Guest post by David Archibald
When I posted on peak oil’s effect on agricultural costs and food security, some comments questioned the idea of peak oil. What follows is a summary of the subject. We will start with what is considered to be the most successful economic forecast ever made – the prediction in March 1956 by King Hubbert of the Shell Oil Company that US oil production would peak in 1970. This was in a paper entitled “Nuclear Energy and the Fossil Fuels” presented at the Spring meeting of the American Petroleum Institute in San Antonio, Texas. The paper’s title reflects Hubbert’s view that nuclear power would have to replace fossil fuels on the latter’s exhaustion. The view hasn’t changed, but the replacement need has become urgent.
Figure 1: Logistic Decline Plot for the United States
Source: Al-Husseini 2006
Figure 1 shows the basis for Hubbert’s prediction. This is a logistic decline plot of annual production divided by cumulative production to that year against cumulative production. His original analysis anticipated that Lower 48 crude production would peak at 2.8 -3.0 billion barrels between 1966 and 1971 and then enter an irreversible decline. Production in the lower 48 actually peaked at 3.4 billion barrels in 1970. Under Hubbert’s original forecast of ultimate potential of 200 billion barrels in his 1965 assessment, 1991 crude oil output was projected to be 1.9 billion barrels. Actual 1991 production was, in fact, 2.0 billion barrels – a modest variation from Hubbert’s prediction made 35 years earlier (Smith and Lidsky 1993).
Figure 2: Logistic growth curve for US crude oil production
This figure is from Nashawi et. al. 2010. The blue line is the modeled projection to 2070. The purple line is cumulative production to 2008. The US has burnt through 84% of its original oil endowment.
Figure 3: World oil discovery by year
Source: Al-Husseini 2006
Figure 3 shows that oil discovery peaked fifty years ago in the early 1960s. Based on the well-established trend, not much hope can be held for positive departure from the forecast discovery profile.
Having shown how powerful Hubbert-style analysis is forecasting production, let’s go on to look at what the global oil production profile looks like.
Figure 4: Logistic Decline Plot for Global Oil Production
As Figure 4 shows, the world had consumed half of its original oil endowment by 2005. 2005 was the year that global oil production peaked. According to Hubbert theory, we will have a few years of near-peak production before the steep decline down the right hand side of the bell-shaped curve begins.
Figure 5: A 2004 estimate of the Global Oil Production Decline
Source of figure: Al-Husseini 2006
I have included Figure 5 because it covers a 120 year span and it has been accurate for production over the last seven years since it was published.
Figure 6: World Oil Production 1965 – 2030
This is another way of looking at the coming decline which will be 1.5 million barrels/day/year. The decline will go on for about three decades at that rate before flattening out.
Figure 7: Logistic growth curve for Non-Opec oil production
Source: Nashawi et. al. 2010
Discussion of oil prices and the tightening oil market tends to concentrate on just how much spare capacity Saudi Arabia has. As Figure 7 shows, whatever swing capacity Saudi Arabia has will soon be overtaken by events. The big story is Non-Opec production, which will almost halve by the end of this decade.
Figure 8: Oil price 1990 – 2016
Modelling the oil price in a tightening market is difficult because of the dampening effect on consumption of the increasing price. Plotted logarithmically, the oil price chart itself may reflect that effect and thus might be used as a predictive tool. What it shows is that the oil price is constrained by a parallel uptrend channel rising at 15.6% per annum. The current UK retail price for gasoline is indicated on the chart to show that civilisation, of a sort, can continue at very high oil prices.
Table 1: Oil price forecast by year and the concomitant effect on agricultural operating costs.
Table 1 shows how the oil price rise derived from the established trend in Figure 8 translates through to price per US gallon and agricultural operating costs relative to the 2009 level. There will be a severe departure from what Michelle Bachman has promised to achieve.
Figure 9: Energy-related inputs relative to total operating expenses, 2007-08 average
From: Sands and Westcott 2011
Based on the USDA figures and recalculating for the $200 per barrel oil price expected in 2014, wheat and corn operating costs will be 60% higher in 2014.
In 2009, the Chief Economist of the International Energy Agency, Fatih Birol, said that “we have to leave oil before oil leaves us.” Only one country is doing that, and of course it is the same country that is proceeding to commercialise the molten salt, thorium-burning nuclear reactor – China.
Figure 10: Chinese oil production, imports and coal-to-liquids production
This figure shows Chinese domestic oil production, imports and a projection of coal-to-liquids production assuming that demand follows its established trajectory.
China currently has three Fischer-Tropsch coal-to-liquids (CTL) plants and one liquefaction plant commissioned with a further three Fischer-Tropsch plants under construction. Total planned production from those seven plants is in excess of 600,000 BOPD. A journal earlier this year reported that “Chinese CTL investors will pay active efforts in preliminary works for mega size CTL projects starting from 2011 and may realise commissioning of such projects before the year 2015”. By comparison, in the United States, Section 526 of the Energy Security and Independence Act of 2007 blocks the Department of Defense from using CTL fuels because the life cycle greenhouse gas (GHG) emissions from those fuels would be much larger than the GHG emissions from conventional petroleum.
The economic effect of continuously rising oil prices will be to continuously cause economic contraction.
Table 2: Compilation of studies on the Oil Price – US GDP Effect
Source: Sauter and Awerbuch 2003
At the 1.5% average estimate of growth decrease per 10% oil price increase, the 15.6% per annum oil price rise expected over the next few years will shrink the US economy at 2.2% per annum. The fastest way to reduce this effect would be to install CTL capacity in the US. To replace all of the US’ oil imports with home-grown CTL would take more coal than is currently burnt in US power stations. It follows that what is also needed is a good, safe nuclear technology to replace coal in power generation, bearing out Hubbert’s observation of fifty-five years ago.
References
Al-Husseini, M., The Debate over Hubbert’s Peak: a review”, GeoArabia, Vol. 11, No. 2, 2006
Nashawi, I.S,, Malallah, A. and Al Bisharah, M., Forecasting World Crude Oil Production Using Multicyclic Hubbert Model, Energy Fuels, American Chemical Society 2010
Smith, A.L. and Lidsky, B.J., 1993, King Hubbert’s analysis revisited: Update of the
Lower 48 oil and gas resource base, The Leading Edge, November 1993
Sands, R. and Westcott, P., Impacts of Higher Energy Prices on Agriculture and Rural Economies, United States Department of Agriculture, Economic Research Report Number 123, 2011
Sauter, R. and Awerbuch, S., Oil Price Volatility and Economic Activity: A Survey and Literature Review, IEA Research Paper, August 2003.
October 2011
I agree wholeheartedly with all who are not buying this “peak oil” idea. Reasons are given not only by Joe Prins, whose suggestion of a “surface stations project” for oil points in the right direction: At present there is no valid, independent source of information in these matters. All figures given by the players in the business are to be treated with caution. There is nobody in the whole industry who gains anything by announcing higher reserves, but all gain tremendously when playing the “we-run-out-of-oil” tune… This industry is not operating in a market, because the players have cornered it and thus transformed it into an oligopol. For it to behave like a market, the industry would have to be restructured: Exploration, extraction, refining, transport and last not least selling through gas stations – each of these steps would have to be organised as a competitive market.
I agree with peterhodges concerning “peak debt”, and assume we will see it here in continental €urope faster than you. The mismanagement of our “experts” might even help you to solve (or ease) your difficulties.
Logan in AZ BEAT ME TO IT..
I’m suspicious of the peak oil calculations as they all assume conventional oil production. I’d like to see what happens to the peak-oil calculations when one factors in Alberta’s oil sands, which are currently rapidly expanding and US oil shale. As others have mentioned methane clathrates are currently almost unexploited and represent a vast energy source.
Right now in Canada, the political climate is favorable for the next 4 years so that Alberta’s oil sands can expand dramatically. Whether this oil gets exported to the US or China depends on how receptive the US government is to “ethical oil” (to use Ezra Levant’s terminology for oil sands crude). In online discussions on other sites I’ve been told by people working in the oil industry that natural gas is so cheap now that there isn’t even a theoretical interest in constructing nuclear reactors in Northern Alberta to provide the heat necessary in extraction of bitumen from the oil sands.
In the long run we need a large scale nuclear reactor construction program. I’d far rather see money being spent on this than constructing bird-blenders that produce only a tiny fraction of their rated power output and serve primarily to create environmental disruption and destabilize the electrical grid. Where I live in British Columbia, the provincial government has decreed that no new hydroelectric projects will be built which is utter insanity. Hydroelectric power is a true renewable resource and water falling down a gravitational gradient has a far higher energy density than an intermittently flowing gas. Guess what choice for energy production the moonbats in power in BC have decided upon. Hint: BC is one of the few places on the continent that has a carbon tax.
What I’d be interested in seeing is peak oil calculations done with and without the effects of watermelon policies which restrict both oil exploration and production in very large portions of N. America. Given the ubiquity of gasoline fueled vehicles around the world, likely it would prove cheaper in the long run to use nuclear power to produce synthetic gasoline rather than try to switch to electric vehicles. Until batteries with much higher energy densities are available, and not requiring rare elements for their construction, electric vehicles will just be a novelty reserved for the rich (aside from the ubiquitous golf-cart in some retirement communities in the southern US).
Much oil in the US remains in the ground due to state laws preventing extraction. Due to this these reserves are not counted in the reserve total but remain a resource only. Same in the UK. the discovery of shale gas resources reduced fears of cold winter homes till the government stopped fracking because of earthquake fears (actually the same as a heavy lorry passing 50 ft away at 40mph- not actually earth shattering) so no gas available.
The stupidity of governments never ceases to amaze me.
The oil optimists commenting here should remember one important logical and practical conclusion:
There is a world of difference between saying that peak oil has not happened versus saying peak oil will never happen. Peak oil is inevitable due to both physical and economic limits. The only question is when. Once you have rejoined the sane by recognising oil production will cease at some future date, you might have a hope of using real evidence to put an actual use-by-date on your optimism – because there is one (irrespective of our ability to predict it).
When both ASPO and the IEA and everyone else who has investigated the numbers are all telling you that peak oil occurred in 2008 and that global production will go into decline within a few years, it is time to stop denying that the earth is a finite sized object and start figuring out how we can maintain the highest standard of living possible with only a tenth of today’s oil production.
Biofuel as a liquid from algae or crops is a total waste of time, space, and energy, not only for the fact it competes with food production for arable land, but because the rate-determining step in photosynthesis is less than 1% efficient. Biogas (methane) is a potential maybe based on current landfill trials.
Oil is wasted on stationary power production. I’d say the same for natural gas. For the electricity grid there are several alternatives, some of which are sustainable at any high scale (concentrated solar with energy storage), some of which are sustainable only at lower volumes than would be required for current demand (eg photovoltaic), and some of which are totally unsustainable at any scale in the longer term (100+ years) for the same reason as oil (eg nuclear reactors consume fuels too).
Wind power is a joke, but may be of some supplementary help in isolated residential settlements.
Of course neither PV nor concentrated solar power can deliver totally reliable power, which disrupts both industrial output volume and schedule but does not prevent current industry from continuing on a more stochastic output curve.
For land transport we may postpone the inevitable by converting most existing cars and trucks to LNG at the expense of luggage space. Peak gas will happen at some date much further in the future than oil. The electric car is practically still in the shop, not quite ready for prime time, especially when the resulting doubling in electricity demand is considered. Electric trains and trams are superb ideas, though converting one lane of every highway to a train line is going to be expensive.
For aviation there is presently no substitute for kerosene, though of course R&D continues on both battery technology and artificial carbohydrate fuel production processes.
The sooner the world starts seriously contemplating solutions to the inevitable decline in oil the sooner these solutions will reach a level of efficiency and maturity that can help us take the edge off the societal unpleasantness that is going to happen (around 2018) when for the first time ever global oil supply cannot meet global demand.
Life will go on, somehow, just not with oil.
Jack H Barnes says:
October 27, 2011 at 11:04 pm
That’s a useful site. Let’s go data mining. In August 2003, 3, 188 wells in North Dakota were producing an average of 25 BOPD. In September 2006, 3412 well were producing an average of 33 BOPD. In the last month of data, 5702 wells were producing an average of 78 BOPD. The extra 2,290 wells in five years are averaging 144 BOPD. Bakken wells have very steep decline rates and are down to about 15% of the initial production rate by year three. To produce 1,300,000 BOPD by 2015 at the current rate of 78 BOPD requires 16,700 producing wells. So we need another 10,000 wells in four years. Not physically impossible if there are enough drilling locations left. It would require a four fold increase in the current drilling rate. In the meantime, conventional US oil production, falling at 150,000 BOPD/year, will have fallen 600,000 BOPD.
In February this year, Marathon Oil reported that it was completing Bakken wells for $6.0 million with an initial production rate of 300 to 500 BOE per day and an estimated ultimate recovery of 350,000 BOE per well. That is a capital cost of $17 per BOE (which includes gas). Bakken wells are down to 5% of the initial flow rate at year 10. With an average initial flow of 400 BOPD, that is 20 BOPD by year 10, which is very close to the average of what all North Dakota wells were producing in 2003. If we wanted to produce 1,300,000 BOPD at 20 BOPD per well sometime next decade perhaps, that would require 65,000 producing wells.
I do not see any Table 2. I believe it has fallen out of the text,
Technological change and substitution… I am sure Hubbert was a good geoscientist, but he was a lousy economist. The market mechnisms cited will take care of this non-issue. I really don’t think much elaboration is necessary, no?
What I never liked about the “logistic decline” plots is that one variable – Q – occurs in both axis, and Q – cumulative production – is dependant on P (being P’s integral). Using a 2D plot to show one variable over a value derived from that one variable sounds so wrong.
Imagine that P – production – stays constant – say at 1 – , and Q is the integral of this constant function so it just goes up linearly over time.
The logistic decline plot will in that case take the shape of a hyperbel: y = 1/x.
And when you look at fig 1, it has a certain similarity to a hyperbel. A lot of data points on the left are far above the trend line. Without the newest data points, the trend line would have been steeper…
So, it would be interesting to compute a hyperboloid trend instead of a linear trend for fig. 1. I’m not saying that the resulting hyperbel will have a horicontal asymptote; but it would match the data better, and maybe allow better projections. (Or alternatively, just use P over time; the “logistic decline plot” is IMHO more of a tool to frighten the chicken than one that shows data in a clear way)
People believe what they want to believe – even the most brilliant. With all of the conflicting, so called “expert” reports on peak oil, and much else besides, I don’t think it’s possible for the objective layman to know what to believe. But as Dylan said, “there’s a slow train comin'”. Reality will bring it all home to us one day. I suspect that before we’re troubled by warmist projected sea level rises we’ll be well embroiled in very nasty resource wars.
This post is yet another exercise in projecting a trend in a straight line, assuming that nothing changes. That trend line created by dividing by cumulative production is guaranteed to make a downward sloping line in all possible production scenarios, it is statistically meaningless. Try extracting any physical meaning from dividing the speed at which you walk by the cumulative distance you have walked. Its nonsense.
Gasguy rightly says that higher prices unlock resource potential.
As an example look at what’s happening off the Falkland Islands right now. Explored by the major oil companies around 20 years ago, they abandoned the area, despite good oil shows, as uneconomic at the contemporary oil price. Now the small exploration companies that picked up the licenses have made discoveries that suggest a whole new oil province possibly as large as the North Sea (or larger). The current oil price makes the ongoing exploration and potential extraction eminently economic.
predicting future oil reserves cant be an exact science
but calculating what we have used is
Its approximately 216 cubic kilometers
Thats a cube thats 6 kilometres long/wide/high
Thats all , if it was all in front of you you could see it all
and given that everyone who currently wants to buy some petroleum/gas
gets some ,I do not think we are going to run out soon
The truth? It’s a finite resource. It will run out at some day in the future. And the years approaching that time will be some frikkin’ ugly. Then we will adapt.
A liquid fluorine thorium reactor may not be a practical design.
http://en.wikipedia.org/wiki/Advanced_CANDU_Reactor
Canada has commercially available third generation advanced heavy water reactor design that can consume either slightly enriched uranium or thorium.
Thorium is roughly four times as abundant as uranium and does not produce significant amounts of plutonium.
India is a developing a commercial heavy water thorium reactor (the hydrogen in heavy water, deuterium has an extra neutron).
http://www.barc.ernet.in/publication…chapter1/1.pdf
http://www.theregister.co.uk/2011/02…a_thorium_bet/
Peak oil claims to be about science (geology and math). It’s actually about economics. If you use discounted cash flow analysis you would never invest in discovery of a resource you couldn’t sell for 20 years. In 1970 some bright lights discovered we only had 20 years of oil reserves. But it was because we had slowed discovery because we had enough. Today we have 40. It was just over a decade ago that oil went below $10 and was predicted to go to $5.
The great failing of the Hubbert model and its successors is that they are extrapolations of the status quo without consideration of the interactive nature of supply and demand.
Dave Springer says: October 27, 2011 at 11:37 pm
The U.S. has trillions of barrels in oil shale and trillions more equivalents natural gas and coal. I thought pretty much everyone knew it was a strategic decision to drain the light sweet crude reserves of any foreign countries willing to sell it to us for as long as they’re willing to sell it to us at prices we can afford…
Thanks Dave. That looks credible. Like to do an article for WUWT???
Dave Springer says: October 27, 2011 at 11:57 pm
There are currently insurmountable engineering difficulties with thorium reactors. There just aren’t any known materials that can simultenously resist both embrittlement from exposure to high level of radiactivity and corrosion from molten salts…
Again, Dave, many thanks. But I would like clarification (another article???) because I’d understood that the US did have a thorium reactor running for a considerable time, so that thorium was of proven feasibility.
Look forward a lot to replies on both fronts. Dave that’s a double thumbs-up.
Discussions about oil production are intellectually stimulating due mostly to the complex interaction of Western governments continual suppression of oil and coal production. Go read this review from Chu’s Department of Energy for 2011:
http://205.254.135.24/forecasts/ieo/index.cfm
And check out the charts by clicking the “read more”.
There are some things to note about the DOE report:
1. Chu is 100% nut-case greenie so the “reference case” of renewables is questionable at best and laughable in reality.
2. But even as green as the DOE is, the “liquids” projections continue to increase through 2035.
Which means the issue is not “peak” oil but global energy production to meet global consumption. DOE touches on the underlying issue in that energy prices serve as a governor on GDP. That is if one trashes the “core CPI” fiction and uses the real economy.
Energy should be a large part of your investments. You have artificially forced decrease in supply and almost unlimited growth in demand (think about the African that would really like an electric pump to obtain fresh water).
Peak oil is interesting but only as a footnote as the world continues to search for it’s peak energy consumption.
For those who have not noticed Canada is now constructed a LNG (Liquefied natural gas) export terminal at its West Coast to export natural gas. A few years ago Canada was planning to construct a port at the same location on its West coast to inport LNG. What changed? The discovery of massive reserves of deep earth CH4. North America suddenly has a massive surplus of “natural gas”. Why?
Saudi Arabia has 25% of the planet’s oil reserves half of which is contained in only eight fields. Half of Saudi Arabia production comes from a single field the Ghawar. Again why?
As most are aware a large mars sized object struck the earth roughly 500 millions after the formation of the solar system. The impact formed the moon and stripped the planet’s mantel of most of the volatile lighter elements. As 70% of the planet’s surface is covered by water a natural question to ask is: Where did the water come from, as the earth’s mantle contains almost no water or hydrocarbon?
Also interesting is the recent discovery that the solar wind strips water vapour from the earth atmosphere. If one does a basic calculation it indicates there should be no water left on the planet particular as the solar wind of the sun was significantly stronger when the sun was younger.
There are two theories to explain how water and hydrocarbons came onto the earth: the late veneer theory and the deep CH4 theory. The late veneer theory hypothesizes that comets struck the early earth after the big splat event covering the very hot earth with hydrocarbons. There are multiple problems with that hypothesis (See Thomas Gold’s Book Deep Hot Biosphere for details. One of the key problems is the observation that the percentage of gaseous isotopes in the earth’s atmosphere does not match that of comets (Comets are residues of the early solar systems. The comet elemental composition does match that of the sun). The late veneer theory’s explanation for the miss match of isotopes in the earth’s atmosphere to that of comets is that the early solar system had a close encounter with another solar system which temporary provided a limited source of comets to cover the earth but not significantly change the element composition of the sun.
The second hypothesis is the deep earth hydrocarbon theory. This theory hypothesizes that massive amounts of hydrocarbons (5% of the total core mass) are located in the earth’s core. As the core cools these hydrocarbon (CH4) are released. At very high pressures the CH4 forms longer chain molecules.
The release of CH4 is still occurring as the upper surface of the ocean is saturated with CH4 which indicates that CH4 is being released from some source.
The next question is could the deep earth CH4 also be the source of liquid hydrocarbon? I will leave that one for a different comment. Why does “heavy oil” have high sulfur and heavy metals in it? Where do the heavy metals come from? What is the source for the Alberta massive heavy oil field?
See Carnegie Institute of Sciences Deep Carbon Workshop presentations if you interested in this subject.
https://www.gl.ciw.edu/workshops/sloan_deep_carbon_workshop_may_2008
This is also interesting.
http://www.sciencedaily.com/releases/2009/09/090910084259.htm
http://www.nature.com/ngeo/journal/v2/n8/abs/ngeo591.html
Should have included the current US price, to show that in fact fuel prices and civilisation are correlated.
Now to comment on the substance, is that actual and model timeseries data spliced together that I see? A neat trick. I’ve seen it before somewhere. Especially flagrant in figures 6 and 7, but figures 2 and 5 are also pretty bad. Several of these are outright lies – what is labelled as model data is only model data for the future, and is actual data for anything up to the present. The effect is very misleading. On first glance, it looks like the model has predicted perfectly up to now, and the model’s next prediction is for a ghastly decline. Terrible, right? Wrong. These plots tell you nothing at all about how effective the model has been in the past. Or perhaps they do tell you something – they tell you that the author doesn’t want to show you the model’s past performance.
Look closely at all these plots. Notice how in almost every one, production is increasing right up to today, when the model data takes over and the production forecast is declining? Again, I’ve seen this technique somewhere before. It’ll come to me in a minute.
The only exception is US production which, as others have pointed out, only fits the thesis if you ignore the past five years.
The comparison to how the IPCC treats temperature model data is just too obvious to ignore. Every time the model is proved wrong, the model is adjusted so that it fits past data exactly and then presented as a perfect model with an undeniable future prediction. Every four years the process is repeated because every four years the model is dead wrong.
I wonder what is the date for peak Nickel? Must be a Billion year from now.
Today is the test day for the 1MegaWatt of the E-cat Nickel Hydrogen LENR Cold Fusion reactor by Andrea Rossi in Bologna.
If it works as advertised then everything changes and the question of CO2’s effect on the climate becomes irrelevant
Apparently most of the Nickel on the Earth is believed to be in Earth’s core. Who knows, some people believe the Earth’s core is several millions degrees.
At any rate, the peak Nickel day if this reactor works, is a long long way into the future.
Most people don’t get peak oil. It’s about net energy and rate of extraction…. just try use straw to tank your car…
The concept should be of “Peak Easy Oil”, not “Peak Oil”.
The ‘not easy’ oil is mostly found in tar sands and oil shales. It is just a matter of economics, i.e. a sufficiently high price, sufficient capital investment and keeping the loonies/greenies in their box.
Obviously, nuclear power is the only rationale answer at the moment for our long term energy needs; once again it is just a matter of sufficient capital investment and keeping the loonies/greenies in their box.
Sadly, the tsunami in Japan brought a sharp rise in the shrill shrieking of the loony/greeny brigades against nuclear power. The subsequent political reaction of dithering and rejecting nuclear power has guaranteed widespread future electricity brown outs for many parts of the world, most notably in Germany and the UK.
IIRC the initial reason the US became importer rather than exporter was to make the dollar the international currency, it began by making a deal with the Saudis to buy their oil if they also sold elswhere in dollars and the dollar soon became the currency for practically all global trading. It was Saddam Hussein who tried to break that hold, changed his dollars into euros and would only sell in euros – a bankers war, but again, they’re all the same bankers so it’s merely a way of pushing it around among themselves to get bigger returns.
I must say, I’m rather disappointed to see this presented here with no commentary from Anthony. It’s pretty much just unjustified alarmism.
37 years in the oil business here, and counting.