For some reason petroleum geologists keep working, even though they know they're working their entire profession out of a job. It’s a simple equation, really: petroleum geologists spend their entire careers hoping to find more oil. The problem is that the amount of oil in the world is finite. That means that each new discovery is one more step on the path to depletion of that resource and to unemployment for the profession as a whole.
Back in the fifties, a geologist for Shell Oil named M. King Hubbert wondered how long it would be until that day happened, so he scribbled down some rough calculations. The answer was surprising enough that he decided to share his thoughts, so in 1956 Hubbert published the theory we now call "Peak Oil."
You've probably heard that Peak Oil Theory predicts when the world will run out of oil, but that’s not correct. Peak Oil doesn't predict the end, it predicts the beginning of the end. Since the very first barrel ever produced, the rate at which it's pumped from the ground has been constantly rising. The theory says that this continuous increase must eventually level off, then start to decline. That day's the “peak” in the theory's name. Since Hubbert was more familiar with the "awl bidness" in North America than worldwide, he put together a curve predicting a peak in U.S. oil production in the period 1965 to 1970. What worries some people is that the curve was right: U.S. oil production reached an all-time high in 1970 and, except for a brief resurgence in the late '70s, steadily declined -- until just recently.
The theory says that a similar pattern in world production must also occur some day, because the supply of oil is finite (adherents of those cockamamie abiotic oil theories can stop reading now). The question is not if that peak will be reached, it is when. That’s the most important question, because once world production starts to decline, supply and demand will be out of balance and the price of hydrocarbons will begin to rise. Some economists think it won't stop rising. That leaves us with an important question: how to determine the "when."
You need to evaluate a multitude of variables to generate a Hubbert curve for the entire world. To predict a peak in worldwide production, someone must calculate the existing petroleum reserves. estimate future consumption and guess at reserve replacement. Consumption is the easiest to predict, and even it's controlled by many factors. We were reminded of that most recently when the world economy took a nose dive in 2008, at which time oil prices dropped by seventy-five percent in a matter of weeks. The difficulty of predicting consumption is trivial, however, when we compare it to the problem of assessing current reserves.
“Reserves” means the volume of unproduced oil under company’s (or a country's) control that can be extracted with current technology. Reserve values are always an estimate, and the numbers change as technology improves or the boundaries of reservoirs are redrawn. Most countries with large reserves, such as Saudi Arabia or Iran, consider their estimates a state secret. Even in more open societies, companies keep the numbers close to their vests. Because of all the secrecy, estimates of worldwide “proven” reserves are precisely that: estimates.
The toughest of the three variables to predict is reserve replacement, which means finding as much new oil as you pump. The United States by itself has consumed about twenty million barrels of crude oil every day over the last decade. To replace what Americans use means that the world needs to find more than seven billion barrels every year. Reserve replacement predictions are based on statistics. Economists ask how many fields of what sizes have to be discovered in a year to maintain production levels, and compare the answer to known trends.
What makes it even dicier is that, as petroleum consumption increases in emerging economies, the rate of reserve replacement has to increase just to stay even. This means that predicting the point at which the peak might occur requires assumptions, estimates, and just plain guesses. As is usually the case, the people who claim to understand Peak Oil theory divide into two camps.
One group predicts a “peak” they said would occur as early as 2012. The other side predicts a peak perhaps a century in the future. Almost everyone now admits the first group was wrong, mainly because of the surge in "unconventional" oil production in the past few years. By unconventional, the industry mainly means the production of petroleum from shale reservoirs, which has helped propel the U. S. industry; and from "tar sands," which drives the industry in Canada. Since these new sources have been developed, and are developing worldwide, old estimates of reserves are now out of date.
Does this mean that there will not be a peak, or that there won't be one soon? That question isn't easy to answer because of the peculiar economics of commodities in general and oil in specific. While the principles of supply and demand control short-term prices of all commodities, in the oil industry the price also exerts control on the long-term supply.
Reserve estimates are based, in part, on whether a company or country can make a profit by producing the oil they find. Ultimately, then, the quantity of oil available to the market is in part a function of price. It takes a lot of money to find oil, get it to the surface, and move it to market. If the predicted cost of producing and transporting a newly-found barrel of oil is lower than its predicted market price, whoever found it will leave it in the ground, at least until the price rises.
Here's an example: a discovery made when the oil is selling for $50/bbl may sit idle until the price levels out above $70/bbl. Until that point, the discovery is deemed “uneconomic.” That's why there was a slight production "blip" in the late 1970s. Exploration and production were driven by price, and when the price dropped in the early 1980s, production dropped as well.
Those who assert that the peak oil is far in the future point to huge uneconomic accumulations have already been found, accumulations that are being added to world reserves as price and technology combine to make their production attractive.
Although shale oil such as is produced in North Dakota's Bakken Formation and the Eagleford Shale in Texas get most of the press, they may not be the panacea assumed by some. Shale wells are expensive to drill and, more importantly, wells in these trends generally produce a lot of oil for a few months before demonstrating rapid decline. More important are are vast heavy oil deposits in Venezuela, tar sand fields in Canada, and “oil shale” of the western USA. Both Venezuela and Canada can realize profits from their deposits while oil prices are above $85-90, though production in both countries levels off if oil drops as low as $70/bbl.
As for "oil shale" - a misnomer, because there is no oil and the deposits aren't shale - U.S. oil shale deposits have seen only a few pilot projects, and the process of extracting oil from these reservoirs remained uneconomic even when oil approached $150/bbl in mid-2008.
The shifting economics of oil clearly make of the coming peak a moving target. Even when oil prices are high enough to support development of unconventional reservoirs, they are also high enough to support the development of alternative energy sources. This is a calculation often omitted by those who predict the development of oil shale.
In any case, peak oil is a reality. The question – and therefore the argument – remains "How soon?"
Some people think the peak is imminent:
http://www.wolfatthedoor.org.uk/
http://www.energybulletin.net/
http://www.theguardian.com/environment/earth-insight/2014/jan/17/peak-oil-oilandgascompanies
Some think it’s a long way off:
http://www.energytomorrow.org/ (the American Petroleum Institute, or API
http://www.iea.org/aboutus/faqs/oil/
http://mises.org/story/1717
And some are just plain paranoid:
http://www.prisonplanet.com/archives/peak_oil/index.htm
Careful reading proves, once again, that – like most issues today – where most people stand on Peak Oil is determined by their politics.
Back in the fifties, a geologist for Shell Oil named M. King Hubbert wondered how long it would be until that day happened, so he scribbled down some rough calculations. The answer was surprising enough that he decided to share his thoughts, so in 1956 Hubbert published the theory we now call "Peak Oil."
You've probably heard that Peak Oil Theory predicts when the world will run out of oil, but that’s not correct. Peak Oil doesn't predict the end, it predicts the beginning of the end. Since the very first barrel ever produced, the rate at which it's pumped from the ground has been constantly rising. The theory says that this continuous increase must eventually level off, then start to decline. That day's the “peak” in the theory's name. Since Hubbert was more familiar with the "awl bidness" in North America than worldwide, he put together a curve predicting a peak in U.S. oil production in the period 1965 to 1970. What worries some people is that the curve was right: U.S. oil production reached an all-time high in 1970 and, except for a brief resurgence in the late '70s, steadily declined -- until just recently.
The theory says that a similar pattern in world production must also occur some day, because the supply of oil is finite (adherents of those cockamamie abiotic oil theories can stop reading now). The question is not if that peak will be reached, it is when. That’s the most important question, because once world production starts to decline, supply and demand will be out of balance and the price of hydrocarbons will begin to rise. Some economists think it won't stop rising. That leaves us with an important question: how to determine the "when."
You need to evaluate a multitude of variables to generate a Hubbert curve for the entire world. To predict a peak in worldwide production, someone must calculate the existing petroleum reserves. estimate future consumption and guess at reserve replacement. Consumption is the easiest to predict, and even it's controlled by many factors. We were reminded of that most recently when the world economy took a nose dive in 2008, at which time oil prices dropped by seventy-five percent in a matter of weeks. The difficulty of predicting consumption is trivial, however, when we compare it to the problem of assessing current reserves.
“Reserves” means the volume of unproduced oil under company’s (or a country's) control that can be extracted with current technology. Reserve values are always an estimate, and the numbers change as technology improves or the boundaries of reservoirs are redrawn. Most countries with large reserves, such as Saudi Arabia or Iran, consider their estimates a state secret. Even in more open societies, companies keep the numbers close to their vests. Because of all the secrecy, estimates of worldwide “proven” reserves are precisely that: estimates.
The toughest of the three variables to predict is reserve replacement, which means finding as much new oil as you pump. The United States by itself has consumed about twenty million barrels of crude oil every day over the last decade. To replace what Americans use means that the world needs to find more than seven billion barrels every year. Reserve replacement predictions are based on statistics. Economists ask how many fields of what sizes have to be discovered in a year to maintain production levels, and compare the answer to known trends.
What makes it even dicier is that, as petroleum consumption increases in emerging economies, the rate of reserve replacement has to increase just to stay even. This means that predicting the point at which the peak might occur requires assumptions, estimates, and just plain guesses. As is usually the case, the people who claim to understand Peak Oil theory divide into two camps.
One group predicts a “peak” they said would occur as early as 2012. The other side predicts a peak perhaps a century in the future. Almost everyone now admits the first group was wrong, mainly because of the surge in "unconventional" oil production in the past few years. By unconventional, the industry mainly means the production of petroleum from shale reservoirs, which has helped propel the U. S. industry; and from "tar sands," which drives the industry in Canada. Since these new sources have been developed, and are developing worldwide, old estimates of reserves are now out of date.
Does this mean that there will not be a peak, or that there won't be one soon? That question isn't easy to answer because of the peculiar economics of commodities in general and oil in specific. While the principles of supply and demand control short-term prices of all commodities, in the oil industry the price also exerts control on the long-term supply.
Reserve estimates are based, in part, on whether a company or country can make a profit by producing the oil they find. Ultimately, then, the quantity of oil available to the market is in part a function of price. It takes a lot of money to find oil, get it to the surface, and move it to market. If the predicted cost of producing and transporting a newly-found barrel of oil is lower than its predicted market price, whoever found it will leave it in the ground, at least until the price rises.
Here's an example: a discovery made when the oil is selling for $50/bbl may sit idle until the price levels out above $70/bbl. Until that point, the discovery is deemed “uneconomic.” That's why there was a slight production "blip" in the late 1970s. Exploration and production were driven by price, and when the price dropped in the early 1980s, production dropped as well.
Those who assert that the peak oil is far in the future point to huge uneconomic accumulations have already been found, accumulations that are being added to world reserves as price and technology combine to make their production attractive.
Although shale oil such as is produced in North Dakota's Bakken Formation and the Eagleford Shale in Texas get most of the press, they may not be the panacea assumed by some. Shale wells are expensive to drill and, more importantly, wells in these trends generally produce a lot of oil for a few months before demonstrating rapid decline. More important are are vast heavy oil deposits in Venezuela, tar sand fields in Canada, and “oil shale” of the western USA. Both Venezuela and Canada can realize profits from their deposits while oil prices are above $85-90, though production in both countries levels off if oil drops as low as $70/bbl.
As for "oil shale" - a misnomer, because there is no oil and the deposits aren't shale - U.S. oil shale deposits have seen only a few pilot projects, and the process of extracting oil from these reservoirs remained uneconomic even when oil approached $150/bbl in mid-2008.
The shifting economics of oil clearly make of the coming peak a moving target. Even when oil prices are high enough to support development of unconventional reservoirs, they are also high enough to support the development of alternative energy sources. This is a calculation often omitted by those who predict the development of oil shale.
In any case, peak oil is a reality. The question – and therefore the argument – remains "How soon?"
Some people think the peak is imminent:
http://www.wolfatthedoor.org.uk/
http://www.energybulletin.net/
http://www.theguardian.com/environment/earth-insight/2014/jan/17/peak-oil-oilandgascompanies
Some think it’s a long way off:
http://www.energytomorrow.org/ (the American Petroleum Institute, or API
http://www.iea.org/aboutus/faqs/oil/
http://mises.org/story/1717
And some are just plain paranoid:
http://www.prisonplanet.com/archives/peak_oil/index.htm
Careful reading proves, once again, that – like most issues today – where most people stand on Peak Oil is determined by their politics.
