1000 Words on Peak Oil

In 1956, geologist M King Hubbert predicted that U.S. oil production would peak in the early 1970s (Deffeyes 2003). The analysis was universally rejected. In 1970 U.S. crude oil production began to fall. The industry was silenced. Peak oil is defined as the point at which production peaks and begins to decline. The term can be applied to a well, a field, a country or to global production. Around 1995 analysts began applying Hubbert’s methods to global production. Deffeyes (2003) predicted 2005 as the mathematical peak year stating that there is nothing plausible that could postpone the peak until 2009. There is a good possibility that 2005 was the peak year. Global production has not surpassed 2005 levels of 84.55 million barrels per day. (U.S. EIA).  Approximately 80 percent of the oil produced today comes from fields discovered before 1973, most of which are in decline. Total world production has increased less than 10 percent in two decades (Brown 2008). While there are various arguments around whether or not we have reached peak, the general agreement is that even if we haven’t, it’s not a matter of if, but when.

Hubbert's PeakAbove; Simplified version of Hubbert’s curve showing ultimate crude oil production based on reserves of 1250 billion barrels. Variations of the curve showing adjustments as more reserve data is collected are used to extrapolate other curves. (Deffeyes-2003)

This view of production and consumption is simplistic and it is not within the scope of this paper to examine all of the intricacies of production versus consumption along with future predictions for those variables like future consumption levels, population growth, and climate change and so on. Whenever there are unknown variables there is debate, and rightly so. Suffice to say that at some point in the future, diminishing consumption will have economic, social and environmental impact.

Oils consumption is continuing to grow. Part of the reason for this is countries like India China and other developing nations, rushing to join the oil era—pouring hundreds of billions of dollars into the construction of coal mines, oil refineries, power plants, automobile factories, and roads. (Brown 2008)

Consumption projections 2010 and beyond (IEA 2010)

There are two main scenarios that should be considered as a result of peak oil. The first is an assumption that consumption remains on the current trend. The second is based on our capacity to change and innovate. While there is demand, the price of oil will remain high. The higher price along with better technology make high costs for extraction more feasible and this will undoubtedly slow the rate of production decline for some time. The innovation and advances in technology around fossil fuel in this industrialised century have been colossal suggesting that there is no reason why such innovation can’t occur in the effort to find alternative energy sources. Technology has allowed oil companies to drill deeper and faster giving them access to wells that would have been considered unprofitable in the 70s.

World crude production showing two peaks in 2005 (U.S. EIA)

There are several peak oil facts that are hard to dispute.

  • Conventional oil (as opposed to sand oil and shale oil for example) provides most of the oil produced today, and is responsible for about 95% all oil that has been produced so far.
  • Conventional oil continues to dominate supply. It is what matters most.
  • Discovery peaked in the 1960s. We now find one barrel for every four we consume.
  • Middle East share of production is set to rise. The rest of the world peaked in 1997, and is therefore in terminal decline.
  • Production per capita limits were breached late in 2000, causing prices to soar.

(Campbell 2004)

The most obvious impact of decline will be increased price and greatest impact of higher prices is being and will be felt on the roads. The internal combustion engine has dominated personal transportation for more than eight decades. Well over half of the oil consumed every day in industrial countries is consumed as motor fuel. As oil becomes scarcer prices will rise. This is the natural mechanism of supply and demand. As Rubin (2009) points out, life as we know it depends on the price at the fuel pumps and that price depends on an uninterrupted supply of oil. There is an analogy that can be used to describe the economic impact of diminishing oil supplies. The global economy thinks in dollars rather than distance. To get a fish from the ocean to a plate takes a ridiculous amount of energy. From the fuel used for fishing boats, container ships, aircraft and delivery trucks to the energy required to freeze, process, sell it in a supermarket and cook it. For the purpose of comparison, it takes 10 calories of fossil fuel to produce 1 calorie of food in the U.S. (Pfeiffer 2004). The scenario just described is meant to highlight the reliance of the global economy on fossil fuel; it affects every aspect of our lives. Fossil fuels provide 90 percent or more of the energy in most industrial countries and 75 percent of energy worldwide. (State of the World 1999) Electricity is so taken for granted that any interruption in its supply is considered an emergency. It is fossil fuel that makes the current efficiencies of production and the global economy possible. As the price goes up the efficiency is reduced and production levels fall. These are decreases that a growing population cannot afford. The gap between the haves and have not’s is growing even now.

Oil shock tends to cause recession. As the cost of getting fish to a plate increases, the price of fish goes up and you buy less. It may seem like a quantum leap but when people buy less in general, you have recessions. Recession may become a more permanent fixture because recovery leads to new oil demand until the limits are again breached which leads to new price shocks re-imposing recession in a vicious circle. (Campbell 2004)

Today the comparative price of energy is nearly as low as it has ever been, and finding new energy sources that are more convenient, reliable, and affordable than fossil fuels is beyond the imagination of many experts.

An alternative scenario is one of change. Societies collapse if they fail to adapt.  No one is saying that we are literally going to run out of oil, at least not in the short or even medium term. The industrial age of fossil fuel has only been with us for a short period in the context of total human history.

The one hundred year period of oil production in human history known as Hubbert’s peak (Deffeyes 2003)

In 1929 the motor car was still competing with the horse drawn cart. The concept of change is not unimaginable. The billions of dollars spent on technology designed to bring efficiency to oil extraction and application if spent on alternatives innovation would have the required impact to allow us to make the transition. A world without oil is as unimaginable to us as a world without horses might have been to our great, great grandparents. The challenge is going to be using what fossil fuel is left, efficiently enough to create the next major energy source for our grandchildren, whatever that is.

References

Brown, L. R., & Worldwatch Institute. (1999). State of the world 1999 a worldwatch institute report on progress toward a sustainable society (Special Millennium ed.). London: Earthscan.

Brown, L. R. (2008). Plan B 3.0 : Mobilizing to save civilization (1st ed.). New York, N.Y. ; London; Washington, D.C.: W. W. Norton & Co.; Earth Policy Institute.

Campbell, C. J. (2002). Peak oil: An outlook on crude oil depletion. Retrieved 4/16/2010, 2010, from http://greatchange.org/ov-campbell,outlook.html

Deffeyes, K. S. (2003). Hubbert’s peak : The impending world oil shortage. Princeton, N.J. ; Oxford: Princeton University Press.

Energy information administration – EIA – official energy statistics from the U.S. government. (2010). Retrieved 4/15/2010, 2010, from http://www.eia.doe.gov/

International energy agency – oil market report. (2010). Retrieved 4/16/2010, 2010, from http://omrpublic.iea.org/

Pfeiffer, A. (2004). Eating fossil fuels. Retrieved 4/16/2010, 2010, from http://www.fromthewilderness.com/free/ww3/100303_eating_oil.html

Rubin, J. (2009). Why your world is about to get a whole lot smaller : Oil and the end of globalization (1 US ed.). New York: Random House.

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2 Responses to “1000 Words on Peak Oil”

  1. Neil Says:

    Hi,
    Thanks for the blog. Always good to see people trying to wake people up to this problem.
    You haven’t mentioned proven reserves and the ‘birth’ of OPEC. Not that you had to, but there can be no doubt the Middle East has alot less oil than it publishes.
    Also, there will be problems with transport, but I think the greatest problem will be food. Our food is dripping in oil and billions will starve if we don’t find a protein pill very soon.
    Have you looked at the latest videos from the ASPO6 conference (http://aspoireland.org/aspo6/aspo6video/)? The demand side scared me the most.
    Cheers,
    Neil

  2. djmcau Says:

    Hi Neil
    Thankyou for you comment. Just had a look at the website you suggested, thanks for that too, as I say I am on a steep learning curve, and the purpose of the blog is the opportunity to learn from people like yourself.

    I have just returned form the Middle East where I have been working for the past three years. I agree they definately misreport the numbers but I dont think they are close to peak yet. OPEC have slowed things considerably. They use oil for everything though, water, electricity etc and everyone has a V8.

    Interesting times as the curse says

    Cheers again
    Darren

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