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
If Russia is now leading production and they are drilling at 30,000 ft., and BP is drilling in the gulf at 27,000 ft. , doesn’t that support the argument for abiotic reserves? Could all this be about profits? Maybe a commodity that the population has become dependent on can be manipulated
to garner deep profits and be supported by questionable science.
This is a promo for green for green energy that is driven by governments. When government cuts off exploration and drilling, taxes the oil industry beyond others, interferes with recovery when accidents happen you can expect there to be less oil production and less oil discovered by the US.
There is also the theory that oil is made naturally in the earth and will not run out anytime soon.
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.
I note you say “economic” forecast. Well oil production depends on a number of things outside of economics. I would call such a “prediction” blind luck since it seems terribly unrealistic to predict the environmental movement’s large opposition to offshore drilling that occurred back then. It also fails to account for advances in science that might someday make the direct manufacture of products from crude, eliminating the need for crude.
Peak Oil is not just a myth, but the idea that we can’t do without oil is *ALSO* a myth.
“Peak oil will happen because the cost of producing it will exceed what people can afford to pay.”
~”When I’m President, electricity prices will skyrocket!”
All those Hubbert curves were developed in a period of rather stable oil prices. Higher prices have warped them beyond recognition. Even Texas, the most mature, peaked-out place in the world is increasing production.
I torment a peak oil board on Motley Fool investments- here are some of my recent posts:
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I was reading Oil and Gas Journal(October 3rd)on all the new liquids plays coming out of the continued advances in horizontal drilling and multi-stage fracs. An interesting statistic was cited:
“Goldman Sachs economists in an Aug. 8 note forecast US oil production, which includes natural gas liquids, at 8.06 million b/d for 2011, and 10.27 for 2017”
I looked up what our historical production of crude plus NGL has been and found a nice graph from 2007 by the great French pessimist Jean Laherrere.
http://www.aspousa.org/index.php/peak-oil-reference/peak-oil…
He shows a nice steady decline from a peak of just over 11 million a day in about 1970, projecting to something around 5 million by 2017.
A sharp reversal of the decline has already occurred. Absent a major price drop, I would not be surprised to see domestic liquids production reach a new peak
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The production from horizonally drilled and fractured shale has gone from some gas wells in Texas to oil and gas worldwide.
Take Ohio. Oil was discovered in 1860, a few months after Pennsylvania. Production peaked in 1896 at 65,000 BOD. By 2009 it had declined to 14,000 BOD (so much for the symmetrical Hubbert curve).
Chesapeake just completed three Utica shale wells. The initial flow from the three wells is 3,420 bod of liquids and several mmcf of gas.
Meanwhile a thick and rich section of gas charged shale has been found in small corner of England. Estimates are 200 TCF in place, with 10-30% recoverable.
China, India, Poland, are all finding new reserves. We are looking at a total game changer.
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Gafney Cline are now reporting what has been rumored for awhile–that there are 21.2 TCM (748 TCF) of reserves in one field in Turkmenistan. So much for all the elephants being found long ago.
To put it in perspective, all of the E.U. uses about 20 TCF a year.
LOS ANGELES, Oct. 13
By Eric Watkins
Oil Diplomacy Editor
Gaffney, Cline & Associates (GCA) said Turkmenistan’s South Iolotan natural gas field is the world’s second-largest, with an estimated 21.2 trillion cu m (tcm) of gas reserves. Supergiant Iolotan field was discovered in the country’s Amu Daria basin in late-2006 (OGJ Online, Nov. 22, 2006).
In a recent presentation, Jim Gillett, GCA business development manager, said South Iolotan’s latest reserves estimate make it second only to giant South Pars gas field, shared by Turkmenistan and Qatar.
“Turkmenistan’s gas reserves are more than enough for any potential demand over the foreseeable future, whether it be from China, Russia, Iran, or Europe,” Gillett said.
However, Gillet said estimates of the central Asian nation’s reserves could increase even more, noting that in addition to South Iolotan, the country’s Yashlar field has substantial gas, too.
In reply to Dave Springer (Dave if you have a question please ask. If you have a comment please include some facts and logic to support your comment.)
As I stated the Advanced Candu Reactor can use thorium fuel. Both India and China are developing thorium reactors. The Indian reactor uses a design that is similar to the advance Candu reactor as it use heavy water as a moderator.
http://www.iaea.org/NuclearPower/Downloads/Simulators/ACR700.Simulator.Manual.2009-10.pdf
http://www.nuceng.ca/ep4d3/studentfiles/acr_present.pdf
ACR Has Been Developed To Be Very Flexible As To Choice Of Fuels
Nominal SEU Fuel
Up To 100% MOX Fuel (Recycled Pu In Form Of Mixed Oxides Of Pu / U)
Thorium Fuel Cycle
On-Line Re-Fuelling Important Part Of This Flexibility
http://www.barc.ernet.in/publications/eb/golden/reactor/toc/chapter1/1.pd
India’s three-stage nuclear power programme is chalked out based on the domestic resource position of uranium and thorium. The first stage started with setting up of the Pressurised Heavy Water Reactors (PHWR) based on natural uranium and pressure tube technology. In the second phase the fissile material base will be multiplied in Fast Breeder Reactors using the plutonium obtained from the PHWRs. The third stage is focused on reactors designed to utilise the large thorium reserves based on thorium-233U fuel cycle. The Advanced Heavy Water Reactor (AHWR) has been designed to fulfill the need for the timely development of thorium-based technologies for the entire thorium fuel cycle. This chapter highlights the recent activities carried out in the design and development of the AHWR, such as the core & process system design, nuclear data, fuel design, fuel handling systems, safety analyses, analytical studies and experimental validation.
The problem with the peak oil models is that it fails to model human behavior into it’s calculations. The only reason the models see for a decrease in production is because there is less oil available. The reality is more complex. Oil production is in general run by a cartel of countries that regulate the production to keep the price high. They increase and decrease the amount being produced to keep the price where they want it and for the last 3 or 4 years have been decreasing production to keep the price per barrel as high as they could.
But the peak oil modelers only see the decrease in oil production and assume that finally they have peak oil not simply natural greed to keep the price up. As is usual at some point either a country not in the cartel will have a break through and flood the market with cheap oil, or a production improvement will happen or one of the cartel will want fast cash and flood the market. It has happened before.
Gasoline gets priced off Brent, even if the refiner pays the lower WTI price for the oil they used. Brent is kept higher by manipulation.
Imo Ron Paul is the only Reflubitcan that speaks more about fixing this problem, cutting spending and possibly even eliminating usless, waistful government agencies.
David,
The ramp up in production per well is where your numbers are falling apart. I need to find you the N.D. list of wells that have come off of confidential status. https://www.dmr.nd.gov/oilgas/confidential.asp
There is a significant number of wells producing over 1000 barrels of oil per day after 6 months of production.
The wells with 30+ multi stage frac’s or more have changed the way that wells are developed. Smart Pads are allowing equipment to be setup once, and then to drill well after well from the same single location, but in a different horizontal direction. This allows crews to save days of labor per well.
These wells are now coming online with as much as 3000 boepd of flush production each. Unconventional oil in North Dakota is also a light sweet oil that is close to WTI. This is not stuff that needs upgrading.
When you quote the average well production, you are intentionally smoothing the 1000 per boepd of flush production into the 10 barrel per day conventional wells from 20 years ago. The ramp up in production per new well is the key data point.
Here is a link to production numbers in a PR
http://ir.bexp3d.com/releasedetail.cfm?ReleaseID=607772
“Brigham Exploration Company (NASDAQ: BEXP) announced that the Irgens 27-34 #2H Three Forks well produced approximately 2,906 barrels of oil equivalent during its early 24-hour peak flow back period, which represents a company record early production rate for a Three Forks well. The Irgens 27-34 #2H is located in Brigham’s Rough Rider project area in Williams County, North Dakota. To date, Brigham has completed 88 consecutive long lateral high frac stage wells in North Dakota with an average early 24-hour peak rate of approximately 2,797 barrels of oil equivalent.”
The drop off in these wells is high, however when you have wells that produce over 1000 boepd for the first 6-12 months or more, it a game changer. We are not drilling ten’s of thousands of wells producing 80 boepd each. That should be obvious.
In 2001, North Dakota had 15 oil rigs operating. Today it has cracked 200 active drilling rigs. http://www.willistonherald.com/articles/2011/09/03/news/doc4e59a6ad907c1288461919.txt
Best Regards,
Jack
“I can guarantee that Norway can deliver all the gas the EU needs to not only 10 – 20 years, but in more than a generation into the future. I am quite sure that we are able to deliver gas for up to 70 years”.
Norwegian Oil and Energy Minister Ola Borten Moe.
http://translate.google.no/translate?sl=no&tl=en&js=n&prev=_t&hl=no&ie=UTF-8&layout=2&eotf=1&u=http%3A%2F%2Fe24.no%2Folje-og-raavarer%2Fmoe-lover-norsk-gass-til-europa-i-opptil-70-aar%2F20114961
You and I have vastly different understandings of what the term free market means. Monopolies are not part of the free market, while market domination through providing a better product or service or providing either at a better price is part of the free market.
We haven’t had much of a free market in this country for quite some time, and corporatism, sometimes incorrectly called crony capitalism is currently king.
We live in an age where plenty of information is available for consumers who want to make informed choices, but we’re stuck in a regulatory model which still believes the robber barons are lurking in every board room.
We don’t have one for oil, as OPEC effectively controls world-wide supply, and therefore price.
I was really into the peak oil theory in 2004, and as a result I made investments that were tied to the oil industry. It has paid nice dividends. I used to go to gas stations with my small gar proud to pay high gasoline prices because it meant that my investments were making money.
There’s an old anecdote that says that one barrel of oil energy used to produce fifty barrels of oil. That number has dropped considerably since then.
Higher oil prices means that more economic activity is being spent to get to the harder-to-produce oil. So if you live in certain areas of Texas or Alberta, then you can enjoy upswing of the boom cycle when oil prices go up.
In micro economic terms, peak oil benefits those who are tied to the oil industry, but on a macro scale, it sucks for everybody else. It’s like the broken window fallacy.
Maybe Ray Kurzweil is right that the price of solar energy will eventually make it a better energy source than oil. But he’s too much of an optimist.
Our modern world is made with oil. It is the equivalent of spice from the movie “Dune”.
Figure 7: Logistic growth curve for Non-Opec oil production
In this graph Nashawi shows oil peaking around 2006, which is also his last data point. Hasn’t production increased since then? Another failed prediction.
—-“The Stone Age didn’t end for lack of stone, and the oil age will end long before the world runs out of oil.” — former Saudi oil minister Sheik Ahmed Zaki Yamani, a man who has knowledge of oil reserves that nobody outside the house of Saud shares.—-
Actually the house of Saud doesn’t know any more about Saudi reserves than the geologists and engineers who calculate reserves for them. My wife and many of our friends fall into that category.
They are not too concerned about “Twilight in the Desert”.
I might add—lots of good comments here, good grasp of the oil biz.
Plus, the thread has gone a record number of comments without the abiotic oil crowd bringing on their old Russian pseudo-science.
Sorry but this is madness. There is no peak oil! There is plenty of the stuff. The only thing that is killing oil and gas is TAXES and government restrictions on access to fields. The industry is highly regulated and well over a trillion a year are collected annually in taxes. The government percentage take has been steadily increasing for decades and that is why oil and gas will continue to get more and more expensive until the taxes lead to high enough prices to kill demand (don’t seem to be there yet). What is not understood is that profits from Oil and Gas are re-invested in the industry bringing new production to market (ultimately keeping supply up and prices down) in stark contrast to what is collected in taxes. The golden goose which has created so much prosperity and higher living standards is being choked and choked.
To all the nay sayers, you forget the devestaing effect of peak-coal had on the world… oh never mind …
rbateman says:
October 27, 2011 at 10:27 pm
Does China have any of these molten salt/thorium-burning reactors online?
Does anyone else have any of these new reactors online?
__________________________________
That was my first thought. Thorium Nuclear. If the PAID nuclear protesters had had more morals and the US media had not spread propoganda we in the USA would have top of the line nuclear for most of our non-moble energy needs.
Access to energy = Civilization.
Energy is always the limiting factor in the advancement of civilization. Labor saving devices allow the leisure needed for advancement and the energy to fuel new inventions.
And we have at least 100 years in oil shale in the US. We did not even know about the Bachen formation a few years back. Start riding your bicycles. What about wind turbines on a helmet on your head?
Regarding the US oil production peak in the early 1970’s, when did $1/brl (production cost) Saudi oil ramp up to significant amounts? Oh yeah, the early 1970’s…
David,
In the case of Bakken Oil production. Here is what Reuters is reporting this week.
Production from wells drilled into the Bakken has leapt
from less than 3,000 b/d in 2005 to 233,000 b/d in 2010,
and will crest over 300,000 b/d this year. Output from
other formations in the same areas has actually fallen
slightly but been more than offset by the 100-fold increase
in Bakken oil.
Bakken now accounts for 75 percent of all oil produced in
North Dakota, up from 3 percent in 2005. It has easily
overtaken production from the state’s two other leading
formations — the Madison (8 percent in 2010, 33 percent in
2005) and Red River “B” (9 percent in 2010, 34 percent in
2005).
https://customers.reuters.com/community/newsletters/oil/InsideOil20111027.pdf
The supply of shale oil is driving the construction of railroad rolling pipelines. There are 5 new train depots being built to get the oil out of the basin via a rolling pipeline approach. Additionally, in the Bakken they are now experimenting with dual zone completions. There is a secondary shale that is now being developed with the same tools as used on the Bakken. It allows a company to have two shale horizontal high capacity wells with one hole.
Here is a quote about EagleFord Production stuck behind pipe currently.
The US could resume exporting some of its domestic crude oil production in 2012 when the output from Eagle Ford Shale in Texas ramps up.
Eagle Ford shale crude’s gravity ranges from 42 API to 60 API with very low sulfur content, which in the US Gulf Coast refining terminology is considered a super light crude.
But that’s the problem for US refiners: they aren’t built to process that type of crude. So the highest value for it may be outside the country.
Current Eagle Ford production stands at around 100,000 b/d or more.
http://www.platts.com/weblog/oilblog/2011/06/08/eagle_ford_crud.html
As of July, 2011, Eagle Ford shale oil production (including condensate) stands at around 100,000 barrels a day. That figure is expected to rise to over half a million barrels a day by 2012. Enterprise Products Partners is currently building a 350,000 b/d pipeline network which will transport oil to Gulf Coast refiners as well as into larger pipeline networks which will send it on to the Cushing hub in Oklahoma.
http://eaglefordshaleblog.com/2011/07/22/where-will-eagle-ford-shale-oil-go/
David, the total production per new well is the key factor here. You are comparing conventional wells with conventional flow rates to new non conventional wells, with non conventional completions. The new wells are producing 5X to 10X what conventional wells were producing 5 years ago. EagleFord has 250,000 – 400,000 boepd of new production stuck behind take off constraints or is coming online in the next year.
Best Regards,
Jack
Ken Methven says:
October 27, 2011 at 10:50 pm
Apart from China, where is the global demand curve against global production?
We can all see that price is likely to rise, give us some idea about when and how much….
…and we already knew..”its wose than we thought
———————
Here’s one:
http://www.stockopedia.co.uk/uploads/articles/user/supply_demand_nov09.png
Except oil production didn’t peak in 2005. EIA data shows it was highest last year (31.72 Bb), and this year is on track to meet that level of production (and this during the economic slump when demand is down).
http://www.eia.gov/cfapps/ipdbproject/IEDIndex3.cfm?tid=50&pid=53&aid=1
“However, absolute power corrupts absolutely, regardless of whether it resides in government or free market corporations.”
The problem with this analysis is that free market corporations can never achieve absolute power. Without govt stepping in to close a market, there will always be competitors waiting to take advantage of any mistakes (including over charging for product) that the big companies make.
Did America “Peak” with its oil production because America is producing less oil (having absolutely nothing to do with the physical supply, but political limitations??)
SteveE :
Your post at October 28, 2011 at 6:59 am purports to be answering my post at October 28, 2011 at 5:26 am but it completely ignores facts I presented.
For example, your post says;
“We’re now effectively in the oil age, and whilst there are different ways of producing oil such as from coal, these all cost more and currently are produced at a slower rate than conventional crude. Peak oil is not the running out of oil, or the ability to produce it, but is when the maximum rate of global production is reached.”
That is NOT true. As I said in my post;
“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.”
If you do not believe me then google for Liquid Solvent Extraction (LSE) process. We proved the technology both practically and economically with a demonstration plant at Point of Ayr, Wales, in the early 1990s. (There are several papers on LSE in the public domain and UNESCO commissioned one on it from me when I was the Senior Material Scientist at the UK’s Coal Research Establishment when we developed LSE. But the UK government owns some important technical details of it.)
And your claim of increasing crude oil costs is also denied by my statement I quote in this post.
The remainder of your assertions are also refuted by the facts in my post you claim to be answering.
Richard