Why Peak Oil is Peak Idiocy: Endless Oil
Many analysts and industry executives have little doubt that there's plenty of oil in the ground. "Only about 32% of the oil [in reserves] is produced," says Val Brock, Shell's head of business development for enhanced oil recovery. Shell estimates 300 billion barrels and maybe more might be squeezed out of existing fields, much of it once thought beyond retrieval. Peter Jackson, IHS Cambridge Energy Research Associates' London-based senior director for oil industry activity, has reviewed data from the world's biggest fields. His conclusion: 60% of their reserves remain available.
The fact that there's still oil for the taking is driving Shell and other majors to come up with new technologies, which are expensive to develop but worth it when crude is riding high. While the price has fallen considerably from the peak of $147 per barrel in 2008, it is still far above what many oilmen expected a few years ago. "You will see companies going into the deep water, going into the arctic, using the best technology," says Maugeri, who sees the oil industry as a dynamic system that responds rapidly to changes in the economic and political environment.
HT: Paul Kedrosky
35 Comments:
I find this whole topic a little silly. As the price rises, alternatives will be more competitive, and others will be developed to be competitive.
We're not to going to wake up one day with idle vehicles and a Road Warrior battle for the remaining gallons.
Higher oil prices will be enough to bring alternatives into the mainstream well before we run out.
the supply of oil is dependent on price. saudi oil can be extracted for about $2/bbl. in the north sea, it's much more expensive. so, at $20 oil, saudi can profitably produce, but norway can't.
reported reserves are adjusted for whether or not they are economic to recover. this has the counter intuitive result of making oil reserves look low when prices are down and high when prices are up.
oil companies have a difficult time with wildly fluctuating prices. it makes it very difficult to determine in what to invest and how much. prices have been fairly high for several years now, and the massive production declines from government run oil cos in mexico, venezeula etc due to underinvestment and mismanagement will keep it that way for a few years.
this is driving a new investment and exploration cycle. (along with new techniques for shale gas extraction) utilization rates for the lessors of 3d seismic equipment (used for geological mapping) are ticking up and rig rates tend to follow.
notions that we could ever "run out" of oil are just silly. it will become uneconomic to use long before then. "peak oil" is about as scary as "peak whale" (the chief source of lighting oil)was 100 years ago.
with oil at $20/bbl, there is no alternative energy industry. at $80, it's amazing how much investment we get. our ecosystem has abundant energy. we'll figure something out.
Beyond the Gulf of Mexico, companies have announced big finds off the coasts of Brazil and Ghana, leading some experts to suggest the existence of a massive oil reservoir stretching across the Atlantic from Africa to South America. Production from deepwater projects -- those in water at least 1,000 feet deep -- grew by 67%, or by about 2.3 million barrels a day, between 2005 and 2008, according to PFC Energy, a Washington consulting firm.
Cramped on Land, Big Oil Bets at Sea
First of all, I'm going to point out the graphic is dead wrong. The "pessimists' case" of conventional crude capacity is listed at 82-83 mbpd for 2010: crude production was 73.791 mbpd in 2008 (http://www.theoildrum.com/files/2009_December_Oilwatch_Monthly.pdf). Total liquids production was around 85 mbpd during 2008 - this includes unconventionals such as tar sands.
Anyway, better technologies will emerge, no doubt, but they will be dependent on higher prices to maintain production, and that won't necessarily translate into increased production. ExxonMobil is looking to spend potentially $1 billion to build a drilling rig for the Arctic (http://rigzone.com/news/article.asp?a_id=85269). Many of the offshore discoveries made by Brazil, or in the Gulf of Mexico, requires $80-$100 oil minimum. Thirty years ago, the US was able to extract roughly 15-20% of oil available; today, it can extract roughly 30%, but it's lower-48 state production has still declined from its 1970's peak.
Remember, in the 19th century, better ships, whaling harpoons and navigation techniques didn't increase whale oil after it's peak. Instead, America found a substitute in oil. After America's 1970 oil peak, US oil companies drilled more wells looking for oil in the US, from the late '70s to the mid-1980s (with better technology), then they had during the prior four decades combined, but Lower-48 production still declined. Better axes and saws didn't allow a deforested Britain to increase lumber production - they found a substitute in coal.
Remember, the IEA, just a few years ago, would have been laughing along with all of the peak oil skeptics. Then they did a study of the world's largest 800 oil fields, and realized depletion rates are dangerously high (6.7% and maybe higher), and realized they were terribly wrong. If anybody thinks the IEA is wrong, please, do you own field-by-field study.
As I said before, when ExxonMobil, a company not known for wasting money, is willing to pay the Ghana government $100 a barrel for a quarter access in the Jubilee Oil Field, a 1.2 billion barrel field, I think some very smart people have a good idea of what to expect. That, and when you have the Chinese gobbling up oil resources around the globe, or the Saudi's recent diversification of their economy (steel mills, auto parts), there seems to be a clear sign of things to come.
Obviously, Iraq is a wild card. If they can get their oil production up to 10-12 mbpd later this decade, like they claim they can, then things might get postponed a bit. However, if you work for an oil company like a I do, you'll understand how uneasy the geologists and executives feel about the future.
- Daniel
QA,
Your assessment is fairly accurate. Just as wood scarcity forced Britain to find a substitute for coal, or whale oil shortages forced America to switch to oil, higher-priced oil will force the globe to think about substitutes. Unfortunately, we're in a situation where neighter technology nor infrastructure is in place to make this a reality, and likely won't be for at least several decades.
Another topic most people on both sides fail to bring up is the fact that oil is still largely priced in dollars. There's been a lot of discussion among China, various OPEC members, France and Russia to sell oil using a basket of currencies, instead of using the dollar predominantly. Russia views such a move very favorably because they believe it will expose commodity producers to less volatility, and will reduce America's influence around the globe. Anyway, as oil goes up and the dollar goes down, such a move will become more tempting.
The oil issue is certainly solvable, but it's going to take several decades to do. Higher prices will force people to adapt to more sensible oil consumption practices, but that in itself is not a disaster.
Daniel
The conventional peak oil undulating plateau (truncated link posted by Daniel) arrived in 2005. Dependent on final numbers and the data source, it seems likely that 2005 is the peak year of production.
Some cost conscious producers such as Exxon and Devond Energy are pulling out of hard to get oil production. Jim Jubak has an interesting article on the Cost of Oil and not the Price of Oil driving some strategic decisions.
Great blog. wow...just wow
The Oil Doomsters don't seem to understand the price mechanism, nor man's ingenuity, which is nearly boundless.
We have natural gas for decades and decades, and CNG vehicles are a proven technology. There are 10 million CNG vehicles on the road globally already.
Add to the the incredible gains made in lithium batteries of late.
We are perhaps 5-10 years away from full-on commercialization--people will buy battery cars as they are cheaper and better.
The world has capital to finance R&D. VC funds are everywhere, private equity is everywhere. Very few good ideas in energy are not financed, and many so-so ideas are.
My guess is that the world becomes a cleaner more prosperous place in the years ahead.
Anonymous said...
The conventional peak oil undulating plateau (truncated link posted by Daniel) arrived in 2005. Dependent on final numbers and the data source, it seems likely that 2005 is the peak year of production.
Well I guess it's good that demand roughly matched that supply the last 4 years then. Or else there would have been huge unmet demand. It's almost as if the producers kinda planned it that way.
The U.S. may have reached peak housing, in square feet, and peak autos, in size. 2007 may be a peak for many things, perhaps for several decades.
Peak oil: http://www.energybulletin.net/primer.php = 1971
Oil to fall below $10/barrel http://www.oilandgaseurasia.com/articles/p/102/article/964/
Peak oil: http://www.peakoil.net/BoonPickens.html = 2005
Peak oil: http://www.fcnp.com/index.php?option=com_content&task=view&id=239&Itemid=33 = somewhere in the next 25 years.
Sounds like global warming predictions.
There's essentially three things I want to say in this post...
First, I wanted to touch on anon 6:47PM. The current crude production record was set in 2008 at 73.7mbpd. Last year saw a lower amount, but that was because OPEC producers held back in response to lower prices.
Secondly, here's an interesting piece I found several weeks ago in Rigzone. Evidently, US gas producers have great faith that cheap natural prices are here to stay, and are interested in signing long-term contracts - five- and ten-year deals. I know energy companies have been working hard to find ways to cut costs with shale gas production, and considering this recent move, along with shale gas's abundance, this may be a sign that cost-cutting measures are working. Although shale gas will always be more expensive than conventional gas wells drilled vertically, I've been predicting, for some time, that gas priced at $5-$6 mbtu will make most shale plays workable in the long run. Certainly, the "water issue" needs addressing, but that's another topic. Overall, this is something to keep an eye on...
And finally, moving onto peak oil...
I only have one thing to say about this: for years I've always viewed peak oil as a benign subject hardly worth worrying about. My stance on peak oil has always been - whether it happens in fifty or five years - production won't drop nearly as bad a feared, and it would be something humanity could adjust to fairly easily. Don't believe me? Just consider non-OPEC crude production: it peaked in '04; and yet its decline has been so slow, hardly anyone has noticed - and this is with the heavy losses from Cantarell and the N Sea. Here's the proof (chart 15).
Mind you, this is only one tidbit I've displayed supporting my argument; I have more facts, figures and surprising forecasts (made by members of ASPO nevertheless!) if anyone is interested. I think my argument is much stronger than Matthew Simmons, who proclaims the world may only be producing "10 or 15 or 20mbpd" by 2030.
Remember, according to Simmons, oil is suppose to average $200 a barrel this year, so mark January 1, 2011, on your calenders: the big day when the "da man" hands over five big ones and his pride to John Tierney and Rita Simon.
So, if the U.S. reached peak housing, in square feet, and peak autos, in size, etc., the recession may have been caused by an oil shock, initially, because of peak oil. Either oil production had to increase or economic growth had to slow.
U.S. real GDP growth peaked at 4.9% in the fourth quarter of 2007, which was a high level, while the price of oil rose from $50 a barrel in Jan '07 to $147 a barrel in Jun '08.
I don't think the Business Week article justifies the headline of the blog post. The graph has peak oil around 2035, and at less than 120 mbpd.
120 mbpd in 2035 means oil supply will only grow at about half the historic rate until then.
This may not be very dramatic, but it is likely to hamper global growth somewhat and it does mean that we will have to introduce alternatives at a faster rate than we have, and that the oil price will ultimately depend on the production cost of large-scale alternatives.
the recession may have been caused by an oil shock
Hamilton thinks that the experience of 2007-08 should thus be added to the list of recessions to which oil prices appear to have made a material contribution.
U.S. real GDP growth peaked at 4.9% in the fourth quarter of 2007
You should revisit your GDP growth rates, Peak Trader.
We're not at peak oil. But the typical line of thinking that goes along with "Peak oil is peak idiocy" is dangerous. There are limits to the capacity of any system: you can't beat the laws of thermodynamics. There are always doomsayers who say scarcity is right now, and you shouldn't take them too seriously.
But the idea that there will never be a large-scale shortage of anything is intellectually bankrupt.
Brewskie, thanks for your "proof" link. Very informative.
gettingrational,
Here's some other information you may want to consider. First, various models used to forecast oil production - while useful in the case of an oil field or an individual country - tend to be less reliable when "large blocs" are factored in - by this I mean either continents, or global production itself.
Consider continents for example. Several years, ago at energy conference, I partook in a Q&A session with George Monbiot, a writer for Guardian.co.uk and a vocal peak oil proponent. I asked him which continent had lost 35% of of its oil production since its peak, and if he could name the three continents with the largest losses in production. After he stumbled a bit, I revealed my true intent: I had asked him a trick question. Continents have been proven to plateau for decades; N America has been on a production plateau of 13-15mbpd for thirty years. Here's an image of the graph I offered to show him; he declined to see it.
To further the argument, here's several production forecasts made by prominent ASPO members. Despite their apparent alarmism, it turns out some ASPO's best minds also see slow declines in the long run. Consider:
Kjell Aleklett: 75mbpd total liquids by 2030 (p. 40).
Jean Laherrere: 73mbpd of total liquids by 2040 (p. 5).
Considering 2008's total liquids production was 85.41mbpd (2009's was 81.8mbpd, but that was because of voluntary cutbacks by producers in response to lower prices), such forecasts hardly look scary. I've always said if people think my slow decline argument is crazy, they should take up the issue with some of the smartest minds in peak oil, whom, interestingly enough, are arguing the same thing.
Anyway, the peakers' alarmism certainly sounds scary, but truthfully, their proven track record is embarrassingly porous, and they have no credibility on the matter. To see what I mean, check out a blog I used to maintain before grad studies consumed my life, and has since caused me to lose 90% of my interest in the debate. Trust me, these guys belong in the same "laughing stock league" as the Ph.D. computer geniuses who warned us about Y2K.
As usual, the point is missed by the people who do not understand the Peak Oil argument.
For the record, those who argue for peak oil have not said that we will run out of oil, that we can't squeeze any more oil out of existing fields, or that new fields will not be discovered. All those are a given and not really being debated.
The real argument is that some time in the near future the total oil production rate will hit a peak it it hasn't already done so and that we will not be able to go above that rate no matter what we do because prudent economic planning will not allow it.
We have already seen rapidly rising prices being unable to get oil production rates to increase post 2005 and have seen the IEA finally admit that its previous depletion rate estimates were too low. Existing field depletion is running at more than 6% per year, which means that massive investment is needed just to keep conventional production levels flat. But the necessary investments are not made as cash strapped government controlled companies do not reinvest enough of the oil revenues to stave off the production declines. We are already seeing most producing nations well past their peak levels and some of the past export powerhouses are now in danger of collapse and becoming net importers.
While we will not run out of oil, production rates will peak soon, if they haven't done so already. That makes the optimists who believe in endless oil the idiots.
Beyond the Gulf of Mexico, companies have announced big finds off the coasts of Brazil and Ghana, leading some experts to suggest the existence of a massive oil reservoir stretching across the Atlantic from Africa to South America.
It makes sense to pay attention to the oil producers that are trying to develop these fields. The numbers being put out are a few hundred thousand barrels per day in seven years from now. It is doubtful that the Brazilian deep water fields can ever exceed the peak production from Cantarell, which should lose most of its current production by the time the Brazilian fields are fully operational.
Production from deepwater projects -- those in water at least 1,000 feet deep -- grew by 67%, or by about 2.3 million barrels a day, between 2005 and 2008, according to PFC Energy, a Washington consulting firm.
Yet, total crude production stayed flat. The billions of new investment were just enough to keep production from falling but not enough to create a measurable increase.
Anon, thanks, I was using obsolete data from the prior quarter:
Final GDP Remains at a (Still Astounding) 4.9%
Thursday December 20, 2007
The BEA reported that the final U.S. GDP growth for Q3 2007 was a (still) astounding 4.9%. This revision was at the same level as the preliminary report, and (still) a full percentage point higher than the advance GDP forecast of 3.9% released two months ago. The revision was due to updated information that showed higher inventory levels and exports, and lower imports, than initially estimated. Imports are subtracted from GDP.
Also, thanks for the "Hamilton" paper.
Well I guess it's good that demand roughly matched that supply the last 4 years then. Or else there would have been huge unmet demand. It's almost as if the producers kinda planned it that way.
The producers tried to bring more oil to market and invested hundreds of millions of dollars. It was barely enough to keep production levels flat.
Some exporting countries experienced a collapse in production rates and are well on their way of becoming dependent on oil imports because there is no way for them to make prudent investments that would get production levels to increase. Fortunately, the market price will always be able to balance supply with demand and as the supply constraints made it impossible to increase production the price exploded to squeeze the marginal users out of the market.
notions that we could ever "run out" of oil are just silly. it will become uneconomic to use long before then.
That is true. As oil becomes much more expensive, marginal demand will be driven out of the market.
"peak oil" is about as scary as "peak whale" (the chief source of lighting oil)was 100 years ago.
This is where your argument falls apart. We live in a society that is dependent on an ample supply of cheap petroleum. While it is obvious that we can transition away from oil, it will take time and will create major dislocations that will be difficult to deal with. That is very scary, as we are bound to find out.
with oil at $20/bbl, there is no alternative energy industry. at $80, it's amazing how much investment we get.
Can we? I don't see private money going into alternatives at $80 unless the government offers grants and subsidies. No matter how the story is spun, alternatives are not a solution to our problems. We still need coal and natural gas as well as a lot more nuclear plants.
our ecosystem has abundant energy. we'll figure something out.
But that will take a lot of time, particularly if governments get involved and try to pick winners.
I think my argument is much stronger than Matthew Simmons, who proclaims the world may only be producing "10 or 15 or 20mbpd" by 2030.
I don't think so. While I can see a bit more than 20 mbpd, the depletion rates and economics work against your arguments and in favour of Matt's. That 6.7% is hard to overcome and deep water and shale production will not do the trick.
Remember, according to Simmons, oil is suppose to average $200 a barrel this year, so mark January 1, 2011, on your calenders: the big day when the "da man" hands over five big ones and his pride to John Tierney and Rita Simon.
Where did Simmons predict a $200 average for this year? I take it that it must have been when the US economy was humming and we did not have the 2008 collapse of economic activity. If you have a link I would appreciate it.
“The question of the possible exhaustion of the world’s oil supply deserves the gravest consideration. There is every indication that we are face to face with this possibility.” - Scientific American, 1913
It seems that the end has been near for a very long time.
VangeIV,
To answer your question, here.
Otherwise, I stick to my prior assertion that I'm not interested in anymore debates.
Matt Simmons acctualy reported oil to be costing 200$ at the end of 2010 (not on average) as far as I've red in the last ASPO conference.
VangeIV,
Sorry, here's the link.
Anon 7:23 AM,
Here's a detail of the bet, verbatim:
"Mr. Simmons said he favored a simpler wager, based on his expectation that the price of oil, now about $65 per barrel, would more than triple during the next five years. He said he'd bet that the price in 2010, when adjusted for inflation so it's stated in 2005 dollars, would be at least $200 per barrel.
Remembering a tip from Julian, I suggested that we use the average price for the whole year of 2010 instead of the price on any particular date - that way, neither of us would be vulnerable to a sudden short-term swing as the market reacted to some unexpected news. Mr. Simmons agreed, and we sealed the deal by e-mail."
Here's a detail of the bet, verbatim:...
I looked at the column and noticed quite a few problems with the logic.
First, I think that you should win the bet but not because of the reasoning. In the article we find the following statement:
"I realize this isn't a sure thing, because the price of oil has risen before - it quintupled in the 1970's. But then it dropped, thanks to new discoveries and technologies, validating the Cornucopians' optimism.
So I figure the long-term odds are with me. And while I'm at it, I'll extend Julian's challenge and consider bets from anyone else convinced that our way of life is "unsustainable." If you think the price of oil or some other natural resource is going to soar, show me the money."
The price fell because of a collapse of demand caused by a severe economic contraction in the US, not because of increased production. If we look at the actual data we don't see see any significant increase in production even though huge sums were invested from 2005 to 2009. While Simmons may lose the bet because he got the macro picture wrong, he was right about the lack of solutions from the supply side.
Otherwise, I stick to my prior assertion that I'm not interested in anymore debates.
That makes sense. If you go back and look at the previous 'debates' you will find a lot of emphasis on hope and hype on your part. You seem to look at the news releases and jump on board whenever some field or other is announced but fail to follow up and explain why the hype never panned out. As I pointed out before, fields need to be tested before there can be any definitive statements made about their reserves, potential production rates, production costs, etc.
While I have no doubt that some of the new discoveries will work out, logic tells us that they will not be developed until commodity costs are high enough to justify the risks taken. But while we wait we have depletion and deterioration working against us. As Simmons said, rust never sleeps. It might do you good to pay attention to the reality and not be enamoured with the hype and hope.
VangeIV,
The reason I'm not interested in anymore debates is because they don't go anywhere, and they're a complete waste of my time. You obviously know a lot about energy, I don't doubt your intelligence, you attempt a very fact-base approach to debates; but the problem is that sometimes, when some one provides evidence that's contrary to your stance, you still try to find ways to tear the other's argument apart.
The skepticism on shale gas is an example. I keep reading that a "technological breakthrough needs to be developed to address the EROEI issue," and yet, unconventionals supply nearly 40% of production, we just surpassed Russia as the world's largest gas producer - plus other nations are taking note, and we have plenty more to tap. Now surely the environmental issues need to be straightened out; but seems as if George P. Mitchell was right, the rest of the industry was wrong during the '80s and '90s.
But there's no requirement to how that's seen. We'll just stick to our opinions and let the matter rest.
You obviously know a lot about energy, I don't doubt your intelligence, you attempt a very fact-base approach to debates; but the problem is that sometimes, when some one provides evidence that's contrary to your stance, you still try to find ways to tear the other's argument apart.
I do not have problem with evidence. I simply point out that it has to be material. When we saw a massive explosion in investment that was unable to get production materially higher than the May 2005 figure it should have been evident that the supply solutions being hyped by the optimists were not in the works. All of the massive investment was required to keep production from falling.
The evidence is actually very clear. All of the world's great elephant fields, which were responsible for the bulk of the production are now at their peak or past their prime and in irreversible decline.
The skepticism on shale gas is an example. I keep reading that a "technological breakthrough needs to be developed to address the EROEI issue," and yet, unconventionals supply nearly 40% of production, we just surpassed Russia as the world's largest gas producer - plus other nations are taking note, and we have plenty more to tap. Now surely the environmental issues need to be straightened out; but seems as if George P. Mitchell was right, the rest of the industry was wrong during the '80s and '90s.
As an investor in companies that provide horizontal drilling services I am well aware of the potential. My problem is the inability to justify drilling at costs below $8. Much of the new supply from shale came when the energy companies spent like drunken sailors expecting demand to continue to be high and to keep prices at levels that made the production viable. That is no longer the case and given the high depletion rates I can't see production staying at the high levels given the decline of conventional production.
Frankly, I still think that Russia is in the better position than the US because it has more conventional resources that can be developed profitably at lower prices. The problem that Russia has is ageing infrastructure that will continue to deteriorate and demand huge investments that are unlikely given the price levels. The US has exactly the same issues and will need to spend billion on new pipelines and other infrastructure as well and has to figure out a way to get the McKenzie natural gas to the market. (If a deal is announced you might want to look at the royalty company, Franco Nevada as a possible beneficiary.)
Peak Oil is Peak Idiocy : Endless Oil?
Really !
Should we actually bother to address the idiocy of this claim ?
"Endless oil" - perhaps it's being obtained from somewhere other than the finite reserves on a fixed size planet called Earth then ?
As of today it's acknowledged that we ARE in decline and that the crash is very near - US DOD announcement the other day.
Yes there are large untapped reserves, but the REAL Peak Oil arguments are :
1. Mankind has NO alternatives for those products derived from oil, and that of course is virtually everything we use. Anyone care to name something else plastic can be made from ?
2. Mankind has no current technology to tap the deep reserves and even if such technology is developed, the cost would be astronomical and would of course be passed on to consumers.
Resources left isn't the issue - the cost of extracting and processing them is.
3. There is no evidence of self-renewal of oil reserves. They don't magically refill themselves, as evidenced by the severe decline of every oil field out there.
4. Even if there was some amazing new energy source capable of replacing oil, global deployment adn integration would literally take decades - time we don't have.
Source - Scientific American
5. Even if you could tap the remaining reserves, what will mankind do when they too run down ?
6. What about emerging economies - China,Taiwan, Korea,India, Pakistan ? Every citizen wants a car and western world trappings (lots of plastic crap !) Just watch the demand for oil skyrocket and prices too.
In China alone the government is trying to get 20 MILLION farm workers into city life. Go run the numbers for that one !
6. Alternatives ?
What alternatives ! Can you run trucks, planes, ships on electric or solar power ? heh..yeah..
Electric cars ? Fine - now add plastic for dashboards, panels, paint, hoses, carpets etc etc
hhhmmm...doesn't stack up now does it.
300 billion barrels to go ? Sounds a lot but that's not much considering we use 100 million a day - 10 years worth - and that doesn't allow for increased demand as above, increasing population etc
So fatal decline in a decade is still on the cards...nope - no solution there either.
So, pay off your debts, fix your health problems and become self-sufficient now, while you can.
I'm already there !
Reality waits for no man.
Rodney writes, "Should we actually bother to address the idiocy of this claim ?"
You may be interested in this FT commentary.
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