Guest Post by Willis Eschenbach
In oil, as in other extractive industries, you have what is called the “R/P ratio”. In the R/P ratio, “R” is reserves of whatever it is you are extracting, and “P” is the production rate, the rate at which you are extracting and using up your reserves.
Figure 1. World annual oil production in billions of barrels (blue line), and years left at that production rate (R/P ratio, red line). Right scale shows the proven oil reserves for each year, in billions of barrels (dotted green line). DATA SOURCE: BP Statistical Review of World Energy 2011, a most fascinating Excel spreadsheet. PHOTO Spindletop Hill Gusher, 1901
When you divide the amount you have in reserves by the rate at which you are extracting the resource, you get the number of years the reserves will last at that rate of extraction. Accordingly, I include the R/P ratio in Figure 1 as “Years Left”
A couple of things to point out. First, the “Years Left”, the R/P ratio, is currently more than forty years … and has been for about a quarter century. Thirty years ago, we only had 30 years of proven oil reserves left. Estimates then said we would be running out of oil about now.
Twenty-five years ago, we had about forty years left. Ten years ago we had over forty years left. Now we have over forty-five years left. I’m sure you see the pattern here.
Second, this is only what are termed “proven reserves” (Wiki). It does not include “unproven reserves”, much of which is in the form of unconventional oils such as shale oil and oil sands. Even discounting the unproven reserves, while the rate of production has increased, the proven reserves have also increased at about the same rate. So the R/P ratio, the years left at the current rate of production, has stayed over forty years for almost a quarter century..
Now, at some point this party has to slow down, nothing goes on forever … but the data shows we certainly don’t need to hurry to replace oil with solar energy or rainbow energy or wind energy in the next few decades. We have plenty of time for the market to indicate the replacement.
Don’t get me wrong. I’d love to find a better energy source than oil. In fact, the huge new sources of shale gas will substitute in many areas for things like heating oil, and will burn cleaner in the bargain. And I do think we’ll find new sources of energy, humans are endlessly inventive.
I’m just registering my protest against the meme of “OMG we’re running out of oil we must change energy sources right now tomorrow!!”. It is simply not true. We have plenty of time. We have decades. We don’t have to blow billions of dollars of our money subsidizing solar and wind and biofuels. The world has enough oil to last for a long while, plenty long enough for the market to determine whatever the next energy source might be.
w.
NOTE: Oil figures, particularly reserves, are estimates. Oil companies are notoriously close-mouthed about their finds and the extent of their holdings. The advantage of the BP figures is that they are a single coherent time series. Other data gives somewhat different results. As far as I know the increase in proven reserves despite increasing production is common to all estimates.
@ur momisugly Smokey
ok, explain the rest of the planet where oil is allowed to be extracted without restrictions at all
nothing is stopping the rest of the world from drilling at will, try again
Oil is priced at the margins temporarily, prices are elastic up to a point however long term when talking about the world’s primary source of energy money starts approaching the actual value of energy which in turn means increases in price although leveraged does not mean more production when the cost of production is more than the product can sell for. You don’t spend 10 barrels of oil to get one barrel in return.
David L. says:
December 14, 2011 at 11:45 am
jrwakefield says:
December 14, 2011 at 11:15 am
———–
What alternative is there that has the same energy density, in liquid form, as oil? We keep hearing about this mythical alternative, but we never see anything close to oil. It’s going to take decades to switch over, we need to start now if some alternative exists.
_________________
Well, it’s not liquid and it has a much higher density than oil, but : Uranium?
——————–
Personally I think we should go full tilt on LFTR as well as more nuke plants. That will leave more oil for non-fuel requirements like plastics, essential for food preservation.
jrwakefield says: December 14, 2011 at 10:37 am
The fact is the oil industry uses biological markers as a tool to look for deposits.
And some use a Dowsing Rod to locate oil.
Each have their successes and failures.
How you search for OIL doesn’t determine its origin!
elbatrop says:
December 14, 2011 at 11:38 am
@ur momisugly MarkW
new big fields huh? like?
when was the last time the world found a field in excess of 100gigabarrels that had a potential flow rate once developed in the millions of barrels per day range?
—————-
None since the 1960’s, thats the problem.
jrwakefield says:
“Peak oil is not about what’s in the ground, it’s about how fast it can be extracted compared to demand. It only takes a small drop in production relative to demand to drive prices through the roof. That’s simple economics.”
We are in complete agreement on that point. The solution to the artificial supply shortage is for government to encourage new exploration and drilling, instead of fighting energy production tooth and nail. The problem of high gas prices and the rising cost of goods and services that require fossil fuel use is entirely due to government interference in the free market.
@Smokey
You said: “If the government announced that drilling would be allowed in ANWR, the price would immediately plunge before a drop of oil was produced”.
Not so. The price of oil is determined by how much is available right now on the world market and how high futures markets are being driven by fears of shortages.
If drilling were allowed in ANWR today we wouldn’t see the first drop for about seven years. But then no one is going to drill there even if allowed because the estimate of reserves was downgraded by about 90% by the USGS (an agency that sees the world through rose colored glasses). The return on investment would be very poor and so not worth the cost or effort.
The economic theory of inventing a new widget to replace an old one doesn’t work with non-renewable resources.
If this is indeed the case, then we will never run out of a ready supply of energy-dense liquid carbon fuels, at least as long as humans are on this planet and the sun still shines as brightly as it does now.
Dave, let’s suppose your predictions concerning the future emergence of biofuels as a major energy resource are accurate.
Would you care to speculate as to when it will be that the economics of producing large quantities of biofuels employing synthetic biology techniques reaches critical mass, and we will begin deriving a substantial fraction of our transportation fuels from synthetic biology sources?
2020? 2030? 2040?
For all those who dispute peak oil based on what’s in the ground:
Peak Oil matters because ‘The flows matter’
•
Consumers need delivery flows
•
Reserves are only useful as flows
•
Peak oil is when flowscan’tmeet the demand
•
The oil industry is slow moving and predictable
•
Flows can be geologically constrained –e.g., the North Sea
•
Flows can be politically constrained –e.g., Russia, Saudi Arabia
•
Flows can be physically constrained –e.g., Nigeria
•
Flows can be skills constrained –e.g., lack of experienced engineers
•
Flows can be capital or access constrained –e.g., Mexico, Venezuela
•
Many talk ofreserves andignore flows
•
Others talk about access and ignore flows
Thanks to:
Stephen Harris says:
December 14, 2011 at 12:27 pm
Here’s a great ppt from ASPO on reserves, production, consumption and all that.
http://www.aspo9.be/assets/ASPO9_Thu_28_April_Skrebowski.pdf
jrwakefield says:
December 14, 2011 at 11:15 am
“What alternative is there that has the same energy density, in liquid form, as oil? We keep hearing about this mythical alternative, but we never see anything close to oil. It’s going to take decades to switch over, we need to start now if some alternative exists.”
Man you really are a doom and gloomer. …
Relax, take a chill pill and enjoy your day.
Cheers!
———–
I already posted a source about the longevity of shale gas. It’s not going to last much longer none of them are making any money at it. Depletion rates are horrendous.
Thanks for helping prove my point. If it isn’t profittable right now then the reserves will be there when we need them and it becomes more economical. Horizontal drilling techniques will only continue to improve and become more efficient and cost effective . As oil becomes more and more expensive, more drivers will add CNG to their vehicles which will increase demand forNatural gas. Hence prices will rise and the drillers and producers will be able to enjoy a profit for the gas. We are in no danger from the supply of oil harming us and our economy, much more so from the govt than oil depletion.
Cheers
Matthew
Stephen Harris,
Announcing a future increase in oil supplies routinely causes the world price to plunge. When President Bush announced in July 2008 that he was lifting executive ban on offshore oil drilling, the price declined by $10 a barrel overnight. The decline continued to $20, but then Congress refused to act, so the price began to rise again.
OPEC members, especially the Saudis, constantly manipulate the markets by front running them – buying and selling puts and calls in the billion dollar range ahead of announcements that more or less oil will be produced. In the long term the price is determined by supply and demand, but oil shocks and international crises are not long term.
I think this graph is too simplistic, and overstates the years left. Proven reserves are the total expected extraction. The extraction rate for every well dwindles over time. There comes a point when all operating wells can no longer keep up with demand, and there aren’t enough new wells to make up the difference. That’s peak oil, and it’s closer than 40 years.
jrwakefield says:
December 14, 2011 at 12:49 pm
elbatrop says:
December 14, 2011 at 11:38 am
@ur momisugly MarkW
new big fields huh? like?
when was the last time the world found a field in excess of 100gigabarrels that had a potential flow rate once developed in the millions of barrels per day range?
—————-
None since the 1960′s, thats the problem.
———————————————————————————————–
How about this one–2006, 748 TCF of gas, equivalent to 120 billion barrels of oil. Sure that’s gas, but we can substitute gas for oil in many places without an apocalypse (every bus in New Delhi has already done it) A bit of gas substitution, added to all the new discoveries in deep water and all the horizontal multi frac oil, and we are sitting pretty. Like catastrophic AWG, time expose the chicken littles.
“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.”
I find a debate over the definition of peak oil useless. What does it mean — not the definition, but what do you think it means? You say we have experienced Peak Oil? So what?
How is it you write so much, yet say very little?
@ur momisugly MSG:
You asked what Peak Oil means. Here a link to study performed buy the University of Canterbury, NZ on the effects of Peak Oil on urbanism. The short answer is that we’ll have to dramatically change our built environment from a car dependent sprawl to a much higher density living with much more transit: A costly and large undertaking.
The oil shock of 2008 which was the pin that popped the housing bubble showed just how bad it is to be so auto dependent. We are now in the beginning phase of Peak Oil and it will unfold more fully in the years ahead with worse consequences unless we act to change now.
http://ir.canterbury.ac.nz/bitstream/10092/4133/1/12626097_Urban%20form%20and%20fuel%20shortage%20risk.pdf
Smokey says:
December 14, 2011 at 12:51 pm
jrwakefield says:
“Peak oil is not about what’s in the ground, it’s about how fast it can be extracted compared to demand. It only takes a small drop in production relative to demand to drive prices through the roof. That’s simple economics.”
We are in complete agreement on that point. The solution to the artificial supply shortage is for government to encourage new exploration and drilling, instead of fighting energy production tooth and nail. The problem of high gas prices and the rising cost of goods and services that require fossil fuel use is entirely due to government interference in the free market.
————
I’m not against any production. I think we should produce everything we can as best we can that has a net energy return as we transition this society off oil as we return to the 1800s.
The big problem with converting to an alternative source that replaces oil to keeping us going as is will require energy diverted from the ecomomy into changing over. That’s the same as accelerating depletion. We would need vast quantities of oil, removed from society, to move us off oil. Catch 22.
More Soylent Green! says:
December 14, 2011 at 1:28 pm
jrwakefield says:
December 14, 2011 at 12:55 pm
I find a debate over the definition of peak oil useless. What does it mean — not the definition, but what do you think it means? You say we have experienced Peak Oil? So what?
How is it you write so much, yet say very little?
—-
Then you are not understanding. This is what happens. Oil production drops, demand keeps rising. But consumption can only meet the supply regardless of the demand. That small discrepency drives up the price of oil as a spike. That causes everything in society, especially food, to also spike. More money spent on energy means less on other things, like debt payments. Defaults occur, the country goes into recession, the price of oil drops as demand evaporates below production. now the price of oil is too low for alternatives or costly unconventional sources. The ecomony recovers, but hits a lower ceiling of oil production, price spikes, and into recession again. And we drop over decades in these tight cycles of not just no growth, but “negative growth”. The ecomomy over all never recovers, and there is no money, no growth, to pursue other options of energy.
Is that enough?
Doug says:
December 14, 2011 at 1:23 pm
How about this one–2006, 748 TCF of gas, equivalent to 120 billion barrels of oil. Sure that’s gas, but we can substitute gas for oil in many places without an apocalypse (every bus in New Delhi has already done it) A bit of gas substitution, added to all the new discoveries in deep water and all the horizontal multi frac oil, and we are sitting pretty. Like catastrophic AWG, time expose the chicken littles
———–
Shale gas? Way over estimated. You are still making the same mistake as the others. You are focusing on what’s in the ground. FLOW RATE is what counts. Will those deposits flow sufficiently fast enough to supply all those markets? No.
jrwakefield says:
December 14, 2011 at 10:35 am
US oil production:
http://www.energybulletin.net/image/uploads/27804/us-production.jpeg
—————————————————————————————–
Good of you to truncate your data where convenient. You have a future in climate science. US crude output has gone up 18% since 2008.
http://online.wsj.com/article/SB10001424052970204449804577068932026951376.html?mod=googlenews_wsj
And do you really believe all those companies are drilling all those shale gas wells and losing money? We in the oil business are pretty good at turning a profit. A few wells could be some small company stock hype, but tens of thousands of wells, producing 34% of out total production show that your claims are delusional. Gas prices have dropped from $13 to $3, and we are still drilling.
Good essay by Willis. Looking at the production curve, maybe peak oil is now, and the peak is a wide mesa, not a sharp point. It is requiring more and more investment of labor, cash and energy to extract each new million bbl of oil, on average.
Best comment by a reader was this:David L. Hagen says:
December 14, 2011 at 5:27 am
along with David L. Hagen’s subsequent posts.
With cost and availability trend lines as they have been recently, fuel from solar will become cheaper, on an energy-equivalent basis, than fuel from petroleum (as it already is in Brazil, counting cane ethanol as fuel from solar), and only subsequent to that will fuel costs decline, because consumption is going to continue to increase. That’s my expectation, anyway. Thus, peak oil is not a problem precisely because we (US, EU, Japan, China, S. Africa, Brazil) are investing resources to develop alternatives and reduce their costs.
MAtthew Epp says:
December 14, 2011 at 1:02 pm
———–
I already posted a source about the longevity of shale gas. It’s not going to last much longer none of them are making any money at it. Depletion rates are horrendous.
Thanks for helping prove my point. If it isn’t profittable right now then the reserves will be there when we need them and it becomes more economical. Horizontal drilling techniques will only continue to improve and become more efficient and cost effective . As oil becomes more and more expensive, more drivers will add CNG to their vehicles which will increase demand forNatural gas. Hence prices will rise and the drillers and producers will be able to enjoy a profit for the gas. We are in no danger from the supply of oil harming us and our economy, much more so from the govt than oil depletion.
Cheers
Matthew
—————
Then you are not understanding the economic consequences of high energy prices. Once energy cuts in as a higher percent of people’s expenses, then they have less for other things, like paying their loans. Higher prices cause recessions, which drops demand and the price. Thus the price never gets high enough long enough to make difficult deposits viable. That’s not including the thousands each person would have to spend to make the change over.
jrwakefield says:
“Not one oil field can be shown to be of abiotic. EVERY oil field has a biological source rock.”
Correct me if I’m wrong, but the people that think that there is abiotic oil, do not disagree that the source rock is biological. They claim that the OIL is abiotic, and the oil was trapped in the biological source rock while migrating.
http://www.viewzone.com/abioticoilx.html
Chart the breakdown of consumption on that chart and it will tell an altogether more revealing story. Peak oil has already occurred. If world oil production could respond to increased Chinese consumption it would have.
The major issue for the US is that it is now competing for the same oil that China is. Given the strength of the US economy is hugely dependent upon how much it pays for its oil this can only signify continuing trouble for the US.
This will be seen via a weakening US dollar. You could argue that if recessions in EU and the US decrease demand then Chinese oil consumption will eventually flatline but that ignores domestic growth in that country.
Unless world oil production taps these “mythical” reserves I see nothing but severe economic pain for the US, Europe and other Western nations for the foreseeable future.
Australia the company I live in has only been spared (well relatively spared) the type of trouble that Europe and the US are seeing because the strength of our economy is based upon export of massive amounts of raw materials to China.
.
The reality of Peak Oil is real. (Peak Oil = demand exceeding production).
This is a graph of US production vs consumption, and the US passed its national Peak Oil point back in the 1950s. This means that if Iran shuts the Straits of Hormuz, as they were threatening to do this week, then the US is already deep inside a Peak Oil induced oil shock. It doesn’t matter how much oil is in the ground – if it is not getting to the USA, there will be a Peak Oil crisis.
http://www.jennyannfraser.com/wp-content/uploads/2011/11/us-oil-consumption.jpg
Here is Mexico, hitting its own Peak Oil in the 2020 mark.
http://geo-mexico.com/wp-content/uploads/2010/12/oil-exports.jpg
Here is Australia, hitting its own Peak Oil in the 1990s (although it could use its vast reserves of coal, if the government would allow it.)
http://1.bp.blogspot.com/-0BlNdzf8SdQ/TtxkHDgCLvI/AAAAAAAAAAQ/kbSSzLHEnV8/s400/AustraliaOilProductionConsumption.PNG
The UK and Europe are also long past their own local Peak Oil points.
This means that the major economies of the world (including China) are heavily dependent on world trade continuing, to plug their local Peak Oil crisis. Any major conflict or disruption to oil deliveries, and all of the developed world will suffering a Peak Oil slow-down.
.
But that is not all. Here is the trend for new discoveries of oil, which has been declining sharply in recent decades.
http://www.beodom.com/assets/images/education/peakoil/world-oil-discovery-10-years-period.jpg
But all those big old oil fields from the 1970s (which may indeed have billions and billions of of barrels in reserves) are getting harder and harder to extract. Thus Peak Oil (stalled production vs rising demand), may come sooner than you think. There is no point counting on oil that is firmly stuck in the ground – that is not simply counting your chickens before they have hatched, that is counting chickens before the hen has even layed!!
“Darn it Martha, I know there’s another chick inside their somewhere…..” 😉
.
>>More Soylent Green! says: December 14, 2011 at 1:28 pm
>>I find a debate over the definition of peak oil useless. What does
>>it mean? You say we have experienced Peak Oil? So what?
We are rather presuming that everyone understands the calamity of the 1970s oil shock (a politically produced Peak Oil.)
Lots of things happen in a Peak Oil crisis. Oil prices go through the roof, cars queue for hours at filling stations, transport does not deliver the goods, aircraft tickets treble in price, factories stand idle, people are laid off, holidays are cancelled, business go bust, hotels go bust, people have no money, people have no heating in winter etc: etc:
I could go on, but you get the picture. We have been so isolated from previous dramas, with our reliable modern energy sources, that we have forgotten what it was like to have no electricity once a fortnight. But with today’s economy, with everything dependent on computer wizardry, the consequences of energy shortages may be much worse than in the past.
.
JRWakefield’s verbal diarrhea (misinformation) again requires correction. It matters not there have been no giant fields discovered. Present proved reserves will not be exhausted ’til 2049. Each year last decade, the sector added 50-Gb to proves reserves and consumed only 32.
It is utterly false that “price spikes are due to depletion”. Most are due to geopolitical events and/or temporary refining capacity mismatches.
The only petroleum price induced economic recessions in the last three decades occurred when several G-20 nations fell victim in 2008Q2. This excludes the USA whose economy is too diverse and per capita income too high to make it vulnerable. Steven Kopits (douglas-westwood) & neophyte economist James Hamilton are stalwart in perpetuating the myth with shoddy white papers. Their presentation to Congress this Spring warned of mass global recessions should oil exceed $85. Within several months oil reached $113 and there was no gnashing of teeth. My own studies reveal G-20 petroleum induced recessions cannot occur ’til contract crude surpasses $121/barrel ($105 today).
With full respect to Skrebowski, his worst case scenario (bottom-up) methodology has inherent flaws and he is second only to Colin Campbell in the category of documented upward revisions to Peak Rate and Peak Year.
http://www.trendlines.ca/free/peakoil
@ur momisugly Doug
Daniel Yergin being cited LOL
his track record has been abysmal
tell ya what take your stuff here and explain it to the rest of the industry and see how you fare:
http://www.theoildrum.com/node/8212