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?”
Depends on exactly where they are drilling. In subduction zones, oil bearing deposits will be pulled deeper and deeper, until the oil is destroyed by the increasing heat.
Off the top of my head, I can’t think of a situation where we are likely to get 30,000 feet of accumulated deposits, but I suppose it is possible.
All too often, discussions about oil seem to miss the point that the only major reason we need oil
(aside from plastics, lubricating oils, etc) is to power our vehicles. We no longer use any oil to make electricity, although a fair amount is used for antique heating oil systems in New England.
battery technology is rapidly advancing, despite continued high prices for li ion batteries being used for electric cars. Toyota (and the Tokyo Institute of Technology) just last week divulged a battery development program which they claimed a battery much lighter, with a 600 plus mile driving range and a cost at an unbelievable 1/10th current battery prices, making a very cost-effective electric car. Time frame : 3 years or so before commercial production. Another design from DBM-Energy in Germany also promises similar revolutionary advances. Either battery’s availability to the world’s automakers means the immediate death of gas powered personal vehicles. With per mile energy costs of roughly 3 cents, a battery that will far outlast the vehicle, and a minimum of maintenance costs, gas powered vehicles, and out overwhelming need for oil will disappear. For these reasons, estimates of future oil production I consider basically pointless exercises. Even today, right now, or rather in 6 months time, Tesla will produce the first truly practical electric sedan – their Model S, a car better than any gas powered competitor from Mercedes or BMW, and with a 320 mile driving range and a sub 45 minute recharge time, fantastically attractive and very fast with room for 7 passengers. True, it is practical only in its elevated price level, but even if none of the new battery technologies comes to fruition (extremely unlikely) , the prices of its batteries are expected to drop 50% in the next few years.
Oil? Who needs it? Well, we do….. but not for long at the consumption rates we now enjoy.
Crispin in Waterloo says:
Octo
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”
Fascism is a form of socialism…. anytime the government does anything in the market thats adding socialism… Running a company out of business because you do things better then they do at a cheaper price then they do is reality. When the “monopoly” becomes fat and lazy another company comes along and kills them off… that is the nature of capitalism. On the other hand when the government steps in and keeps them alive that is called socialism.
Please take some sociology classes and learn what capitalism is defined by sane ppl not defined by russian propaganda from the 60s and 70s.
Back of the envelope math has the source rock still containing 75% +/- of the original oil. The missing 25% having risen up through geological rock formation structure until it was trapped in a sealed location building a pool of what is now considered conventional oil. We have barely begun to unlock the planets real source of historic production.
The unlocking of the source oil for the conventional pools is going to provide a multi generational window of growing total production capacity for the US & World. Any nation with “significant” onshore shale deposits has the possibility to become a net energy exporter over the next 10-15 years as the technology is exported to known shale geological formations.
The Majors have been drilling in Europe over the could of years, and with the lessons learned in the US being transferred now going forward (all of the majors are buying up the small guys who developed the technology, including statoil buying BEXP lately), I expect that Exxon, Shell & others will see their NG/liquids/oil production increase in Europe sooner rather then later.
The Genie is out of the bottle now, the ability to export this technology to mature shale basins is going to impact global energy supplies in the near future.
President Obama assures us that Energy Secretary Chu assures him that we will soon have a 100 MPG car battery. I don’t know what the means exactly, but I do know that an EV won’t be a suitable vehicle for me for most other people I know for quite some time. I’ll need to be able to go at least 200 miles between charges, climb hills, run the A/C in the summer and use the heat/defroster in the winter.
But I don’t mind the time and money spent on EVs, as long as it’s not my money. If people willing buy them because they think it’s the best choice for them, so be it. But quit underwriting the purchases. The tax-credits for purchasing those vehicles is just more corporate welfare.
theBuckWheat says:
October 28, 2011 at 6:04 am
“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.”
You want the truth? I’m not sure you can handle the truth.
The truth is that every alternative liquid hydrocarbon fuel can be produced more economically than using $100/bbl crude oil. The problem is that it can’t be made more economically than it can using $30/bbl crude. OPEC can make money selling crude at $20/bbl. So what happens is that OPEC can drive any company producing alternative liquid fuels straight the f*ck out of business whenever they want by lowering crude price below the alternative production cost.
This is called price fixing and it’s a federal crime in the United States under the Sherman Antitrust Act of 1890. It’s also illegal under World Trade Organization rules and there’s plenty of people who’d like to take OPEC to the carpet on price gouging like this guy:
http://www.defazio.house.gov/index.php?option=com_content&task=view&id=712&Itemid=70
but no coalition has the sack to do it. So we the price-conscious working middle class get screwed at the whim of these criminal oil exporting countries. I think economic terrorism of this scope should be considered an act of war. I mean what are these incompetent impotent OPEC countries gonna do in retaliation – fly jet planes into tall buildings? Oh wait… they’re already doing that too.
Latest update on the E-CAT, a possible game changer. GK
The problem with the OP is that it is a projection based on early 1900s technology.
You could do the same thing with grain production based on 1500s technology.
Both would be wrong.
As for price, there is true scarcity and price scarcity. The latter is what we have due to the rest of the world industrializing.
Two trillion barrels of oil are still in the ground in the US.
http://en.wikipedia.org/wiki/Green_River_Formation
http://nextbigfuture.com/2011/10/bakken-oil-eagle-ford-utica-shale-and.html
http://nextbigfuture.com/2011/08/progress-to-unlocking-over-800-billion.html
Not to mention what is offshore.
Ramon Leigh says:
October 28, 2011 at 10:06 am
All too often electric vehicle fanatics forget that the electrical grid is strained to the limit delivering enough electricity to run lights, television sets, air conditioners, and industrial processes.
Petroleum supplies 37% of all energy consumption in the US. You can’t just fill a tanker truck up with electricity and drive around filling underground service station tanks with it.
So you need to double the capacity of the electrical grid and double the generating capacity. Instantaneous? Don’t make me laugh. Trillions of dollars and decades to get it done. And that doesn’t count the cost of replacing every internal combustion engine with an electric equivalent and what that’s going to do to the price of copper for the windings and niobium for the magnets at the same time you’re using those in great abundance for the generators and wire in the electrical grid.
And you can’t make electrical transportation aircraft so you’re still with a huge aviation fleet that needs liquid hydrocarbon fuels.
Transforming the liquid fuel transporation infrastructure over to electricity is the stupidest most hare brained ill conceived poorly thought out idea in the history of transportation.
And add to the above the very likely possibility that genetic engineering within the next decades, at a pace of progress which is reminiscent of semi-conductors in the 1970’s, can produce plants that spread across the ground in thick vines fixing their own nitrogen in poor soils and producing pumpkin like fruits filled with ethanol with built in spouts at the rate of 30,000 gallons/acre/year at a price under a dollar gallon from farm to gas tank.
Liquid hydrocarbon fuels for transportation aren’t going away. Where and how we produce those fuels is all that will change. There’s simply far too much in the way of expensive ancillary infrastructure surrounding and supporting internal combustion engines and far too great of an expense in both time and money, and too many alternative ways to produce liquid hydrocarbon fuels, to ever see it replaced short of some unexpected breakthrough like a cheap clean cold fusion generator small enough to put in a vehicle. Good luck with that. The smart money is betting on rapid progress in genetic engineering to get bring about cheap photosynthetic production of liquid fuels. There’s plenty of sunlight and raw materials the only thing missing is an organism artificially optimized to produce these fuels. Right now they’re only produced as undesireable byproducts of metabolism like ethanol produced by brewer’s yeast. That will change. The basic technology is already here courtesy of 3 billion years of evolution. We just need to mix and match biologic functions from different organisms into one organism designed to fulfull uniquely human purposes.
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.
Unfortunately something else that is nowhere near peak is EPA regulatory restraints and constraints on development of oil extraction, refining and indeed on any industry.
Is abiotic oil production not even worth discussing? Is the idea that Russia actually accepts the concept and that her geologists employ it to find new oil deposits just a myth?
I’m really asking, not making some rhetorical point
People often bring up net energy as an argument against extraction of some unconventional and hard-to-get-at conventional oil; that it’s pointless using up more energy to extract the stuff than the oil itself would release when burned.
This founders on a couple of basic flaws.
Oil isn’t only used for energy. Almost as important to the modern world are plastics, along with a welter of other products produced from crude oil. It should be looked at as being a little more analogous to a typical mining or manufacturing process, which of course will use up more energy than it creates. Nobody suggests not mining for iron ore or bauxite because it is energy-intensive.
Also to be considered is the economics of the process. If it COSTS more to extract the oil than it can be sold for, then it won’t be extracted (as was the case for the Albertan tar sands for a long time). If it can be extracted and sold profitably, to be used for activities that others value, then somebody will find it worthwhile to do so.
Ramon Leigh says:
October 28, 2011 at 10:06 am
Okay then. I will accept it when they sell these wonderful batteries on the open marked. In the mean time I will just treat it as any other press release. Show it to me, and I will believe it.
And hopefully the battery factory doesnt do too much damage to the environment.
After all, batteries doesnt grow on threes. Not even in Yamal.
The U.S. has trillions of barrels in oil shale and trillions more equivalents natural gas and coal.- No wonder that the government pay less attention regarding this matter because they have more in their backyard for the “rainy season”.
proskeptic says:
October 28, 2011 at 11:20 am
Is abiotic oil production not even worth discussing? Is the idea that Russia actually accepts the concept and that her geologists employ it to find new oil deposits just a myth?
I’m really asking, not making some rhetorical point”
No one really knows how oil is formed… much like global warming its based on “consensus” science. Russia from everything I’ve heard has had good luck in finding oil when it drills deep which is why they have begin exporting more and more.
What you describe ain’t capitalism Crispin, but that’s what the collectivists want you to believe. It is very close to (economic) fascism, you got that right. But fascism isn’t capitalism, either. That’s another lie the leftists like to tell. Modern socialism is based upon fascism, in that businesses are privately owned by heavily regulated and controlled by the government. Business owners are allowed to profit as long as they play ball with the government and don’t make waves. Private-public partnership? Pure fascism, too.
Logan in AZ: If it works as expected, the remarks here, and much else besides, will no longer have any relevance.
We can hope, but if that thing works I shall be amazed. Up til now, Rossi and team have used a lot of sophisticated measures to avoid direct tests of whether it puts out more than a couple of watts continuous power per unit. I am not the first person to have noticed this. They are using “complex calorimetry”, whereas all they really have to do is use the heat output to power a Stirling engine (or Peltier effect device) to move a vehicle or drive an electricity generator. It is really easy to tell whether the device puts out more electricity than it consumes, or any other kind of work.
I’m a little late to this party, but David, excellent post.
For all you arm chair quarterbacks who think they have this whole peak oil thing figured out & that it must be some sort of hoax, consider this. For the last half dozen years, anytime we have good economic data anywhere in the world, the price of oil goes up and if we have bad economic data, the price goes down. Why? Supply & demand, economics 101. Increased economic activity = increased demand. If the supply is so abundant & we aren’t close to the peak, why would price go up? Couldn’t we just produce more? Evidently those who make a living in delivering oil to the markets don’t think so. The markets are telling everyone that David is not far off the mark, whether you like his analysis or not.
Consider also the relationship between oil & the economy 30 years ago – the price of oil drove the economy, not the other way around as it does today. There would be a glut of supply, the price would plunge & the economy would be stimulated by lower energy prices .
We have seen a 180 degree change in the relationship between oil prices & the economy & it is easily related to the supply relative to the demand, which evidently , we can’t supply the markets the way we used to, entirely consistent with David’s hypothesis.
For those who are so hot & bothered on the Bakken , Eagleford . etc – consider it in the framework of global supply & demand. Even if you combined all this new production & said it ultimately would get to 2 MMBOPD (a big stretch), that’s less than 2.5% of world demand. Consider that the average well world wide will decline at 4% per year & you don’t even have enough to cover decline of existing wells, let alone satisfy any increase in demand. Yeah, it’s great for US producers & the US economy, but it’s basically noise within this hypothesis.
So, for all those who don’t agree with David’s hypothesis, stop your arm waving & show us how we are going to do it – how we are going to continue to increase our daily production. As someone who explores for oil for a living, I will be very interested in the SPECIFICS (no arm waving) of how the industry will accomplish it.
—-Is abiotic oil production not even worth discussing? Is the idea that Russia actually accepts the concept and that her geologists employ it to find new oil deposits just a myth?
I’m really asking, not making some rhetorical point—-
At any international conference, you’ll find the Russians also now consider organic rich sediments as the source. There are some old Russian theories which did not stand up to modern geochemistry, or to the facts of the spacial distribution of hydrocarbons
The new shale production is simply done by drilling directly into the biotic source rock, and fracturing the crap out of it. The oil did not come from the mantle and seep into those impermiable shales—-that would have taken Halliburton and a million multi stage fracs.
” 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?
It would be good to see the results. ”
I don’t think anyone has a LFTR online yet. We can only take the results from the one built and run in the 1960s for 5 years. The designs that China & India are pursuing are different.
As to the peak oil is a matter $. The higher the price the more resources open up. If you think Canada has a lot of tar sands check out the Orinoco basin in Venezuela.
Add in some high performance but way better fuel mileage engines like the MYT engine http://www.angellabsllc.com/
and don’t even get me started about the Russian theory of abiotic oil in which case we will have oil for a long long time.
Sorry but peak oil theory is a completely ignorant of technological advancement and hence not worth the paper it is written on (IMHO).
Dave Springer: I mean c’mon. Crude price went from $20/bbl in 2001 to over $120/bbl in 2008. What The F Is Up With That!? What kind of moron do you have to be to believe that price increase has any relation whatsoever to production cost or known reserves? This is all political and ecnomic manipulation.
Oil demand increased faster than oil output, and the purchasers who could afford to bid up the price of oil in order to make sure that they had oil for their customers.. Increases in production might have occurred faster, but there has been insufficient investment in some places, as well as local violence and other social problems in other places. In the US, companies are actively prohibited from developing some of the oil reserves. So what you denote “political and [economic] manipulation” is not something simple.
The price is determined by what the bidders (for the oil) and consumers (of products like plastics and fuels) are willing to pay.
With high prices, expensive alternatives become more attractive, and these include deep underground and undersea reserves, and liquid fuel from coal, as well as biofuels (consider Brazil, where an aircraft manufacturers consortium is expanding development of bio jet fuel.)
“Septic Matthew says:
October 28, 2011 at 11:53 am
Logan in AZ: If it works as expected, the remarks here, and much else besides, will no longer have any relevance.
We can hope, but if that thing works I shall be amazed. Up til now, Rossi and team have used a lot of sophisticated measures to avoid direct tests of whether it puts out more than a couple of watts continuous power per unit. I am not the first person to have noticed this. They are using “complex calorimetry”, whereas all they really have to do is use the heat output to power a Stirling engine (or Peltier effect device) to move a vehicle or drive an electricity generator. It is really easy to tell whether the device puts out more electricity than it consumes, or any other kind of work.”
Wonderful! Unless I missed something, the Qdot out was measured by water flow rate and DeltaT. NOTHING could be simpler than that/
Stirling Enginer for CALORIMETRY? Shirely, you jest!
Input? I didn’t not observe the elments of that directly, but I understood it involved a standard watt meter/watt hour device.
Have you ever MADE a Peltier effect device for calorimetry? I have. Frankly it’s nonsence compared to a Seabeck effect device.(You end up with the need for a “feedback circuit” to compensate for baseling operating temperature induced drift. )But then in any case, when you are talking 1000’s of BTU’s per hour, with steam…the question would be “why bother”??
Isn’t Figure 1 a completely worthless plot? All it shows it that we pumped oil before this year. If we had an infinite supply of oil, the chart would still show a downward trend…so how does that inform the discussion in any way?
Richard S Courtney says:
October 28, 2011 at 5:26 am
Well written. As a naturally critical person, I might rewrite this or that, but it was a good post.
Anonymous Jeff L who makes a living looking for oil,
Here is the Woods Mackenzie report on US production estimates 2012 – 2030
http://www.api.org/Newsroom/upload/API-US_Supply_Economic_Forecast.pdf
Results: Wood Mackenzie’s analysis found that U.S. policies which encourage the development of new and existing resources could, by 2030, increase domestic oil and natural gas production by over 10 million boed, support an additional 1.4 million jobs, and raise over $800 billion of cumulative additional government revenue.
The report is 57 pages long. You might want read it.