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
For more than a century the world has been at ‘peak oil’. For more than a century the ‘peak oil’ Luddites have been proven to be wrong.
I suppose they think this time it’s different.
Now I get it. The Iron Age was brought about by our prehistoric planners foreseeing a shortage of flints.
I think what everyone is missing goes back to first principles; IF all of the hydrocarbons below ground were generated from CO2 in the atmosphere, the concentration of CO2 started out in the low percentage range, and the atmospheric pressure early on was >200 atmospheres then we have not even started to scratch the surface of hydrocarbons present.
In addition, it is likely, though little evidence to date, that Tommy Gold is correct and much of the methane is primordial. That methane has been converted to petroleum deep underground at elevated the temps and pressures.
If the world is going to run out of oil in the next few decades, then we don’t have to governmentally-limit its use for AGW reasons — as, ultimately, its use is self-limiting.
I’ve always felt that “we should use our oil last” — importing oil until there is none left to import at a sensible cost. Given our balance of payments, maybe now is the time to start exploiting our own supplies to the max — while building nuclear plants and making hydrogen-fusion power practical (but, not bothering with cost-ineffective windmills and such).
http://rankexploits.com/musings/wp-content/uploads/2011/04/Screen-shot-2011-04-06-at-6.20.18-PM.png
There. We can now end the /thread.
Nuclear, nuclear, when the greenies lights go out, hear them shout, NUCLEAR! Its carbon free, non polluting the best (sarc) what they will rally be saying is “Jeez I am cold”.
Logan and others: fingers crossed for the E-cat, not holding my breath.
DirkH: Agree. This form of “analysis” has been used in population studies, where the rate of change of a population (R, which equals population at time t+1 divided by population at time t) is plotted against the population at time t.
So you have on Y axis N(t+1)/N(t) and on the X you have N(t).
For a time a negative slope was considered an interesting result. (!) Then things became more nuanced, where the “form” of the curve was seen to be saying something about underlying processes.
Like you I prefer a simple time series.
David,
Lots of pretty charts and graphs; all modeling the future. You should know we can’t model the future. The eight-hundred pound gorilla is tearing up your charts and graphs and projections jumping up and down, screaming, “You don’t know how much hydrocarbon is down there and you don’t know what future advances in extraction will make recovery economically feasible” In short you can’t know the future, you can’t predict the future – Unless you control the unknown variables.
You haven’t and you can’t. Earth’s Peak oil is unknowable.
We stopped at a campground in Oklahoma last week that was completely full by supper time in the MIDDLE of the week in OCTOBER. Most of the sites were occupied by extended stay campers — workers in the oil and gas industry. We were told that the campground was staying open through the winter now because of the business from the oil and gas industry workers — and a few people that work in the wind energy.
On the last several days of our trip, it was obvious in parts of Oklahoma, Texas, and New Mexico that the oil and gas industry is booming right now.
There is no such thing as peak oil. Supply and demand will as always be balanced by price and as oil becomes too expensive its uses will be taken up by alternatives or it will simply stop being used. We know that oil will run out but the planet is sloshing with oil and gas and predicted crises just never happen. Oil will run out eventually and we will adapt to it, nothing new here, move on.
If I could just find a way of converting irrational alarmism to energy we wouldn’t need any oil.
@temp
This is much the same in the US where the government and the handful of big oil companies have both locked out all oil companies and have basically prevent small oil companies from competing with the big names.
I have no doubt that as socialism expands ….
++++
A handful of big oil companies block small competitiors using government to control them? That, dear sir, is the very definition of capitalism, or perhaps it is closer to call it fascism as Mussolini defined it. I am sure you have heard of the game ‘Monopoly’.
http://www.informationclearinghouse.info/article7260.htm
William says:
October 28, 2011 at 2:21 am
Two of your links don’t work and the third makes no mention of the LEU fuel in latest generation of CANDU reactor being replaceable with thorium. I don’t think you have the first clue of what makes thorium different from enriched uranium to be quite honest.
As a geologist, peak oil predictions annoy the crap out of me. Hubbert’s prediction will eventually come true, but not in the lifetime of anyone old enough to read this. All of the petroleum on the planet has already been discovered? Really? In Antarctica, (as large as North America), one seventh of the planet’s sedimentary basins have never been tapped. Of the basins that have been tapped, deeper horizons remain largely unexplored. In this country alone, the entire east coast, nearly half of the Gulf of Mexico (west coast of Florida), half of the north slope of Alaska, and huge chunks of the west are quarantined from exploration.
Huge natural gas deposits are known to lie ~50 miles offshore of the Carolinas, but our legislators won’t even allow their reserves to be determined. Why? Because our energy policy is molded by legislators funded by oil producing nations and environmental lobbies. At this point in history, the supply of petroleum is artificially controlled; supplies are not the problem.
Today is the day for test of the 1MW LENR device which has the potential to make all this discussion irrelevant. Forbes article last week –
http://www.forbes.com/sites/markgibbs/2011/10/17/hello-cheap-energy-hello-brave-new-world/
AP is present at the test in Bologna today so the main stream media may finally take note.
Once upon a time this evil oil oozed out of the ground in many places. It still does in many places.
Odd is it not that hydrocarbons seem to be prolific through out our solar system and our galaxy, no doubt also the universe.
This would suggest that it is a naturally occurring product some what like iron or sulphur.
If this is the case peak hydrocarbons will occur when the world is making it less fast than we are using it, that is once we have found and exploited all the reservoirs of oil and gas. Plus the vast treasures of methane stored at the oceans bottom. Perhaps then peak will occur but I doubt muchly for the odd hundred years or so from now we will probably have progressed a tad in technology.
Worry warts and doom sayers abound, but we are a very adaptive bunch, with an inventive bent.
The stone age ended, not for a lack of stones. The bronze age ended for iron was tougher, horses became our friends, not our beasts of burden.
Dick Tracey had his wrist radio, Maxwell Smart had his shoe phone, Now the world has iphones who would have thunk it.
Andrew McRae:
At October 28, 2011 at 1:45 am you assert:
“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.”
Your mistaken assertion is supported by some others. For example, Mike Bromley the Kurd says at October 28, 2011 at 2:21 am;
“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.”
Sorry, but no. The assertion is an error. In the real world, for all practical purposes there are no “physical” limits to natural resources so every natural resource can be considered to be infinite. This a matter of basic economics which I explain as follows.
Humans do not run out of anything. The usage of a resource may “peak” then decline, but the usage does not peak because of exhaustion of the resource (e.g. flint, antler bone and bronze each “peaked” long ago but still exist in large amounts).
A resource is cheap (in time, money and effort) to obtain when it is in abundant supply. But “low-hanging fruit are picked first”, so the cost of obtaining the resource increases with time. Nobody bothers to seek an alternative to the resource when it is cheap.
But the cost of obtaining an adequate supply of a resource increases with time and, eventually, it becomes worthwhile to look for
(a) alternative sources of the resource
and
(b) alternatives to the resource.
And alternatives to the resource often prove to have advantages.
Both (a) and (b) apply in the case of crude oil.
Many alternative sources have been found. These include opening of new oil fields by use of new technologies (e.g. to obtain oil from beneath sea bed) and synthesising crude oil from other substances (e.g. tar sands, natural gas and coal). Indeed, since 1994 it has been possible to provide synthetic crude oil from coal at competitive cost with natural crude oil and this constrains the maximum true cost of crude.
Alternatives to oil as a transort fuel are possible. Oil was the transport fuel of military submarines for decades but uranium is now their fuel of choice.
There is sufficient coal to provide synthetic crude oil for at least the next 300 years. Hay to feed horses was the major transport fuel 300 years ago and ‘peak hay’ was feared in the nineteenth century, but availability of hay is not significant a significant consideration for transportation today. Nobody can know what – if any – demand for crude oil will exist 300 years in the future.
But you assert;
“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.”
That is similar to a neolithic man asserting;
“There is a world of difference between saying that peak flint has not happened versus saying peak flint will never happen. Peak flint is inevitable due to both physical and economic limits. The only question is when.”
Your assertion is devoid of any worth.
Richard
If you price oil denominated in gold, what do you get? I suspect when denominated in gold, the price is flat or declining.
A long time a go when I first started working in the oil industry as an environmental advisor I nosed through some old files and found internal company documents talking about oil running out by 1928…
The thing about this document is that production is a function of demand. (Economics 101) We live in a world of an economic slowdown plus a tremendous push on conservation where many of the major producers and users are seeing energy efficiencies of 5 to 10% a year since the 1990’s and before.
The Peak Oil paradigm needs to be compared against proven reserves not production. For example Canada has huge proven reserve we could bring to market if a certain pipeline in the news gets built. Same with the Mackenzie pipelines.
Hard to take this seriously when the most important factors controlling oil production, i.e. government interference, is totally ignored. Particularly questionable is accepting the estimates in North America that are known to be totally wrong while ignoring huge new natural gas finds and Oil sands and shales.
Coincidentally, I just received this months SSI newsletter, which mentions a paper by Alexander Ghaleb titled: “Natural Gas as an Instrument of Russian State Power” . SSI is the Strategic Studies Institute of the US Army War College. I haven’t read the entire paper yet, however the brief here: http://www.strategicstudiesinstitute.army.mil/pubs/display.cfm?PubID=1088 , makes it plain that ( re: NG ), the throttling of NG (or other energy sources)- not the lack of it – is a significant aspect of Russian state power. As it is with other countries. A previous poster also alluded to this control of fossil fuel as a strategic power issue.
Brief Synopsis
This monograph is meant to provide an unbiased examination of: the scarcity of natural gas in the contemporary security environment; the salience of natural gas in Russia’s national security strategies; and, the natural gas pipeline politics in Eastern and Central Europe. While the tendency of most energy security scholars has been to collectively analyze Europe’s dependency on oil and gas, this author analyzes the two energy markets separately, and demonstrates that natural gas is a more potent instrument of coercion in the contemporary security environment than oil was in the traditional security environment. Sufficient evidence is also provided that Russia continues to perceive NATO as a hostile alliance, and that future natural gas disruption by Russia—who holds a monopoly on the supply of natural gas via pipeline to Eastern and Central Europe—will prove deadly to the economies of many NATO member states. The salience of natural gas as an instrument of state power is emphasized in Russia’s negotiations with Ukraine; this monograph credits the 2006 and 2009 gas wars between the two nations as the main causes for the failure of the Orange Revolution in Ukraine. Ultimately, today, Russia uses the same tools it used in Ukraine—in the context of natural gas negotiations—to bribe Western European nations; to divide the NATO Alliance; and to rule over its traditional sphere of influence in Eastern and Central Europe. Finally, the author emphasizes that with the Russian construction of Nord Stream and South Stream natural gas pipelines, and unless alternatives to Russian natural gas are found, it is only a matter of time until Russia will use natural gas as an instrument of coercion against NATO member states.
The only problem with such analysis is that it ignores the impact of Washington. They assume that the result of any decline is because we are running out of oil, when in fact it is the result of Washington making it more and more difficult to drill for new oil, or expand existing fields.
It’s no surprise that “peak oil” coincides with the establishment of the EPA.
People who fret about “peak oil” are confusing the supply of oil with the price of fuels. The two are not as closely related as one might think. In fact, “Peak Oil” is no more about the price of gasoline, diesel and Jet-A than “Global Warming” is about temperature change.
In the real world, nobody buys oil to burn in their car or airplane, they buy a technical product that is made by breaking down and reassembling a feedstock of hydrocarbons that presently is in the form of crude oil. However, should the price of crude climb higher than the hydrocarbons found in other sources such as coal or agricultural wastes, then those sources will be used. The only issue is cost. This does not mean that there cannot be supply disruptions when oil suddenly jumps in cost, as it has recently. However, there is abundant documentation, such as the Barna report (Office of the Secretary of Defense, Clean Fuel Initiative [1]), that show we are awash in convertible hydrocarbons. The only thing stopping their use is cost and government.
The truth is that we are awash in hydrocarbons that can be converted to usable fuels. The ONLY thing that matters is the price of the finished fuel product at the pump. That price reflects how much people are willing to pay for it. At today’s price, we can afford to convert many sources of hydrocarbons into the fuels we need. It just happens that for the time being, crude oil is the most economically efficient feedstock. The instant that some other source is better, we will start making our fuels from it.
[1] Dr. Theodore K. Barna., OSD Clean Fuel Initiative http://www.westgov.org/wieb/meetings/boardsprg2005/briefing/ppt/congressionalbrief.pdf
@Lucy
U.S. (Livermore IIRC) ran an experimental thorium reactor for 5-10 years in the late 50’s and early 60’s.
Running an experiment which doesn’t have to produce a profit and turning the experiment into a profitable commercial enterprise are two different things. We put a man on the moon in the 1960’s but that didn’t translate into McDonalds and Holiday Inn locating there. First electric car was built in 1835 about 30 years before the first car with an internal combustion engine. Electric cars are still impractical for most uses 175 years later.
Just because something can be made to work doesn’t mean it can made to work well enough for any intended use. Thorium fueled reactors so far can’t be made to work well enough and no one stopped trying in the 50 years since the first experimental thorium reactor was built. The thing most nuclear power advocates don’t readily admit is there’s no shortage of uranium ( especially in the United States), the cost of the uranium fuel is just a tiny fraction of the cost of producing electricity in a nuclear power plant, and thorium reactors can’t be made (so far) that can economically compete with uranium. The motivation for thorium is entirely political with the loony left supporting it either because you can’t make nuclear bombs from thorium fuel cycle and the radioactive waste is only dangerous and difficult to store for a thousand years instead ten thousand years. For some nations like China and India they don’t have an unlimited supply of uranium but have lots of thorium so they have the additional impetus of not wanting to rely on foreign uranium 50 or 100 years from now. China is busy looking into thorium alternatives as we speak. If they figure it out then good for them but we don’t have any particular need for it anymore than we have a need for a one-child policy. China’s needs are the same as ours.
The U.S. is an energy rich nation it simply lacks the political will to exploit it due to the loony left, environmentalist whackos, and democrats pandering to them for votes. The usual ploy of the politics of guilt is used by the left which manages to sway otherwise sane adult voters who would normally vote in their own self-interest to feel guilty at not being a starving Ethiopian and voting against the things that will retain or enhance their own status as citizens of the wealthiest, most free, and most powerful nation on the planet in modern times and perhaps at any time in history. These politics of guilt are working well enough to cripple a great and proud nation and some of us are pretty pissed off about it. Pray that Rick Perry becomes POTUS. He and a republican majority in both houses of congress will end this new age bullshit and put America back to work with a vibrant domestic energy program the benefits of which will be fast and furious at righting the floundering economic ship of state. We are indeed shovel-ready, literally, to end the ginned up energy crisis and letting ourself become little bitches for OPEC to manipulate. All we have to do is remove the regulatory restraints from those ready, willing, and able to man those shovels.
William Abbott says:
October 28, 2011 at 4:32 am
Do you ever find yourself screaming at the TV when the weather man tells you it’s going to be sunny tomorrow?
“You can’t know the future, you can’t predict the future”
Oil if a finite resource and while we don’t know exactly how much is buried in the Earth’s crust we can make a pretty good estimation based on how much we’ve found to date and how many places there are left to look. Sure we don’t know what technological advances will come along in the next decade, but you’ve just got to look at the “oil discoveries by year” graph to see that the rate we’re discovering it is in steady decline. You can’t know the future, but you can be pretty confident in your prediction that that graph isn’t going to suddenly shoot upwards over the next twenty years.
“Mike C. says:
October 28, 2011 at 3:44 am
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.”
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