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
Alan Clark of Dirty Oil-berta says:
January 5, 2012 at 12:02 pm
jrwakefield says:
January 4, 2012 at 8:06 pm
“Bottom line is depletion from older fields will outpace production from these new deposits much sooner that 2025.”
Just because you say so, doesn’t make it so. Peakers have been saying exactly this since 1978 and have been wrong since the first time they uttered the words. The world has been trundling along with +/- 2mm bbls/day of surplus capacity for a more than a decade now and I see no indication that this will change. Some fields will deplete. Some will be brought back into production, some into very significant production, using new techniques and technologies. The gains and losses have kept pace, going to and fro like a good football game for decades. The field has not been vacated and the ball is still in play.
It’s a physical fact. It’s inevitable. It will happen. The world was at maximum output in 2008. Fact: The vast majority of world discovery was prior to the 1980’s.
jrwakefield wrote:
“Negative monitary ERoEI is why the EU and the US are in deep trouble. You can only lose money (energy) for so long. Society needs a minimum of 3:1.”
Socialism is why the EU and US are in deep trouble. What’s needed are fewer left wing loonies.
jrwakefield wrote:
“It’s a physical fact. It’s inevitable. It will happen. The world was at maximum output in 2008. Fact: The vast majority of world discovery was prior to the 1980′s.”
Sorry, 2010 eclipsed 2008. Doomers will just have to keep waiting for the “Great Pumpkin”.
http://earlywarn.blogspot.com/2010/12/new-high-of-liquid-fuel-production.html
John Bronson says:
January 5, 2012 at 4:35 pm
jrwakefield wrote:
“It’s a physical fact. It’s inevitable. It will happen. The world was at maximum output in 2008. Fact: The vast majority of world discovery was prior to the 1980′s.”
Sorry, 2010 eclipsed 2008. Doomers will just have to keep waiting for the “Great Pumpkin”.
http://earlywarn.blogspot.com/2010/12/new-high-of-liquid-fuel-production.html
2008: 87.8
2010: 88.1
Diff: 0.3
% increase 0.003% in two years.
Hardley an “eclips”.
If anything this shows we should hit the ceiling again. Price has started to increase again above 100. The next 12 months will be the tell all.
jrwakefield says:
January 5, 2012 at 2:33 pm
“It’s a physical fact. It’s inevitable. It will happen. The world was at maximum output in 2008. Fact: The vast majority of world discovery was prior to the 1980′s.”
Here’s another fact that supports your position: a stopped clock is correct twice a day. Unlike the peakers who have never been right.
CRS, Dr.P.H. – yes, there’s exciting times yet to be had in the oil patch. When they have dusted off the old technologies, brought in new ones, opened or re-opened previously uneconomic fields, found and developed new fields, dug into new types of oil, knocked some sense into the politicians, and fought off the greenies at every step, will they hit and maintain a new high production rate? They might indeed succeed, they really might, and there is more than enough oil to do it with, but as I said before a lot has to go right – and every year that goes by without a new high rate, the chance of a new high rate recedes just a little because some of the oil that could have contributed will have been produced.
Khwarizmi and others point to the discovery of huge new oil deposits, and argue that the world will therefore have plenty of oil. This is paying attention only to R. You need to look at P to make sure. Some of those deposits, such as in the Gulf of Mexico, will indeed be able to deliver a high P (relative to R), but will take many years to develop. In the meantime, existing producers will have declined, so that much of the new P will be used to compensate for the lost old P.
Other fields, such as the Alberta shale, will most likely never be able to deliver high P (relative to R). As I pointed out, the future hope for Alberta is that its R/P can eventually come down to about 150. Overall, the world R/P is likely to increase quite markedly, ie. although R will be looking great, P might not be doing quite so well.
But looking at it that way is only looking at what production is possible. There are still some other factors that should not be ignored, such as politics, also technology which not only improves production capability but also improves alternatives and efficiency.
Alan Clark of Dirty Oil-berta – Are we talking about the stopped clock or the scientific turkey? We might be at or near Peak Oil, or we might not (we can’t be sure until years later), but bear in mind we’re not talking about running out of oil. That’s not what Peak Oil is. We’re not even talking about production declining – at Peak Oil the production rate can be expected to remain fairly steady for a number of years, eg. US oil production was highest in 1970, but was still within 10% of that 16 years later (it’s down 33% now but moving up from the 2008 low). We have to work harder than ever to keep increasing oil production, as we always have done successfully in the past, but at some point we must fail, or we may simply choose a different track.
Oh where to begin…
1. The Wikileaks conspiracy theory about Saudi Arabia is a myth.
Saudi Oil Reserves and the WikiLeaks Chinese Whispers Effect (The Wall Street Journal, February 9, 2011)
“At first glance it looked like a story to shake the world: the WikiLeaks cable suggesting Saudi Arabia’s oil reserves -– the most bountiful on the planet -– may have been overstated by 40%.
It opened the door to a future in which oil would be depleted far more quickly than anybody believed -– raising the threat of sky-high prices and cut-throat competition for scarce resources.
But a conversation this morning with the man whose comments set off the furore revealed a Chinese-whispers chain that ended up giving the apparent imprimatur of the U.S. diplomatic service to a misunderstanding over oil figures.
The story starts back in 2007 when U.S. diplomats had a chat with Abdullah al-Saif, head of exploration at Saudi Arabian Oil Company, commonly known as Saudi Aramco.
He told them that the kingdom had 716 billion barrels of oil –- a figure that would rise to 900 billion in about 20 years.
Enter Sadad al-Husseini, a predecessor of Mr. al-Saif as Saudi Aramco’s exploration head, and pretty much the only company insider ever to speak in public. In the past he has been skeptical of some Saudi forecasts on how much oil it can pump and is regarded within the industry as a careful, knowledgeable man.
Asked by the American diplomats what he thought of Mr. al-Saif’s statements, he made what appeared an extraordinary statement: that the reserves figure was inflated by 300 billion barrels. Deducting that figure from the 716 billion barrels created the idea that Saudi reserves were 40% less than it officially said.
As it turns out, however, Mr. al-Husseini’s memory of that conversation is rather different.
He says he has no dispute with Aramco’s official reserves data, but disagrees with Mr. al-Saif’s projection for the future and with the diplomats’ characterization of its existing 716 billion barrels as “reserves”.
In fact, he says, that figure refers to “oil in place” which includes both recoverable and non-recoverable oil.
The kingdom’s “proven reserves”, the oil Saudi Aramco believes it can extract, are officially given as 260 billion barrels (Mr. al-Saif said the actual figure was probably more like 51% of the “oil in place” –- around 358 billion barrels).
Mr. al-Husseini says he has no problem with either Saudi Aramco’s official figures on current proven reserves or Mr. al-Saif’s estimate, but was simply making the point that to describe “oil in place” as reserves was to inflate the kingdom’s figures by several hundred billion barrels.
By that reckoning, the world of energy looks pretty much how it looked yesterday, with Saudi Arabia set to remain the world’s biggest producer for some time yet.”
Drilling for an Oil Crisis (The New York Times, February 25, 2011)
Please do better research before posting unfounded conspiracy theories.
2. OPEC did not cause the energy crisis of the 70’s Nixon did with socialist price controls.
All OPEC did was create a new middle man and provide an incentive for non-OPEC producers to search for more oil. This is why we got Prudhoe Bay and the North Sea fields. The oil shock of the 70s was cause by Nixon’s economically illiterate policies.
How gas price controls sparked ‘70s shortages (The Washington Times, May 15, 2006)
“Proposals to control gasoline prices and tax producers’ windfall profits were popular ideas that were tried — without much success — during the oil shocks of the 1970s and 1980s.
The era of price controls is most remembered for long lines at gas stations. The controls were put in place by the Nixon and Ford administrations in reaction to a jump in fuel prices caused by cuts in production by the newly formed international oil cartel, the Organization of Petroleum Exporting Countries.
Back then, “price controls turned a minor adjustment into a major shortage,” said Thomas Sowell, author of “Basic Economics: A Citizen’s Guide to the Economy.”
Mr. Sowell says that although the best response would have been to let prices rise, giving oil companies an incentive to produce more and consumers an incentive to conserve, “this basic level of economics is seldom understood by the public, which often demands ‘political’ solutions that turn out to make matters worse.”
The public — as it does today — wanted low prices. But the artificially depressed pump prices imposed during the oil crisis of 1973 — which stayed in place in various iterations through 1980 — brought about lines at gas stations and an artificial shortage of gas, he said.
The price controls resulted in a fuel-rationing system that made available about 5 percent less oil than was consumed before the controls. Consumers scrambled and sat in lines to ensure they weren’t left without. Gas stations found they only had to stay open a few hours a day to empty out their tanks. Because they could not raise prices, they closed down after selling out their gas to hold down their labor and operating costs, Mr. Sowell said.
The shutdown of stations that had been open at all hours before price controls further raised the public’s panic level and resulted in more lines, anger and frustration in what many Americans still remember as one of the nation’s worst economic nightmares.
“No doubt many or most motorists whose daily lives and work were disrupted by having to spend hours waiting in line behind other cars at filling stations would gladly have paid a few cents more per gallon to avoid such inconveniences and stress,” Mr. Sowell said.
Those who preferred not to sit in line bought gas on the black market at exorbitant prices far above what the market price would have been, he said. “Price controls almost invariably lead to black markets.”
By the Iranian oil crisis in 1979, the controls had grown unsustainable as oil prices escalated in global markets. With lines forming once again and fistfights breaking out at the pump, President Carter quickly waived most of the controls on oil and gas prices to make more fuel available.
The resulting sharp price increases ushered in a new nightmare: double-digit inflation, as businesses quickly passed on their higher fuel costs and workers’ unions demanded cost- of-living increases to keep pace with higher prices. The surge in inflation put the Federal Reserve in crisis mode. It ordered its largest-ever increase in interest rates in October 1979, plunging the economy into a deep recession.
By the 1980s, Congress and the administration had figured out that price controls were not the answer.
President Reagan, who rode to office on anger over the recurrent energy crises and inflation of the previous decade, immediately abolished what remained of oil and gas price controls upon entering office in 1981. […]
By 1986, the deregulation of the petroleum industry led to record production levels and a glut of oil that drove prices down to $10 a barrel. The trend toward low prices and plentiful oil continued through the 1990s as major non-OPEC producers such as Russia ratcheted up output to take advantage of the high oil prices engineered by the cartel. […]
Mr. Sowell said profits are the least-understood aspect of business, and have been under attack since the days of Karl Marx and George Bernard Shaw, who called profits arbitrary “overcharges” motivated by greed.
In reality, profits provide the vital incentive businesses need to make products consumers want at low prices, he said.”
3. Without knowing how much oil the earth contains and how it is created no such claims of “peak oil” can be made.
<b.4. The production argument is fallacious as real production is currently restrained by governments.
Real production without government intervention is only restricted by price. Governments can stop all production in their country that does not mean “peak oil” is reached. Markets adjust production on their own to meet demand so long as governments are not artificially restricting production. That is basic economics. You cannot look at artificially suppressed production rates with state run oil companies and draw any meaningful conclusions about “peak oil” from them.
This is just further proof that all peak oil theorists are economic illiterates.
3. Without knowing how much oil the earth contains and how it is created no such claims of “peak oil” can be made.
4. The production argument is fallacious as real production is currently restrained by governments.
Real production without government intervention is only restricted by price. Governments can stop all production in their country that does not mean “peak oil” is reached. Markets adjust production on their own to meet demand so long as governments are not artificially restricting production. That is basic economics. You cannot look at artificially suppressed production rates with state run oil companies and draw any meaningful conclusions about “peak oil” from them.
This is just further proof that all peak oil theorists are economic illiterates.
jrwakefield is posting more economically illiterate nonsense about EROEI,
Thermodynamics and Money (Peter Huber, Ph.D. Mechanical Engineering, MIT)
” According to this theory it can never make sense to burn two units of energy in order to extract one unit of energy. The Eroei crowd concedes, for example, that the world has centuries’ worth of junk oil in shale and tar sands–but they can also prove it’s irrelevant. It takes more energy to cook this kind of oil out of the dirt, they argue, than you end up with in the recovered oil. And a negative Eroei can only mean energy bankruptcy. The more such energy investments we make, the faster things will grind to a halt.
Eroei calculations now litter the energy policy debate. Time and again they’re wheeled out to explain why one form of energy just can’t win–tar sands, shale, corn, wood, wind, you name it. Even quite serious journals–Science, for example–have published pieces along these lines. Energy-based books of account have just got to show a profit. In the real world, however, investors don’t care a fig whether they earn positive Eroei. What they care about is dollar return on dollar invested. And the two aren’t the same–nowhere close–because different forms of energy command wildly different prices. Invest ten units of 10-cent energy to capture one unit of $10 energy and you lose energy but gain dollars, and Wall Street will fund you from here to Alberta.
As it happens, the people extracting oil out of tar sands today use gas from the fields themselves to power their refineries. There’s gas, too, under what has been called Alberta’s “trillion- barrel tar pit,” but it’s cheap because there’s no pipeline to deliver it to where it would be worth more. As an alternative to gas, Total S.A., the French oil giant, is thinking about building a nuclear power plant to supply heat to melt and crack the tar. But nuclear reactors extract only a minuscule fraction of the energy locked up in the nuclei of uranium atoms; all the rest gets discarded as “waste.” On Eroei logic, uranium would never be used to generate either electricity or heat. But per unit of raw stored energy, uranium is a thousand times cheaper than oil. […]
The economic value of energy just doesn’t depend very strongly on raw energy content as conventionally measured in British thermal units. Instead it’s determined mainly by the distance between the BTUs and where you need them, and how densely the BTUs are packed into pounds of stuff you’ve got to move, and by the quality of the technology at hand to move, concentrate, refine and burn those BTUs, and by how your neighbors feel about carbon, uranium and windmills. In this entropic universe we occupy, the production of one unit of high-grade energy always requires more than one unit of low-grade energy at the outset. There are no exceptions. Put another way, Eroei–a sophomoric form of thermodynamic accounting–is always negative and always irrelevant. “Matter-energy” constraints count for nothing. The “monetary culture” still rules. Thermodynamics And Money”
It is like the whole peak oil camp is filled with legions of economic illiterates.
“Saudi Oil Reserves and the WikiLeaks Chinese Whispers Effect
By Angus Mcdowall
http://blogs.wsj.com/source/2011/02/09/saudi-oil-reserves-and-the-wikileaks-chinese-whispers-effect/”
My comment was:
5:07 am January 6, 2012
ACCKKII wrote:
assuming oil in place 358bn. 358,000,000,000b:10,000,000bpd(production)=35,800days. 35,800days:365days/year=98.0821917808 years.“oil in place”
The kingdom’s “proven reserves”, the oil Saudi Aramco believes it can extract, are officially given as 260 billion barrels: 260,000,000,000b:10,000,000bpd(production)=26,000 days 26,000d:365=71.2328167123 years.proven reserves
the global average expected is 40years.
I refer to:
: Great White Northerner wrote:
Advantage oil sands: our proven reserves are based on what we can extract with today’s technology – and that is always getting better. Alberta’s deposits exceed both the recoverable and the Saudi reserves in place.”
Poptech says:
January 5, 2012 at 9:28 pm
—————————————-
You are largely in the right of it Sir.
For my sins, as they may be, I am a sometime shipowner, a relatively free trade in which even today over half the commercial tonnage in cargo is owned by private owners like me, typically one or two ships, and supplied on charter to whichever operator hires ’em and has them liveried for the house flag.
I had a policy and still do that I do not order a new ship built until I have a charter contract for her with a reputable charterer as well as the mortgage for her: plus of course the shipyard bounty. The industry is highly cyclical which is why at the moment I am bereft of bottoms having sold them all a few years ago but with the builders’ yards empty and urgently soliciting custom I may yet go back into the business.
Some years ago there was great too do about liquefied natural gas [LNG] about which I know something: I have several patents in this matter. It was seen as an investment bonanza. Figures such as a few hundred billion dollars, give or take, were bandied about Indeed having secured long term charters I had two ships built by Korean yards and very expensive they were too, an LNG tanker is pretty complicated thing. In anticipation of the bonanza a lot more were built as orphans and are now laid up like the plateau tankers before them.
The reason is the boom never happened, not that anybody knew at that time of the potential for fracking natural gas. But the oil and gas majors having had their fingers well and truly burned by US politicians with their price controls etc. especially over natural gas, were very wary of investing these huge sums in what they saw as a highly controlled business in which they neither owned the terminals or distribution pipelines nor had any influence over the politicians who might mandate new controls.
Thus the investment boom never happened. It is true that some private investment went into building ships now laid up and terminals. Now there is much talk of terminals being turned around for export rather than import. It is ill informed. Do you have any idea how much it costs to build a bulk gas liquefaction plant? It is not cheap I assure you.
And who pray is to buy this all too abundant gas?
Well fifty years ago the UK took a bold decision to build a natural gas grid to supply effectually the whole country from North sea reserves. An investment which paid off in spades and still is: it brought cheap energy into homes and businesses on a nationwide scale. The dash for gas to replace coal fired electric generation depleted the North sea reserves faster than expected so some ill informed investors decided that LNG imports would be necessary. They forgot however that the Frigg field is enormous and that the UK had a longstanding agreement with the Norwegian government about sharing it and thus all it took was the construction of a new undersea pipeline, the Connector, to solve the problem.
So the terminals stand idle. Mean while of course a British government which apparently believes in little green fairies at the bottom of the garden is destroying the economy despite the fact that there are huge reserves of shale gas in the country.
But there are huge reserves of shale gas elsewhere.
So who? I repeat, is going to buy all this natural gas which is available almost everywhere it might be wanted for the next few hundred years.
There are people you know who are obsessed with the idea that because they consider themselves intellectuals they can draw a few graphs and charts and so predict the future of industries they know little or nothing about. Unlike me or thee.
Kindest Regards.
jrwakefield says:
2008: 87.8
2010: 88.1
Diff: 0.3
% increase 0.003% in two years.
Hardley an “eclips”.
—-
That’s actually a 0.3% increase in 2 years not 0.003%.
I agree though, still sounds to be on plateau.
Poptech –
1. Wikileaks. A cable from a US embassy, highly embarrassing and damaging to an important ally, Saudi Arabia, is released by Wikileaks. What to do? Answer – go into damage control. Result – the WSJ item you quote.
So, now, what is the correct interpretation, yours or mine?
If you check my post, you will see that the Wikileaks item was incidental, not central. Concrete information is hard to find on the Saudi fields, because they are rather, um, secretive. But there is a whole heap of information out there, in the form of both opinions and data, which paint a picture that is not quite as rosy as you might have us believe. Ghawar appears to be genuinely in decline, with massive amounts of water being injected and produced. Recently, Saudi Arabia has twice said they will increase production. After the first time, production fell fairly sharply. We are waiting to see, for the second. The data seems to support the view that they can’t increase production, or not by much.
Here is a 2008 WSJ article which could be read either way: http://online.wsj.com/article/SB121002229576468609.html. One point of interest is that there appears to have been a lot of drilling going on in 2007. Saudi production reportedly increased in 2008, as could be expected, but has declined since. Not very encouraging.
2003 10164k bpd
2004 10638
2005 11114
2006 10853
2007 10449
2008 10846
2009 9893
2010 10007
As I said, Saudi production will be worth keeping an eye on.
[It’s midnight here, I’ll try to get to your other points tomorrow]
Poptech, I fully agree that as long as money is to be made, negative ERoEI will be ignored. That can last a long time. However, it will come to an end. Eventually the net energy returned will turn on economics (one can argue that one such event was 2008). The second law of theromdynamics rules supreme. A few people make money while the rest of the society get’s starved for energy.
That’s actually a 0.3% increase in 2 years not 0.003%.
Yes, soon as I posted it I realized I forgot to take the extra zeros off my paste from the calculator. Would be nice to be able to edit a post one makes.
3. Without knowing how much oil the earth contains and how it is created no such claims of “peak oil” can be made.
False. You are making the mistake of thinking that peak oil is geological peak. It’s not. It’s about flow rates. Doesn’t matter what’s in the ground, it’s how fast it can be extracted to meet demand.
4. The production argument is fallacious as real production is currently restrained by governments.
Peak oil is ANY reason that curtails flow rates, including producing countries consuming more of their own oil, and exporting less. It also includes when one country goes around the world making contracts to supply them with oil. That’s what China is doing, which takes less exportable oil off future markets.
2. OPEC did not cause the energy crisis of the 70′s Nixon did with socialist price controls.
It was caused because for the first time in history the US no longer produced enough of its own oil to meet demand. It was the year the US had to import oil for the first time. It was the year the US started to drop in oil production.
Poptech, let me give you an example of how ERoEI works. The Mayan’s could only send out troops so far when rading near by settlements. This is because to feed that army, they had to have runner delivering food. But runners could only go so far because they could only carry enough food for them selves for a few days. So either they have more runners than soldier, not a good idea, or they limit how far they could travel. ERoEI limited how far their army could travel.
As for the money aspect, here is an analogy. You own a coal fired tanker. Coal is cheap, oil expensive. So you haul oil half way around the world. But your ship is inefficient and burns more Joules of coal than you deliver in oil. You make a profit, but over all society has less FF energy available.
Mike Jonas says: January 6, 2012 at 5:15 am
“1. Wikileaks. A cable from a US embassy, highly embarrassing and damaging to an important ally, Saudi Arabia, is released by Wikileaks. What to do? Answer – go into damage control. Result – the WSJ item you quote. […]
If you check my post, you will see that the Wikileaks item was incidental, not central. Concrete information is hard to find on the Saudi fields, because they are rather, um, secretive. But there is a whole heap of information out there, in the form of both opinions and data, which paint a picture that is not quite as rosy as you might have us believe. Ghawar appears to be genuinely in decline, with massive amounts of water being injected and produced.”
It is not “damage control” it is the correct context to what was claimed. What is with Peak Oil theorists and conspiracy theories? They are not referring to proven reserves but projected ones and the speculative argument made by al-Husseini was no secret,
http://www.nytimes.com/2005/08/21/magazine/21OIL.html?pagewanted=all
The “controversy” of Saudi oil production is very much disputed,
Crop Circles in the Desert: The Strange Controversy Over Saudi Oil Production (PDF) (Michael C. Lynch, President of Strategic Energy and Economic Research, 2006)
“It is hard to characterize the discussion about Saudi oil resources as scientific in nature. Much of the technical information cited is either irrelevant (provided without explanation of its meaning) or wrong. Many of the arguments involve perverted logic and are often refuted by information provided by the “alarmists” themselves, particularly in the case of Simmons. The omission of publicly available information raises questions about the sincerity of the work.
The actual evidence presented by the Simmons work suggests that (a) the Saudis are at the beginning of their resource curve, (b) they are developing their fields in a very careful manner, and (c) they have faced and overcome numerous technical challenges. Nowhere is there anything to support his conclusions that their production is going to peak, and historical evidence refutes this hypothesis quite clearly.
It is also interesting to realize that these 12 papers, each dealing with various technical problems in Saudi Arabian oilfields, were presented at a prominent industry forum to an audience of technical experts assembled from all over the world, and not a single question was raised about the overall capability of Saudi Arabia as an oil supply.
Schermer has a simple test of any hypothesis: consider which is more likely, the hypothesis put forth or its opposite? In this case, we are being asked to believe whether it is more likely that a Harvard M.B.A. with no technical background has correctly perceived an extraordinary conclusion from engineering papers, contradicting all other data and observed reality as well as the vast majority of expert opinion, or whether he simply got it wrong. The evidence in this paper shows that what he has said, which can be tested, is demonstrably wrong.
Overall, the arguments made by the various “alarmists” resemble a cable television special on crop circles, where only evidence conforming to the zealots’ beliefs is presented—most of it unquestioningly—even where it is illogical, meaningless, or simply incorrect. What is needed is
greater critical thinking on the part of the audience on both crop circles and Saudi peak-oil warnings.“
Poptech – Your “simple test of any hypothesis” can be applied to climate : consider which is more likely, the hypothesis put forth or its opposite? In this case, we are being asked to believe whether it is more likely that a weatherman with no technical background has correctly perceived an extraordinary conclusion from a semi-retired mining consultant, contradicting all other data and observed reality as well as the vast majority of expert opinion, or whether he simply got it wrong. The evidence in X’s paper shows that what he has said, which can be tested, is demonstrably wrong.
It could have been written by RealClimate.
That doesn’t mean you are necessarily wrong, because this is a different topic with different controversies and different evidence.
Oil (reserves, supply, demand) is controversial. It is polluted by politics and obfuscation. It is very hard to know just what the situation is, especially in Saudi Arabia. I don’t know what the real situation is, and you may indeed be right, but I sense a sea-change.
As I said before, Peak Oil is not ‘running out of oil’. There is physically enough oil to continue increasing production for many years to come. But there are new obstacles, some technical, some environmental, some economic, some political. Maybe Peak Oil will come not with a bang but with a whimper. One day we will realise that in spite of all the oil we still have, we haven’t materially increased production for years and it isn’t going to go on up again. By then, we may be using energy so efficiently, and using so much other stuff (natural gas or whatever), that we don’t need to anyway. As I said before, “Peak Oil & Gas” and “Peak Energy”, as opposed to “Peak Oil”, are many years away – provided sanity returns to western governments.
Note that oil consumption already exceeds oil production by about 6% – that’s a non-trivial amount of ‘other stuff’ already, and it’s only the ‘other stuff’ that can be counted as oil. The fact that this ‘other stuff’ is uneconomic and politically-driven isn’t too relevant to the argument (although it is very relevant to the people of the western world who have to pay for it), because politics is part of the problem.
Mike Jonas says:
January 5, 2012 at 8:42 pm
“We have to work harder than ever to keep increasing oil production, as we always have done successfully in the past, but at some point we must fail, or we may simply choose a different track.
A couple of years ago I would have agreed with you Mike. Your statement today however, is patently false. I’ve already given the Alberta analogy but perhaps I can make it clearer this time.
From 1970 through 2006, a typical well drilled in Alberta (not Oil Sand but “conventional”), would initially produce 50 – 100 bbls/day and ultimately, within a few months, settle in at about 12 – 30 bbls/day for most of the rest of it’s life-span.
Most conventional wells being drilled in Alberta today are coming on at 300+ bbls/day and settling in a month or 2 later to consistently produce 100 – 200 bbls/day for the rest of their life-span.
In effect, the new technologies of horizontal drilling and multi-stage fracing are resulting in a 5 – 10-fold increase in individual well production. This is being accomplished in old, once thought to be played-out fields.
In the old days, Alberta had a maximum conventional production of ~900,000 bbls/day. No knowledgeable person would dispute that Alberta’s conventional oil production will soon exceed 2 million bbls/day. Alberta is on-track to becoming the third largest exporter in the world by 2015 at over 3 million bbls/day (including OilSands).
Extrapolate and transpose these results to geologically similar fields in Russia, Ukraine, France, Hungary, N. Africa, America and The “stans” and you are looking at a powerful up-surge in “productive capacity”.
If Alberta has an additional 2 million bbls/day to export into existing infrastructure in the USA and America can achieve similar results in LA, MS, TX, OK, AR, etc… that means less imports are required meaning less shipping bottle-necks across the big ponds, more resources available to feed growth in Asia.
A few years ago I wrote a well publicized article titled “Alberta Conventional Oil Production. Are The Good Times Really Over For Good?” in which I argued that they indeed were. I have since been proven wrong by the advent of technology. As I make my living from Alberta conventional production and fracing horizontal wells, I’m pleased to have been proven wrong.
Don’t take it too hard when you are also.
jrwakefield wrote:
“You are making the mistake of thinking that peak oil is geological peak. It’s not. It’s about flow rates. Doesn’t matter what’s in the ground, it’s how fast it can be extracted to meet demand.”
“Geological peak” is what most peakers claim. Of course you can make up your own arguments. What’s often quoted as recoverable reserves is 1.2 trillion barrels, or 40 years supply. “Recoverable reserves” are only a small percentage of total oil in place. As new reserves are discovered, and as new technology is developed, recoverable reserve numbers grow. You can go back and look at EIA data 20 years ago, and see that the US had the same 20 million barrels of reserves then. Without “reserve growth”, that oil would have all been used up by now several times over. What is the total amount of oil in place? A recent Scientific American article estimated 12 trillion barrels. As long as there is sufficient “oil in place”, flow rates can be maintained by simply drilling more wells. Or in the case of heavy oil, applying more equipment and labor to the operation.
There are currently vehicles on the market (and many on the road already), that get 70 cents/gallon equivalent running on CNG or electricity. Oil will be substituted long before it “runs out”.
Before I respond to the rest,
Mike Jonas says, “Your “simple test of any hypothesis” can be applied to climate : consider which is more likely, the hypothesis put forth or its opposite? In this case, we are being asked to believe whether it is more likely that a weatherman with no technical background has correctly perceived an extraordinary conclusion from a semi-retired mining consultant, contradicting all other data and observed reality as well as the vast majority of expert opinion, or whether he simply got it wrong.”
Who are you referring to exactly as a “weatherman” and “mining consultant” and what “conclusion”?