Guest post by David Archibald
Mike Jonas’ recent post (http://wattsupwiththat.com/2012/01/03/peak-oil-the-rp-ratio-re-visited/#more-54146) has prompted me to revisit the subject of US energy independence. The best report on the subject of peak oil was produced by the Australian Government and then suppressed by the Australian Government. This is Report 117 written by Dr David Gargett of the Bureau of Infrastructure, Transport and Regional Economics. As I say in this post on Jo Nova’s site: http://joannenova.com.au/2011/12/inconvenient-energy-paper-vanishes-from-government-site/, it is the best report on peak oil I have seen. While Report 117 was issued with an ISBN number, it is only available from a French website: http://www.manicore.com/fichiers/Australian_Govt_Oil_supply_trends.pdf
Figure 13.9 from the report sums it up:
Figure 1: Figure 13.9 from Report 117, page 350
The red line is the discovery rate per annum from 1870. It peaked two generations ago in the early 1960s. The dark blue line is the production history of conventional oil to 2007. It peaked in 2005. The greenish line is predicted production, which is now in permanent decline for the balance of our lives.
The oil price is determined by the interplay of demand, supply and the demand-response to price. The demand-response to price is difficult to model, but it does set a trend.
Figure 2: Oil Intensity of the US Economy 1980 – 2020
Figure 2 shows the dramatic decline in the intensity of us of oil in the economy. Consider that the 1980 figure of 6.1 barrels of oil per thousand dollars of GPD would mean spending $612 at the current WTI price. In 2011, US households spent an average of more than $4,000 on gasoline. That represents about 8.4% of the median household income. At the 2011 oil intensity of 1.1 barrels per thousand dollars of GDP, the current oil price results in a similar percentage.
Figure 3: US Oil Consumption 1980 – 2020
As Figure 1 shows, world conventional oil production peaked in 2005, which is also the year that US oil consumption peaked at 20.9 million barrels per day. It then went sideways for a couple of years before starting a dramatic contraction at 1.1 million barrels/day/year. The demand reduction to date is 4.5 m BOPD from the peak. This is oil that the US used to import but is now available to other countries. If the demand reduction rate established over the last four years continues, US oil consumption will be down to the projected level of US oil production by the end of the decade. The US will then be in the very happy position of being energy independent.
The rate of US demand contraction of 1.1 million barrels/day/year is a bit more than the modelled rate of decline of World conventional oil production, requiring that a high proportion of World demand contraction due to price is in the US even as demand from some other countries rises as their economies grow. This is understandable given the different tax rates between countries. For example, Germans currently pay 1.58 Euros per litre for gasoline. That equates to $7.73 per gallon or $324 per barrel. Another $100 per barrel on the oil price will increase German gasoline prices by about one third.
Figure 4: US Oil Production and Imports 1949 – 2024
Figure 4 puts the projection in Figure 3 into the longer term context of US domestic conventional oil production and oil imports since 1949. The anticipated contribution from the Bakken Formation of North Dakota is also shown. Traditionally, oil and gas production has been from reservoir rocks such as sandstones and limestones that host oil and gas generated from a source rock and migrated from that source rock to the reservoir rock. New well completion technology and sustained higher oil prices now mean that production is economic from some source rocks that have high organic carbon contents. With respect to natural gas from shales, it is estimated that 400 TCF of gas will be able to be produced from shales in the US. In terms of energy content, that is equivalent to 67 billion barrels of oil, which in turn is 21 years of the projected 2020 US oil consumption rate of 8.5 million BOPD. The Bakken Formation will provide a further 6 billion barrels of production, giving another 2 years of supply at the 2020 demand rate.
Figure 5: US Natural Gas Production 1900 – 2040
This figure assumes that production of shale gas rises from the 4.35 TCF in 2011 to a plateau production rate of 10 TCF per annum. The average breakeven production cost of US shale gas is calculated to be about $5.20 per thousand cubic feet. In energy content terms, this equates to an oil price of $31 per barrel. US shale gas production is almost wholly unprofitable at the current gas price of $2.99 per mcf. The drilling is being conducted to secure acreage positions.
Figure 6: Potential Louisiana Gas Production Profile 2011 – 2041
This figure is derived from Kaiser, M.J. and Yu, Y., “How Haynesville shale will lift Louisiana’s gas production profile” Oil and Gas Journal, November 2011. It is included to show the short term impact that shale gas drilling will have regionally as a result of the more profitable formations being drilled out first. This production profile assumes that 800 wells are drilled in the Haynesville Shale annually for ten years with an average gas recovery of 3.4 BCF per well. Plateau gas production of 2.44 TCF per annum equates to 1.1 million barrels per day on an energy equivalent basis. On this basis, the Hayneville Shale in Louisiana will be producing about 20% more energy at plateau from 800 wells per annum than the Bakken Shale at plateau from 1,000 wells per annum.
Figure 7: Payback period relative to oil price for CNG vehicles at the average US shale gas production cost
Natural gas in the US used to trade at the No 2 fuel oil price in energy terms, and was thus linked to the oil price. At $2.99 per mcf for natural gas and $102 per barrel for oil, natural gas is currently 18% of the price of oil in energy content terms. That will drive the adoption of compressed natural gas (CNG) vehicles. Assuming an increased capital cost of $5,000 for an OEM CNG vehicle (retrofitting starts at $12,000) and a natural gas price at the average for future US shale gas production of $5.20 per mcf, Figure 7 shows how the payback period for that capital cost is projected to fall as the oil price rises.
Back on the subject of Report 117, why did the Australian Government suppress such a well-researched document? I believe that Report 117 tells a rather inconvenient truth for a Government that recently legislated a carbon tax, which in turn is based on things being rosy in the garden. Please don’t laugh too much, but one of the supposed reasons for the tax was to set an example for the rest of the World to follow. At the same time, the Australian Government is well aware that it is not meeting its oil stockholding requirement under the International Energy Agency treaty. With rapidly declining domestic production, the Government would have to spend $300 million per annum to fulfill its obligation.
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For clarity, see: What is Peak oil?
“The term Peak Oil refers to the maximum rate of the production of oil in any area under consideration, recognising that it is a finite natural resource, subject to depletion.”
–Colin Campbell
A finite resource cannot be produced forever.
While they can be converted to oil/gasoline/diesel fuel, Heavy Oil, Bitumen (aka Oil Sands), Shale, Coal etc. are not “oil”. Each has its own peak production scenario. It is equivocation to claim shifting to these alternate hydrocarbons in any way negates the peaking of conventional light oil.
@ur momisugly Kum Dollison says:
Sure your 7 year old knows there is no such thing as a bottomless milkshake, because there is no soda jerk standing there continuously refilling his glass.
Why is there this assumption that the “making” of oil mysteriously stopped several million years ago? Reason tells us it never did and never will as long as dead things continue to fall upon the earth. Can we use it up faster than it forms? I can’t answer that question but, I seriously doubt it considering the advances in combustion we can expect. Further, I expect a swing to a hydrogen based economy long before any phantom “peak oil” state is reached. Nevertheless, there will always be copious sources of underground fossil fuel. You can take that to the bank!
Another post that tells us starting tomorrow, we will run out of oil.
This same song and dance has been presented as proven for 50 years. And for 50 years, it keeps getting disproven.
“I think we are on the cusp of some really fanastic game changing events for the betterment of man kind”
I remain pessimistic about whether our “leaders” really care about mankind, never mind its “betterment”.
If you take a step back and look at things now you will see that betterment is not on the “to-do” list.
Reducing mankind to wattle-and-daub huts is more likely.
I find it funny that someone named “kaboom” is pushing CNG.
David-
Thanks for an interesting post. I have a question about Figure 2. Was the GDP adjusted for inflation? In other words was the GDP in 1980 or some other year dollars? Since prices as reflected by the CPI, roughly doubled between 1980 and 2000, it would make some difference in the slope of the curve.
Really interesting conclusion that we could be “energy independent” by 2020.
Why do all these analyses only look at “conventional” oil?
Oil sands. In Canada and Venezuela. They change the whole picture, don’t they?
Kum Dollison says:
January 4, 2012 at 10:11 am
Production follows demand. Over the period of 2005 – 2011, the world’s economies have been in pretty bad shape.
If the only thing you look at is production numbers, you will never get the right answer.
Here in the US we’ve also been afflicted with an ideologue who has been making it harder and harder to increase production.
Peak oil? Really? Do you really want this site polluted with this conspiracy theory garbage?
The leading image was quite telling. “Here is current production. You see it is trending upwards. Lets extrapolate into the future. BAM! We predict an instant downturn.” That looks like EVERY SINGLE PEAK OIL GRAPH FOR THE LAST 20 YEARS. Every single one of those predicts sudden and immediate downturns. And it doesn’t happen.
I have a feeling that “peak oil” and fusion power are related. Both are currently projected to happen in the near future, just as they have been for decades.
“Why do all these analyses only look at “conventional” oil?”
Mostly because they are more interested in selling a story, than telling the truth.
Excellent article, Ray. Thanx for posting it.
There is much confusion with these sorts of analyses and I’ve yet to see anyone acknowledge how hydrocarbon “reserves” are calculated. There are about 8 internationally operative agencies that set requirements for the estimation of reserves. The SEC is one of them, and other international securities agencies get involved too. As well, the engineers who make these calculations are subject to their appropriate professional affiliations for potential censure, as well as by regulatory agencies like the SEC.
Reserves calculations carry with them current assumptions on the price of the commodity along with the presently anticipated cost structures for recovery etc. So, any newly discovered fields may take some time to understand field permeability and porosity, along with engineering grade estimates of the costs of production. Hence, you never get an over abundance of enthusiasm with the corporate statements of oil companies, due to the oversight and penalties that can be applied for being too optimistic. Most companies therefore tend to be conservative in their annual estimations. As annual commodity values and cost structures change (either up or down), then companies are forced by regulation, to change their reserves status for annual reporting purposes.
This annual figure also doesn’t mean that’s all there is at that time – but it does mean that’s all they’re willing to stick their necks out for, given the regulatory, financial and professional repercussions that can follow publically reported “mistakes”. The US has a penchant for lawsuits launched against publicly traded companies that may be considered to have induced securities trading with allegedly erroneous information from which the market purports to derive share price valuations.
If you look at large oil companies annual financial statements, you invariably find that they replace or enhance their reserves virtually every year, no matter how great their production rate.
Secondly, the advent of new technologies, is usually overlooked in the ability to wring the last barrel from a producing field. Companies do not easily abandon reservoirs if they can squeeze more out over time with new methods because of the double whammy of losing the production and taking on the environmental closure costs.
And finally, there are huge areas of permissive rocks for potential future hydrocarbon production that are denied to exploration and production through environmental restrictions imposed by various governments for whatever reason. The idea of peak oil is a mistaken concept from the assumption of conclusions derived from incomplete and erroneous information. Imposition of onerous restrictions may bring it to bear, but the operation of human ingenuity and the free market otherwise would keep it from happening.
Production follows “Price.”
TheGlobal “Price” of oil has doubled since 2005 (apprx. $55.00/bbl for Brent to $110.00,) but Global Production was slightly less in 2011 than it was then.
And, from an American/Euro Centric point of view, it’s worth noting that an oil price that puts Europe into recession, and significantly slows the U.S. economy, China, India, and several of the other “emerging” economies chug right along. (in fact, the oil “Exporters” such as Saudi Arabia Boom – thus using even more oil.)
This subject evokes a visceral response in a lot of people, because, quite simply, it scares the loving beejeepers out of them. It wouldn’t if they studied it a bit. We Have mitigations, but we need to get busy on them. This is a case where ignorance, most assuredly, will not lead to bliss.
Kum Dollison says:
January 4, 2012 at 10:11 am
The world peaked? Magical thinking?
No, the answer is simple: Nuclear energy.
I believe two large oil fields were recently discovered off of Brazil, one off of the Falklands Islands, and the field where Deepwater Horizon blew out (and is currently off limits to drilling) is supposedly huge as well.
One of the problems with the Deepwater Horizon rig was that the volume of oil and gas and the pressure of it was just amazing.
Here’s my guess as to what the future would have looked like had this analysis been done right after the 1975 oil embargo:
http://oi44.tinypic.com/x27wb8.jpg
When did WUWT become infested with Paul Ehrlich disciples? When we learn how to create and destroy energy and matter, then we can talk about peak this and that. Until then, we’re just moving stuff around.
But, concerning our present day capabilities. A show of hands for all the people that believe we’re extracting as much oil out of the earth as we can. Delusional. The BP spill occurred because we’ve limited the amount we’re going to allow to be extracted. The Keystone pipeline is being discussed because we’ve limited the places we wish to operate in. These things aren’t occurring because the earth has run out, they are occurring because of the choices our politicians are making.
Another show of hands from people who believe our energy sources will remain static over the next century. More delusion. We have more options today than we did just a few years ago. A few years from now we’ll have even more. If and when one source becomes less economical, we’ll change.
Another show of hands from people who believe our means of extracting fuels will remain static in the next several decades. More delusion. It isn’t that we can’t keep up with demand, it is because we choose not to. The discovery of more oil, gas, coal, the ability to extract other gases and liquids continue on a pace nearly equal to Moore’s law.
Finally, all of this worrying and gnashing of the teeth because we may run out of this or that. So what? We haven’t even come close to utilizing the potential energy around us. Indeed, even in the air that we breathe or the water which we drink, we have an abundance. We can do more with hydrogen than just make bombs, and we can do more with helium than just make balloons float. And while we’re at it, we haven’t even scratched the surface of nuclear energy utilization. There are, of course, many, many, more examples of untapped fuels and energy.
Ever wonder why, even after the billions and billion, if not trillions, being sunk into alternative fuels and energy they haven’t taken off? Because we don’t need them to and it causes more difficulties than it solves. If and when these situations change, then, too will the earth’s population change their utilization of fuels and energy. The whole point of my message is, don’t worry about what we’re using. Necessity and the path of least resistance wins the day. Always. There’s not a damn thing we can do about it and if we all gave it some thought, there’s not a damn thing we should do about it. What we should do, is go about the business of concerning ourselves with the condition of our fellow man.
So much of what happens in markets is psychological and irrational in nature. Peak oil alarmism is psychological in nature and I notice that its adherents are very often the self-same people who are behind the obnoxious and overreaching Federal lockdown of state resources and raw materials.
A little off topic anecdote, provided for the amazement, wonder and shock and awe to some analysts: without a “peak book” movement, and without any gov’t coercion or favoritism, and without any experts to manipulate figures, the small devices called kindles and ereaders were conceived, designed and marketed. Now many people you see walking down the street are carrying a room full of books and periodicals on their person without your being able to even detect it.
David-
On rereading your post, I see a conclusion that the demand for CNG vehicles will increase.
IMO CNG is not an good alternate fuel for vehicles. Natural gas is ideal for commercial and residential space heating, water heating, and cooking. That demand will increase. I not sure about CNG for vehicles being anymore than a niche market .
Back in the 1980’s when alternate fuel research was beginning to receive a lot of attention, I worked for an organization that was testing CNG vehicles for the government. One of the things I looked at was how much domestic natural gas was available. It was clear to me that there was not enough doestic natural gas to supply a significant part of the vehicle fleet. Currently, reading about the newly recoverable natural gas finds, I thought that maybe there was enough natural gas. Your Figure 5 convinced me otherwise.
The other problems with CNG are all engineering problems. It is more difficult to meter a gaseous fuel into an engine than a liquid fuel. This negatively affects both fuel economy and emissions. Then there is the “C” part of CNG. Natural gas must be compressed. If I remember correctly the CNG tank pressure is 3000 psi. During the mid-eighties there was at least one pretty severe explosion in a bus barn involving a leaking CNG tank on an experimental bus.
If you can’t drill because of liberals rules, does that effect the peak oil myth?
One comes to mind, we gave all our low sulfur coal reserves to the wild horses under Clinton…. So we could buy low sulfur coal from his friend in Indonesia, Riady.
How about coal to oil conversions? Does that have any effect?
How about frakking? And those myths?
Remember Jimmy Carter… “the world will out of oil by the year 2000”
I understand that oil can be described as “light” to “heavy” and “sweet” to “sour”.
How does “unconventional” oil differ from “conventional” oil?
And we were all taught that oil was based upon the compressed metamorphically altered dead vegetation and animal life whereas the Russians figured out that oil is an intrinsic result of deep earth processes. And who of those is still teaching peak oil?
While I understand the analysis, I am always leary of graphs like 13.9 which have the critical inflection at “Today”. This means the entirety of the prediction is future with no track record other than the conformity to date. As they say in finance, so in computer modeling, “Past performance is not predictor of future gains [or losses].
Extraordinary claims require extraordinary proof. I await your proof of future conditions which would make this true.