average energy-return-on-energy-investment ratio of coal will decrease toward 1.0 because as with oil, we have already mined the easier-to-get (in terms of the energy required) stuff first. Then, since the time constant of aerosol clearance is only a few years (see, e.g., the Mount Pinatubo eruption), but the time constant for CO2 clearance is long (perhaps 100 years), we will be hit by a double whammy of increased global warming and decreased energy sources toward the end of the century.

Some growth is definitely possible in wind and solar, but both of those technologies currently require huge amounts of fossil fuels, and the energy density of solar is very low. Running a $50,000 roof top solar array for a day (it costs that much largely because of the energy required to make the photocells and batteries) and saving the output in a battery results in about as much useable energy as we find (emphasis on 'find') in a 1/10 of a gallon of gasoline. I don't know if anyone has even thought about making a solar-powered solar cell manufacturing plant. It may not even be possible. In any case, I expect that wind and solar will increase a lot over the next few decades. But wind and solar are only currently supplying 1/1400 of the energy we get from oil, gas, and coal. To completely substitute for oil, gas, and coal, wind and solar would have to increase by 140,000%. That just doesn't seem practical, even over 30 years.

Fission will come back, but uranium is in quite short supply and it is energy-intensive to make fuel out of it. There are no commercial breeder reactors after almost 50 years of work (Japan mothballed their latest try a few years ago). Fusion has only been stabilized for about a millisecond after 30 years of work. Also, it currently requires helium for superconducting containment fields. Helium is a limited resource which comes from some oil and gas wells. When it boils off the, it diffuses (back) into space. You can't make it. The amount made by the fusion reaction is negligible. Helium is on a similar depletion curve to oil by best guesses. The US recently sold off it strategic helium supply. Helium is also heavily used for neuroimaging, so I'm part of the problem... Perhaps a way will be found to use non-low-temperature superconducting coils, though high current, high strength, hi-T superconducting wire does not yet exist. It is possible that fusion can be made to work, but it still looks like it remains several decades away.

Since the turn of the century, the basic energy supply mix of the industrial world has not changed much. Basically, oil and gas increased relative to coal, but coal increased a lot, too. In many respects, this was an easy change, since gas and especially, oil, are more convenient to use and transport, and cleaner burning than coal. Changing over the power supply for industrial civilization and food and fertilizer production from coal, gas, and oil is hugely different than merely adding gas and oil to the mix. It is completely uncharted territory.

Does that mean that we're screwed? Definitely not! It's just that things look a lot more precarious than they did in the 1960's when the world reached its peak of oil discovery, and the known oil in the ground pointed to a many-decade buffer before the SHTF. Just waiting for us scientists to come up with something the way the economists do is acting like the people in cargo cults did when they prayed for more ships to come. The ships might in fact come, but praying won't help.

In any case, I just wanted to say that I'm still hoping for the best.

Sylvain Galineau 9:57 PM on 12 Jul 2005
Long-range predictions are more likely than not to simply fail. Too many factors are assumed to 'remain equal', simple models stand in for complex phenomena, assumptions compound over time, resulting in predictions that are bound for later ridicule. The Club Of Rome's predictions in the early seventies sound as hysterical today as they spooked the world back then. Who would have dared question such a group of eminent scientists ? Later on that decade, we were told to brace for the coming ice age.

Overall, a healthy approach is to seek out competing theories from authoritative sources. More often than not, you will come to realize your ability to understand and judge such debates is not as good as the partisans of this or that side make it seem. At the very least, you will come out with a healthy dose of skepticism. Especially in the environmental field.

In the case of oil as in every other commodity, known oil reserves have been on the increase for decades. Peaks are predicted every decade or so. I guess someone will be right, someday. Or, more likely, we will switch to something else long before then. As the former Saudi Oil Minister famously quipped, "The stone age did not end because we ran out of stones".
The Department of Energy is now said to be looking very likely to fund the construction of a number of nuclear power plants. The US could have all of the relatively free energy it wanted to produce for home heating and industrial use, if only citizens wouldn't be irrationally freaked out by perfectly safe nuclear energy. There hasn't been a new plant built in the US in over 20 years. I say build two or three plants in each state!

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