Guest post by Mike Jonas
On Dec 13, Willis Eschenbach posted a convincing (and eloquent as always) argument “The R/P Ratio” against Peak Oil being imminent. I would like to present a different view. In fact I draw the opposite inference from the same statistic.
From the BP data [1], Willis argued that the “R/P ratio” – the ratio of reserves R to production rate P – is higher than ever, and that therefore the world is even more able to continue producing oil at today’s rate than it was yesterday at yesterday’s lower rate.
My argument is that the high R/P ratio shows that it is getting very difficult to increase P in spite of a high R and a high oil price. This argument is based on two factors of which Willis took no account – the reliability of stated reserves and the quality of the oil.
Reliability
The first major hiatus in the oil world occurred in 1973, when OPEC caused the price of oil to quadruple. The second was the Iranian revolution in 1979. Their effects are clearly seen in the historical oil price:
Figure 1 – Historical Oil Price – click image to enlarge
Over the following years, 1980 to 1988, the world’s oil reserve increased by 331.5 billion barrels, of which 329.6 were OPEC.
Figure 2 – Historical Oil Reserve – click image to enlarge
What is thought to have happened is that certain OPEC countries artificially inflated their reserves so that they could sell more oil, because OPEC production quotas were based on official reserve figures [17][22]. It is quite possible that none of this reported increase in reserves actually exists. There has recently been supporting information from Wikileaks [2].
Questions about the reliability of reserve figures are not restricted to the reserves declared between 1980 and 1988. For example, the UAE’s official reserve has been stuck on exactly 97.8bn barrels since 1996 (and was at 98.1bn barrels from 1989 to 1995), in spite of total production of 15bn barrels over that period (21bn barrels 1989-2010) and no major discoveries [21]. That’s mathematically possible, but rather unlikely.
Some other countries have similar patterns – Iran reserve at 92.9bn barrels from 1986 to 1993 (9bn barrels produced), Iraq 100.0 from 1987 to 1995 (5 produced) and 115.0 from 2001 to 2010 (8 produced), Kuwait 96.5 from 1991 to 2002 (8 produced) and 101.5 from 2004 to 2010 (7 produced), Saudi Arabia in a tight range 260.1 to 264.6 from 1989 to 2010 and not falling more than 0.1 in any one year (75 produced).
It does appear likely that a significant proportion of stated reserves do not in fact exist.
Quality
After 1988, the next significant increases in world reserves occurred in 2002 and 2008-9.
Figure 3 – Annual change in reserves – click image to enlarge
In 2002, most of the 60.7 billion barrel increase was in Russia, Iran and Qatar, and I haven’t checked it. I have no reason to suppose that it was anything but a genuine increase in good quality oil. However, of the 123.0 billion barrels increase in 2008-9, 111.8 were in Venezuela. This is an ultra-heavy crude, difficult and expensive to produce at high production rates [3].
This is where the problem lies. Much of the easy oil has gone. We are into the difficult and expensive stuff. It is a major challenge to maintain high production rates. Heavy and unconventional oil are now dominant in world reserves [4] …
Figure 4 – Total World Oil Reserves by Type – click image to enlarge
[http://en.wikipedia.org/wiki/File:Total_World_Oil_Reserves.PNG]
… to the extent that actually being able to increase the total production rate may prove to be out of reach [8].
Global oil production has basically flatlined for the last 5 or 6 years …
Figure 5 – World Oil Production – click image to enlarge
… while the oil price has surged over the same period (Fig.1). I would argue that a high R/P ratio does not necessarily indicate an ability to increase production. Rather, a high R/P together with a high oil price would seem to indicate that it is difficult to increase production. Note that for 5 years now the price of oil has been higher (in 2010 dollar terms) than it was after the 1973 oil shock.
In Venezuela (heavy and very heavy oil), the production rate has declined nearly 30% from 1965 to 2010. In 2006, before the large 2008-9 increases in reserve, its R/P was already high at 85, but was still exactly what it had been in 1985. From 1985 to 1998, production did increase markedly, bringing R/P down to 60, but production has been in decline since.
It is possible that the major factor here was Hugo Chavez being elected president in 1998, so let’s look at all the countries with above average R/P –
| R/P | |
| Venezuela | 233.9 |
| Iraq | 128.0 |
| Kuwait | 110.8 |
| UAE | 94.0 |
| Iran | 88.4 |
| Libya | 76.6 |
| Saudi Arabia | 72.4 |
| Kazakhstan | 62.1 |
| (World average) | 46.1 |
– maybe Venezuela, Iraq, Iran and Libya have political reasons for relatively low production rates. The UAE, whose oil is chiefly in Abu Dhabi, does have difficulty increasing production [10]. Kuwait [11][12] and Saudi Arabia [13] do too.
For comparison, Canada’s Alberta Tar Sands, which began production in 1967, have an R/P of 662. It is hoped that it may in future come down to around 150 (reserve 174bn bbls, prodn 720k bpd, target 3m bpd [6]).
[bbl = barrel, bpd = barrels per day]
There is a clear tendency for high R/P to be associated with heavy and unconventional oil, that is, oil for which high production rates are very difficult.
The Future
The oil industry has been successful in maintaining reporting a world R/P of 40+ since 1988.
Figure 6 – World R/P – click image to enlarge
But in order for the rate of oil production to keep increasing, a lot has to go right. Things like:
· Major new conventional oil discoveries.
· Technological progress in heavy and unconventional oil production.
· Political stability in producing countries.
· Political stability in consuming countries.
· A high oil price.
· Increasing demand in spite of the high oil price.
· Oil remaining competitive with alternatives.
· Non-obstruction by governments (think “carbon” trading and taxes, USA offshore exploration ban)
More optimistic estimates of the Peak Oil date range from 2014 [7] to the IEA’s 2035 or later [5][5a]. But in the IEA presentation, note that although foil #8 “Oil production becomes less crude” …
Figure 7 IEA forecast – click image to enlarge
… shows production increasing to at least 2035 , there is enormous (heroic?) reliance on “fields yet to be developed or found” which are more than half of all oil production by 2035. Note also the relatively low contribution from “unconventional oil”, and the rapid decline of currently producing conventional fields.
There is another figure worth keeping an eye on for the next few years – Saudi Arabia’s production rate. The IEA presentation [5] expects Saudi Arabia to increase production by 50% between 2009 and 2035.
Figure 8 – IEA forecast by country – click image to enlarge
In mid 2008 Saudi Arabia announced that they would increase production by 500k bpd [14], but production fell 8% over the next two years. Perhaps this confirms that the producing Saudi fields are already in decline [15]. In June 2011, Saudi Arabia again stated that they would raise production [16]. It will be interesting to see if they are able to.
Saudi Arabia’s (2010) R/P is 72. They do have some as yet undeveloped fields, but none are anything like as large as the now-declining Ghawar [20].
Conclusion
The increasing world R/P, together with the high oil price, probably means that it is getting ever more difficult to increase production, rather than that Peak Oil is obviously many years away. I suspect that we are already at or close to Peak Oil, but it can only be identified in retrospect [see footnote 4].
It is, admittedly, still mathematically possible that Peak Oil is many years away. I would agree that “Peak Oil & Gas” and “Peak Energy”, as opposed to “Peak Oil”, are many years away – provided sanity returns to western governments.
Footnotes
1. All production and reserve amounts, associated amounts (eg. R/P), and graphs, are from or derived from the BP data [1] unless otherwise indicated. BP’s reserve data includes “gas condensate and natural gas liquids“, but does not include the Canadian oil sands.
2. Oil reserves are relative to economic and operating conditions, so they can increase without new discoveries.
3. Why did I quote the IEA 2010 report instead of the 2011 report? Because in 2011 the IEA lost its marbles and interlaced everything with the need to reduce CO2 emissions [18]. When the world wakes up to the fact that CO2 emissions are not dangerous, much of the 2011 report will be useless. FWIW, in the 2011 report oil production is still expected to increase by a similar amount by 2035, with OPEC increasing its share [19].
4. I understand “Peak Oil” to mean the point in time after which global oil production does not materially increase. The peak in oil production does not signify ‘running out of oil’ [9]. It doesn’t mean that oil production cannot physically be increased, simply that it does not increase. Peak Oil can therefore be influenced by factors such as price, changes in use and efficiency of use, and competition from alternatives. Basically, it is only possible to identify it in retrospect.
Mike Jonas
Jan 2012
###
Mike Jonas (MA Maths Oxford UK) retired some years ago after nearly 40 years in I.T.. He worked for BP in the 1960s and 70s, including 3 years in Abu Dhabi.
References
[1] BP Statistical Review of World Energy, Jun 2011.
[2] Time report “Have Saudis Overstated How Much Oil Is Left?” Feb 2011
http://www.time.com/time/world/article/0,8599,2048242,00.html
[3] Wikipedia “Oil reserves in Venezuela”
http://en.wikipedia.org/wiki/Oil_reserves_in_Venezuela
[4] Wikipedia “Oil Reserves”
http://en.wikipedia.org/wiki/Oil_reserves
[5] IEA “World Energy Outlook 2010” Presentation to the Press Nov 2010
http://www.worldenergyoutlook.org/docs/weo2010/weo2010_london_nov9.pdf
NB. See Footnote 3 above.
[5a] Gail Tverberg, Comment on IEA “World Energy Outlook 2010”, Nov 2010.
http://www.countercurrents.org/tverberg101110.htm
[6] Popular Mechanics “New Tech to Tap North America’s Vast Oil Reserves” Oct 2009
http://www.popularmechanics.com/technology/engineering/4212552
[7] msnbc.com “Peak oil production predicted for 2014” Dec 2010.
http://www.msnbc.msn.com/id/35838273/ns/business-oil_and_energy/ – .TumIeGAch0I
[8] AAAS Member Central “Peak Oil Production May Already Be Here” Mar 2011.
http://www.sciencemag.org/content/331/6024/1510.short
[9] Energy Bulletin “Peak Oil Primer”
http://www.energybulletin.net/primer.php
[10] My comment on JudithCurry.com, re Zakum, Tupi and Peak Oil. Nov 2011.
http://judithcurry.com/2011/11/24/emails/ – comment-144017
[11] H. M. Shalaby “Refining of Kuwait’s Heavy Crude Oil: Material Challenges” Kuwait Institute for Scientific Research. Dec 2005
http://www.arabschool.org/pdf_notes/20_REFINING_OF_KUWAITS_HEAVY_CRUDE_OIL.pdf
[12] Bloomberg “Kuwait Reduces Its 2020 Heavy-Oil Production Target by More Than Half”. Oct 2010.
[13] WSJ “Facing Up to End of ‘Easy Oil’”. May 2011.
http://online.wsj.com/article/SB10001424052748704436004576299421455133398.html
[14] The Independent “Saudi King: “We will pump more Oil”” June 2008
http://www.independent.co.uk/news/world/middle-east/saudi-king-we-will-pump-more-oil-847830.html
[15] Energy Security “New study raises doubts about Saudi oil reserves” March 2004
http://www.iags.org/n0331043.htm
[16] NY Times “Saudi Arabia, Defying OPEC, Will Raise Its Oil Output” June 2011
http://www.nytimes.com/2011/06/11/business/energy-environment/11oil.html
[17] Telegraph article “Oil reserves ‘exaggerated by one third’” Dec 2011.
[18] IEA “World Energy Outlook 2011” Presentation to the press Nov 2011
http://www.worldenergyoutlook.org/docs/weo2011/homepage/WEO2011_Press_Launch_London.pdf
[19] IEA “World Energy Outlook 2011 Fact Sheet” (see “Global oil production”)
http://www.worldenergyoutlook.org/docs/weo2011/factsheets.pdf
[20] NY Times “Forecast of Rising Oil Demand Challenges Tired Saudi Fields” Feb 2004
http://www.nytimes.com/2004/02/24/business/24OIL.html?pagewanted=all
[21] Gerald Butt “Oil and Gas in the UAE”
http://www.geopowers.com/energie/sites/default/files/images/PDF – VAE.pdf
[22] Dr. Jean-Paul Rodrigue, Hofstra University “Changes in Major Crude Oil Reserves, 2001-2006” http://people.hofstra.edu/geotrans/eng/ch5en/appl5en/oilreserves.html
Oh geez! No this $#*& again.
Mike you have the “political” reserves generally right. But a couple of things, in oil and mines, you develop reserves as required. To drill off 100 years of oil, copper etc. is not good exploration economics as it is expensive to do. For minerals, a feasibility study is usually based on 10-20 years of production. To drill more, you have cash sunk, ticking away at 5-8% (opportunity cost) that isn’t going to be returned for a long time. Now if you happen to hit a very large rich deposit, you end up with much larger reserves than planned – nice- but you certainly aren’t going to continue on trend where you are likely to find more (we look for elephants in elephant country). The price of oil does two things: it pays to develop more reserves (for example very deep reserves fairly well known that were not economic and, until recently were technologically unavailable); and two it pushes us toward substitutes – oil from coal or shales, methane hydrates in the ocean muds which were discovered relatively recently and which appear to be enormous reserves on the sea floor, and of course, as mentioned by others, the alternative competing energy sources which will ultimately replace hydrocarbons. You note the replacement but neither you nor Willis noted that this factor actually makes the R/P factor almost a little silly since it is put forward as an alarming situation for he future of energy available to man. Other commenters mentioned the dire situation with horse-energy in the 19th C. We could have probably had a formula that showed the increasing number of horses that would be required doing unproductive hauling of hay in and manure out of ever expandiing cities that would have had an alarming edge to it.
The Peak Oil question is always a problem when looked at from a geologist point of view. They look at the known reserves, divide by production, and come up with a date when we run out. From an economist perspective, things are much different. The known reserves is not a static number: it correponds to the optimal level of reserves at today`s price and future anticipated demand. When the optimal reserve level is met, investments to find more oil contracts (oil prices is the mechanism through which this is done). If future demand anticipation grows (seen when prices go up), investments kick in to add to reserve. From this, it is impossible to determine Peak Oil using todays know reserve. Reserves is consequence of demand.
I make lots of $$$$$ betting against the supply siders in this arguement.. has anyone noticed what the price of a bbl of oil is?
It is $100 a bbl because of a supply squeeze.. not over supply. China is adding 3/4 million bbl/day extra demand every year. The USA is giving up on its demand, off about 3 million bbl/day TO SUPPLY CHINA.
Willis was wrong. This post is closer to the truth. The truth is DEMAND is going up, prices are going up, and supply is being 1/2 satisfied by price rationing.
Yes, we will be burning more food unless we build dozens of natural gas to liquids conversion plants.
We need to enter the natural gas age, and we are, as the price signal of $20 natural gas vs $100 oil is causing the switch in the USA right now, just not fast enough to avoid $130 a bbl oil.
An excellent article. I thought Willis’ offering last week was , let’s say, optimistic.
I did not have time to comment on it until there were already about 253 posts so I did not bother.
His basic premise was this is BP data ” I presume other oil companies are the same”. Big assumption.
Thanks for adding a bit of balance.
The problem is that IEA have been fabricating data for years. It’s about as scientific and neutral as the IPCC. The Saudis have been talking up their reserves but seem unable to walk the walk.
The IEA’s projection of undiscovered reserves looks like a line they drew then tried to justify. It has the resounding ring of … fudge rather then truth.
Bob says:
January 3, 2012 at 9:29 pm
no mention of oil shales – the largest deposits in the world are in the USA – ~1 trillion bbls. With horizontal drilling and massive fracking they can be economically and safely produced if Obama gets out of the way. mikelorrey is correct – even then it will take time.
There is no oil in the “oil shales”, it’s kerogen. Big difference. It has to be cooked to make oil. The ERoEI to make kerogen into oil is negative.
E.M.Smith says:
January 3, 2012 at 10:35 pm
An interesting quote for you from the United States Bureau of Land Management in March 2011:
“As there are no economically viable ways yet known to extract and process oil shale for commercial purposes, and Utah tar sands deposits are not at present a proven commercially viable energy source, the BLM, through its planning process, intends to take a hard look at whether it is appropriate for approximately 2,000,000 acres to remain available for potential development of oil shale, and approximately 431,224 acres of public land to remain available”
http://edocket.access.gpo.gov/2011/pdf/2011-9120.pdf
Sera says:
January 4, 2012 at 12:12 am
Right now the oil companies are falling over themselves shipping drilling equipment to Brazil-
http://www.bloomberg.com/news/2011-01-19/brazil-oil-fields-may-hold-more-than-twice-estimated-reserves.html
and those who do not understand how technology advances will always be on the ‘end is nigh’ side of the argument.
From the link:
Brazilian oil deposits below a layer of salt in the Atlantic Ocean hold at least 123 billion barrels of reserves
That’s 4 years of world consumption. It’s a small deposit.
This is a nice counterpoint to Mr. Eschenbach’s piece. Thank you to both Mr. Jonas and Mr. Eschenbach for their contributions; the articles are polished, well-researched, well-written and highly readable.
A long time ago, U Thant said something to the effect of: “It is no longer resources that determine prices, it is prices that determine resources.” Many petroleum engineers would agree. Boone Pickens accurately quipped, “The solution to high prices is… high prices.”
I once had a Mobil geologist reply to my question about natural gas reserves with, “The reason the world is round is because it’s full of gas.”
Nonetheless, I have to admit that I find it very difficult— if not downright impossible— to believe that humanity is ever going to discover another Ghawar.
Sorry but these assumptions are garbage. Peak Oil is just another doom monger scare story that simply isn’t true. As the price of oil goes up there is a huge increase in what is economically recoverable and more costly technology/extraction methods become viable – facts that ensure we will never run out.
There will, of course, be a peak one day. That day is when a better and cheaper alternative becomes viable and eventually displaces oil and gas. This day is certainly NOT the day we run out. Battery technology is ever improving and if we can get fusion power to work then it is possible that oil may start to be displaced sometime later in this century but NOT because we run out!
Pete H says:
January 3, 2012 at 11:08 pm
Mike Jonas, Interesting but new finds continue. The Eastern Mediterranean springs to mind with Noble Drilling announcing huge gas field finds off Israel and Cyprus. The single Cyprus field explored has enough gas to keep the island electricity generation going for 210 years (and Noble will have given conservative estimates to protect themselves) and this was from a single exploration block!
Source: http://www.rigzone.com/news/article.asp?a_id=113763
It would seem to me there is still plenty to be found!
What is “huge”???
Link please.
I have no doubt that there are huge reserves of some types of resources that can be made into oil. The questions are cost, net energy gained, environmental impacts, and in some countries, politics. In other words, even if we agree that there are huge quantities of solid tar-like deposits in places like Venezuela, turning those deposits into oil will cost a lot of money.
Canada’s tar sands are a huge resource, but companies didn’t start investing in a big way until it seemed certain that oil would stay over $60 per barrel or so. For the underground tar sands in Canada, you need to create huge amounts of steam by burning natural gas, inject this steam underground in a series of wells, collect the now liquid tar, which flows once it is at a few (low) hundred degrees, and then deal with the oily water once you have removed the petrocarbons from what comes up in the recovery wells.
I don’t imagine that local Venezuelans will mount any effective protest against using the Orinoco river as a sewer for the oily water than comes up, the way that environmentalists are beginning to effectively protest degradation in Canada, but just the production costs will still be pretty high.
So I agree that we have lots of deposits. But it will take high world oil prices to develop them, and high prices will reduce demand, as it has in the last 4 years in the US. Peak oil doesn’t mean we are running out of hydrocarbons, it means we are running out of the cheap to produce hydrocarbons that helped create so much wealth. When we reach a plateau of oil production, beyond which the world won’t ever produce more than so many millions of barrels a day, that peak will reflect the high price to acquire usable oil, not the maximum capability of the world to produce more barrels if price were not a consideration.
Thank you, Mike Jonas, for a very readable and well-argued paper. It was balanced, and introduced a whole load of issues which need to be considered whenever the oil question is debated.
I note your primary line is that ‘production difficulties’ are going to be a major limiter. If these are technical, I suspect they will be speedily overcome. If these are social or political, then you have the obvious example of the suppression of nuclear power to show how apparently sensible projects can be scuppered for the best part of a lifetime by a few activists.
You have given us all something to think about…
“Oil shale is the wave of the future. And always will be.”
And yet it’s producing now…
Nice article Mike Jonas. But why is a lack of production increase always seen as a problem? Maybe supply and demand are now well known such that reserve / production ratios are leveling off naturally. Oil is fairly steady at $100 a barrel and a liter of gas costs about the same as a liter of bottled water. Peak oil first occurred in the 1970s and now it is being projected outward to 2035. Why continue with this bogey man?
I worked for a major mining company that kept much of its reserves off its books because they added no value but cost money to report (extra drilling to meet reserve definitions, more reporting and disclosure issues etc). When they needed more reserves they appeared magically (from one set of books into another with a little bit of work). There was nothing wrong with this. Who cares if you have 30 million tonnes (15 years production) of nickel or 300 million tonnes (150 years)? And if you try and push too much nickel onto the market (by tripling production) you don’t increase market share but the price per pound plummets. I suspect the same for the oil industry. Keep enough reserves on the books to make financing possible and keep production high enough to make a pile of money at $100 oil. And whisper peak oil now and again to keep people guessing.
And as for fictitious reserves…if these were stated in the 1980s and the countries are still producing at the same rates 30 years later…well…they probably existed all along.
Pete H says:
January 3, 2012 at 11:08 pm
Mike Jonas, Interesting but new finds continue. The Eastern Mediterranean springs to mind with Noble Drilling announcing huge gas field finds off Israel and Cyprus. The single Cyprus field explored has enough gas to keep the island electricity generation going for 210 years (and Noble will have given conservative estimates to protect themselves) and this was from a single exploration block!
Source: http://www.rigzone.com/news/article.asp?a_id=113763
It would seem to me there is still plenty to be found!
Noble Energy had discovered between 5 trillion and 8 trillion cubic feet (tcf) of natural gas in the Block 12 Aphrodite field.
Puny. Just because they have enough NG for 210 years does not mean the world has NG for 210 years. Peak oil and peak gas will affect countries differently at different times. Importing countries will get hit first.
I am an Engineer for a seismic equipment company so I have a bit of a different perspective on this. In the last 10 years, from my company alone, we have produced new survey, measure and monitor technologies coupled with new exploration techniques are identifying new reserves every day. Additionally, because of the improvements in computing power and this advanced technology, we can re-assess existing reserves and make existing wells more efficient from 1 to 5 percent. In terms of production, that is HUGE.
Based on what I have personally seen over the last 10 years, I expect exploration and extraction develop at an accelerated rate. I think we have really just scratched the surface of what will be available. I think Willis’ analysis is more accurate.
While its fun to argue about R/P, it really comes down to the underlying basket of technologies. Production curves are representative of those technologies which are a reflection of free minds and free markets.
Up until the late 1500s, there was only subsistence agriculture, then along came Enclosure and ag production took off. Then along came the Haber process, then enclosure for animal production, and then Borlaug.
Or consider silicon chip production.
In the very beginning of oil exploration and production, the R/P in the scale of today’s era is meaningless. The markets and the oil fields however found each other capable to proceed. If we assume that the people had enough knowledge about today’s explored reservoirs in the past, then the R/P could had been greater than this (40). Neither the market nor the technology could not produce and absorb that (maybe) 3- 4digits R/P. Therefore, the market demands and the amount of oil production have been so far synchronized and tolerated by means of Geo-politics, Oil Price and Technology. Today’s exploration and production have the same relations like what happened in the past. Our knowledge and expected demands would not let us go through this is the definition of a predictable balanced power of the market/technology(know how). The (40) as a figure, has a strong message for us. Empirical outcomes through the years in oil industries are valuable part of that. This can be monitored and measured only in its dynamic environment which is only the market included technology – politics mechanism.
In this study, we find something important and it is the declining trend of R/P which means the progressive technology, while in the process of time, the demands have been grown up extremely, the prices have found new scales, and the political issues have become more complicated.
There are at least two guaranteed methods to get your blog dominated by the crazies:
1) Just mention *Peak Oil.* You don’t even have to say why it’s not really a problem for decades
2) Just mention *Ron Paul.* You don’t even have to say the word *kook,* or *crank,* or *wing-nut.*
Amazing wishful thinking going on here imo. The price of oil tells the story, ie empirical DATA.
The real world data is defying the “believers”.. sound familiar? The Peak Oilers have been arguing their case for 5 or 6 years, and the DATA supports them.(high prices, and flat to falling production from conventional sources).
What it means is we have a SUPPLY problem, and have had one for 5 or 6 years.
The data does not lie.
The marginal price is now set by the tar sands, ie, at least $80 per bbl. Saudi Arabia says it is higher, at $90, to pay for their social programs.
The USA will pay big time for its wishful thinking coming from its cheap “supply side” thinking.
Of course, the smart money thought they could take out Saddam and then ramp up its oil production to get the supply. How is that working out?
@MikeN
Your points are well considered. The global economy is on a defacto gold standard with all countries individually pretending it is not. It is hard to hoard anything else save gold so it remains a real measure of value. With US gov’t bonds becoming technically valueless on paper, efforts continue to keep the $ propped upon the chair of being the ‘commodity trading currency’. That could change in a single week (though trying to do so would probably provoke a desperate war).
Using a technically bankrupt state’s printed currency for international trade, long term, is crazy. Its value and support will run out long before the oil does.
Not addressed by either one: the fact that the Dollar has been suffering from inflation over the last few decades that has not been reported. The dollars peg against oil might be less about oil production capability, and more to do with the flood of dollars in the world.
Rob Crawford says:
January 4, 2012 at 6:40 am
“Oil shale is the wave of the future. And always will be.”
And yet it’s producing now…
——
No it’s not. Shale oil (tight oil) is producing now. There’s a big difference between shale oil and oil shale. Shale oil is regular crude that until now has been stuck in fairly impermeable rock which can be released by fracking. Oil shale, as pointed out above, is kerogen, not oil. It requires extensive processing to turn into crude oil, which makes it currently uneconomic. If technology improves to the point where it becomes economic, it will be one hell of a resource because it so big. But right now the oil shales are worthless.
Oil Shale:
http://en.wikipedia.org/wiki/Oil_shale
Tight Oil:
http://en.wikipedia.org/wiki/Tight_oil
The naming of these two different kinds of deposits confuses a lot of people.
“In mid 2008 Saudi Arabia announced that they would increase production by 500k bpd [14], but production fell 8% over the next two years. Perhaps this confirms that the producing Saudi fields are already in decline [15]. In June 2011, Saudi Arabia again stated that they would raise production [16]. It will be interesting to see if they are able to.”
It is important to look at the context of these announcements with respect to the world economy. In 2008 the world was in bad shape economically, oil prices took a precipitous drop. Although Saudi actual production dropped through the period 2006 – 2010 (why would they produce oil for which there was no demand at a reasonable price?) they continued to work on the “mega-projects” which were intended to increase their spare capacity to 12 MMbpd. Most of those projects (with the exception of one heavy oil offshore project) were completed and Saudi Arabia now stipulates that their spare capacity is sitting near the 12 MMbpd range. Spare capacity and actual production aren’t the same thing and should not be confused.
This past year when Libyan crude disappeared thanks to the Arab Spring S.A. stated they would be able to replace the lost production. Indeed during the first half of 2011 S.A. did increase their production by several 100 Kbpd.but were somewhat constrained in their ability to completely replace the Libyan crude due to the higher sulphur content in S.A. crude (refineries in Europe which were the main consumers of Libyan crude are only set up for light-sweet crude.).
Also the notion of “heavy-oil” needs to be better described. When you speak about “difficult to produce oil” you are not talking about the gravity of the crude but rather it’s viscosity. As an example in Venezeula and Colombia there are a number of oil fields that have low gravity (10 – 18 API) but also low viscosity (60 cp or less). In contrast, Venezuela also has pools with low gravity but very high viscosity (several thousand cp). The low viscosity heavy crudes are as easy to produce as similar viscosity lighter crudes whereas the higher viscosity crudes often require additional energy imparted to the oil (e.g. steam). Both low viscosity crudes, however have the same challenge in finding the appropriate refinery with capabilities as well as marketability (specific markets with discounted prices).
Peak Oil is a real, immanent, and very serious problem. It is nothing like Global Warming at all. Here’s why.
While there may have been a point in time when the Global Warming hypothesis merited some attention (back when the issue was first mooted, perhaps), subsequent years of sober and rational reflection have shown us that those concerns can be safely dismissed. Mankind simply cannot produce enough carbon dioxide to effect the climate. The scale is too vast, the feedbacks are too complicated, and the other forcing and/or buffering mechanisms we have identified completely swamp whatever patry effect our miniscule contribution to global greenhouse gas levels may be causing (if there even is such an effect, which we cannot definitively conclude).
On the other hand, the lexicon of alarmist terms with which we have become familiar through the Global Warming debate — terms like ‘tipping point’ and ‘runaway feedback’ — really do apply in the case of Peak Oil. Just one Iranian nuclear weapon, whether or not it is even detonated, could set off a chain of events which will disturb the world’s oil-producing region for the foreseeable future.
There is a human dimension to this problem which most commentators seem oblivious to. Oil in the ground does nobody any good. If it cannot be extracted, bought, sold, transported, and refined into useful products, it might as well not exist. It is human societies which produce and consume oil, and our ability to exploit a resource is conditioned by numerous factors besides the level of stated reserves. You cannot simply assume that we will have the resources and finance capital to utilize unconventional oil sources. You cannot simply assume that “technology” is a silver bullet which will overcome all production hurdles. And only someone blissfully ignorant of all world history could believe that governments will ever “get out of the way” and allow private oil producers to pump the wells dry in a Libertarian fantasy-land. The world is the theater of bloody politics: it always has been and it always will be. People will fight for power, wealth, and security, and many delicate fruits of our exigent civil society — fruits like easy access to finance capital and loads of money for R&D — will get trampled in the process. The system of intellectual and financial tensions stretched across the global economy is now so tight that any minor supply disruption could cause the threads to begin to snap. And with the world’s advanced economies getting older and deeper in debt, they will not be able to consume oil as efficiently as before. This is just the beginning of a process that will result in a slowdown of the global economy and the outbreak of hostilities. We will have to get used to living in a world where war is more frequent and wealth less taken for granted; a world, in short, of less civilization.
Ultimately, it is man’s ability to produce and consume energy efficiently which has peaked. This is the critical measure, the only one that counts in the last analysis. It has a complicated relationship with resource reserve levels, but is not linearly dependent on them. It is more dependent on culture, on the societal discipline which developes the talent necessary to rule the world with the force and intelligence that such requires. The West began depleting that resource quite some time ago.