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.
Hoser said at January 4, 2012 at 11:13 am “the answer is simple: nuclear”
How true. See this paper from Los Alamos in 2007 http://www.lanl.gov/news/newsbulletin/pdf/Green_Freedom_Overview.pdf is just a sample of what is feasible. In it they state:
“We performed economic analyses on a partially optimized baseline concept based on a single Gen III PWR to provide power for the process. The analyses estimated a capital cost of $5.0 billion for an 18,400-bbl/day synthetic-gasoline plant and $4.6 billion for a 5,000 tonne/day methanol plant. Nuclear power accounts for more than 50% of the total plant capital investment. The estimated operating cost is $1.40/gal for synthetic gasoline and $0.65 for methanol. Because the capital investment is high, a profit margin of $0.50 per $1.00 of sales or more is needed to yield an acceptable return on investment.
Therefore, the price of gasoline at the pump must be about $4.60/gal, and price of methanol at the plant gate must be $1.65/gal for these base cases”
As Hoser implies. who really cares about what’s in the ground. We’ve had the technologyto manufacture as much completely pure hydrocarbons as we need – virtually forever.
The issue should be how best to build manufacturing capacity which will give us cheap energy. Even nearly zero-cost energy. Worrying about peaks and fretting over things like oil is just a non-productive exercise.
The problem with the peak oil myth is the interplay of politics and misplaced ideas on how economys work. Oil discoveries in the 70’s were spurred on by the Saudi’s trying to maximize the price on oil by restricting production. This false price led oil companies to invest in drilling all over the world. It took several years for this massive oil production to hit the pipeline, but when it did, the price of oil went into a downward spiral that lasted 20 years. During this 20 year period, there was no price incentive to explore.
The supply and demand curve remained true but the peak oil curve went off the rails.
http://www.csun.edu/~vcgeo005/Energy.html As long as we keep looking, we will keep finding. The only question is how much we decide to lock up (eg: ANWAR) and how much we find that is too expensive to pull from the Earth. Other than that, oil and natural gas will continue to be available to us. The only real question is how expensive Government can make it compared to how inexpensive technology can recover it.
patrioticduo says:
January 4, 2012 at 11:51 am
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?
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lol, no way, dude! Oil patches were just ancient burial grounds for the plants and animals for millions of years. Something about tree’s and grass’s natural instincts to migrate to these burial grounds right before they died to mix with the dinosaurs, (who had the same natural instinct) to form oil! That’s why we call them fossil fuels, dontcha know? 🙂
I am an advocate of inexpensive safe energy in any form.
The cheapest and safest utility energy is hydro electric followed by hydrocarbon combustion. Go Hydro!!! Until all the useful water-potential-energy sites have been used up, keep building dams and transmission lines. Where hydro is impractical (cars and buses and locomotives and ships and some geographical locations) coal-oil–gas is the way to go!!!
I have a real preference for nuclear power for utility based energy.
This would provide safe cheap and strategically preferred energy to north America. We have lots of uranium 235… Canada is the largest producer of the worlds uranium at 22%.
Lest improve our energy independence and build nuke plants to power our cities. That way we can limit our need of middle east oil and financially starve the idiots in IRAN and Saudi Arabia and Venezuela, and Nigeria back to the stone age. France did it.
Canada is an enormous pantry of safe clean energy waiting to be used.
Ya know, I’ve never seen a flying hydro dam, they must be an impressive sight.
ha!! patriotic duo… so true…
Planes… that is what kerosene was made for!!!
For those brave enough to look at the actual oil export data, see:
Mazama Science – OilExport
About 54 of 69 oil producing countries have already peaked! The total USA production drop off is not as sharp as the 48 states production because of starting production in Alaska and in the Gulf of Mexico. Note especially the rapid increase in imports by China and India.
In 2011 gas and other fuels were top U.S. export
http://www.sltrib.com/sltrib/money/53206814-79/billion-fuel-gasoline-america.html.csp
As a young engineer in the oil industry 40 years ago I was told by a wise old engineer that the industry was wonderful, but that in another 10 years oil would start to run out. And every 10 years the story has been the same. When the Iran/Iraq war occurred, oil jumped to $44 per barrel, and experts predicted that by 1985 oil would be $100 per barrel – in January 1986 oil was back to $10 per barrel. Now it’s back up to $100 per barrel.
Today there is no doubt that even with high prices, oil is getting harder to find, hence the need to go offshore into deeper water. It would seem that the US is well past its peak production – for example, Texas peaked in 1970, and is now producing only 1/3 as much. Alaska peaked in 1989 and is now down by 50%.
Australia’s dependence on oil imports is projected to continue to increase as domestic consumption increases and production continues to slowly decline.
Oil is getting harder to find. There must be a peak to oil production.
But as Danish physicist Niels Bohr (1885-1962) is quoted as saying: “Prediction is very difficult, especially about the future”.
I’ve been looking at that graph for over half a century, only the numbers along the bottom seem to change, they get bigger every year.
Nice bit of methane, anyone?
http://www.spiegel.de/international/world/0,1518,523178,00.html
Don’t omit the second page – there’s something very interesting on it.
Re: Crosspatch
Thanks, and now we need someone to post the map of oil fields in the Gulf of Mexico that shows the dramatic difference across the territorial boundary between U.S. waters and those controlled by Mexico. It looks about like North Korea at night except it is oil fields or lack thereof. Going back to HS science teacher musings, if a tree falls in the forest and there is no one there to hear, does it make a sound? In this case if there are no clusters of identified oil fields on the Mexican side of the line, does that mean they do not exist? Now take it a step further to Putin’s oil initiative in the Arctic waters. That will dwarf Alaska by the way, but we must treat it as some kind of dark energy until it becomes obvious to bloggers, reporters, and policymakers.
A report that talks about oil reserves, but omits unconventional oil (oil sands) is nothing more than a bad joke. It’s equivalent to producing a report on world population, but omitting the populations of China and India. Conventional oil reserves in North America are 25 billion barrels (mostly in the U.S.A.). The Alberta oil sands alone have reserves of at least 175 billion barrels (the minimum figure accepted by everyone), and as much as 2 trillion barrels (the figure quoted by the CEO of Shell Canada).
Kum Dollison says:
January 4, 2012 at 11:09 am
Production follows “Price.”
—
You assume that price is an independant variable.
Price is determined by the interplay of demand and production. Both current and projected future.
What we could do…“The Energy Information Administration (EIA) projects that daily petroleum production will rise 18 percent between 2010 and 2035 and that daily production from offshore wells (in the lower 48 states) will rise by over 40 percent.4 EIA also predicts that offshore drilling will supply significant increases in natural gas production. While total natural gas production will rise 16 percent over the same period, offshore production of natural gas will rise 63 percent, at which time it will be nearly a fifth of total domestic production. The reserves of petroleum are projected to rise by 5 billion barrels—even after extracting 57 billion barrels over the period 2010–2035. This happens because improvements in technology and price increases make previously uneconomic deposits economically viable. In short, petroleum can be a major energy source for many decades. Consequently an offshore drilling ban’s impact on the U.S. would be felt for decades. For example, between now and 2035 an offshore drilling ban would:
• Reduce GDP by $5.5 trillion,
• Raise the average consumption expenditures
for a family of four by $2,381 per year (and
exceeding $4,000 in 2035),
• Reduce job growth by more than 1 million jobs
by 2015 and more than 1.5 million jobs by 2030,
and
• Increase the total expenditures for imported oil
by nearly $737 billion.
These facts do not include additional development such as Anwar., or shale oil deposits.
No, Production probably Won’t start “plunging,” tomorrow. Fields are being reworked, and new fields come online every month, or so. Russia has been doing a Lot of infill drilling, and so have the Sauds. It’s a big old world, and there’s a lot of oil left.
However, BP, EIA, and the other “big boys” that have looked at it, place the decline rate of present fields at around 5%/yr.. That means it takes somewhere a little north of 3.5 Million bbl/day of new oil, annually, just to keep up with decline from existing fields. This is no small order.
A large field such as The North Sea Field can hover around the “peak plateau” for five, or six years before starting a serious decline. It seems logical that the global peak plateau could go on for considerably longer than that (we’ve been at these numbers, approx. 73 million bbl/day C+C – Crude + Condensate, for seven years, now. It seems quite likely that it could be 2015, or even later, before we “fall off the edge.”
Or not.
Penn State decrees that scientific skeptics are unethical:
http://rockblogs.psu.edu/climate/2011/12/an-ethical-analysis-of-the-climate-change-disinformation-campaign-is-this-a-new-kind-of-assault-on-h.html
Hubbert’s prediction for the US isn’t the only one he produced. Leaving out the inaccurate ones gives the false impression that the model produces highly accurate predictions:
“The popularity of the approach stems partly from the fact that Hubbert’s 1956 prediction of lower-48 oil production was extremely accurate, even to this day. However, this is misleading, as his other three predictions were highly inaccurate. His forecast of US gas production in 2000 was 65% too low and his world oil production forecast for 2000 was 50% too low. Even production in Texas is now about twice the amount he forecast. Indeed, given his estimate of URR in Texas, production should have ceased recently as the resources were exhausted. Since Texas was a mature, heavily studied province even in 1956, this error speaks to the fallibility of the method. Other Hubbert models exhibit the same flaw. One group at the US Department of Energy produced a series of Hubbert-style production profiles in the early 1980s (for example, US Department of Energy, 1983). For non-OPEC countries, they produced a prediction for Southeast Asia that has proven very accurate to date, but for non-OPEC South America and Egypt, their forecasts were much too low. Similarly, Root (1991) and Masters et al. (1990) also produced forecasts with near-term peaks for regions, most if not all of which are clearly too pessimistic. The most egregious errors have come from C.J. Campbell, who has repeatedly predicted a near-term peak for the world, not just non-OPEC or non-Middle East (Campbell, 1989; Campbell, 1991; Campbell, 1997) even though most in the industry have difficulty finding signs of near-term scarcity. His 1989 prediction that world production had already peaked and prices would rise to the $30–50 range in the early 1990s was clearly wrong, and his 1991 book produced forecasts for non-OPEC countries that were 10 mb/day too low (net) by 1999.” …
“There appear to be two primary errors in the design of these models. First, Hubbert-style forecasts take URR as a static variable when it is dynamic. This is a serious error. URR refers not to total resources, which is arguably a fixed amount, but to the proportion of the total which is recoverable. It is logical that this should increase over time, as technological advances raise the proportion of a field which can be recovered economically and as other changes (additions of pipelines, for example) lower costs and thus make it economical to produce smaller and/or deeper fields and less productive wells.” …
“Some modelers have argued that URR can be estimated using so-called “creaming curves” which show discovery size by companies or in a nation, such as the UK, to demonstrate the asymptote3 (Laherrere, 1999). However, this is misleading because they compare current estimates of field size for discoveries of many different periods. This is like comparing acorns and oak trees; naturally the latter are bigger, but that doesn’t prove that the former are destined to always be smaller. Using a given data base of field sizes seems to always yield an asymptote, but the asymptote moves over time.” …
“…there is another major mis-specification. Production depends not just on discovery, but the amount of capacity lost due to depletion effects. As a field is produced, its productive capacity declines—all else being equal (that is, if no additional drilling is done, or enhanced recovery put in place). Many of the pessimistic models appear to be showing a very high rate of production decline for existing fields, and some such as Pursell (1999) explicitly argue that depletion is now so great that offsetting it—not raising capacity—is the major challenge to the industry. But careful study suggests that the impact is being overstated, as either the rate of depletion is overstated or the ability to offset it is understated. In reviewing oil production forecasts for various nations, Lynch (1990) was able to derive the forecasters’ estimates of production decline rates for existing fields and found nearly all showed an annual drop of 10–20%, close to the absolute maximum (that is, with no further investment). Since all but one of the production forecasts proved to be much too low, the implication is that either additional investment slowed the decline of production in existing fields, newer fields were offsetting more than expected, or more probably a combination of the two.”
From “Forecasting oil supply: theory and practice,” Michael C. Lynch: http://www.aspo-australia.org.au/References/Lynch-july-02.pdf
To understand the increasing constraints of oil exporters, see:
Burning Oil to Keep Cool The Hidden Energy Crisis in Saudi Arabia, Glada Lahn and Paul Stevens, Clatham House, December 2011
Hey, did anything *else* happen between 2005 and 2011 that might have affected economic activity?
If you think real hard, you might come up with one or two things.
Yes, someday the world will end, but that doesn’t make the raggedy man with the sandwich board that says “the end of the world is nigh” a prophet.
This is World Oil ( C+C) Production for the last 10 years, according to “Joint Oil Data Initiative” (JODI.)
http://s574.photobucket.com/albums/ss189/Darwinian1/?action=view¤t=JODICC.jpg
In fairness, EIA shows the last 7 years as flatter; but, in cases, like Texas, where there was a super-accurate 3rd party keeping tabs (The Texas Railroad Commission – TRC is considered by many to be the most efficient, accurate, hands-on, regulatory agency in the world,) they agreed with JODI, and not with EIA.
In any case, global production has been, at best, flat, and with the emerging economies like China, and the Oil Producers like Saudi Arabia, continuing to Consume more, and more, all the time, the trendline for Oil Prices is Not flat, or Downward, from here.
Sorry but Peak Oil has been well debunked. The Brazillian offshore discoveries, plus the recent technological improvements that have allowed the commercialization of the Bakken Shale, Athabascan Oil Sands, etc have expanded proven reserves by a huge amount, more than the original size of the Saudi reserves.
Given the artificial curtailing of oil exploration and production in the U.S. and the Gulf by the current administration, and given the current doldrums the U.S. economy is in, how can anyone talk about peak oil, U.S. oil consumption or production?
old engineer says:
January 4, 2012 at 10:49 am
Figure 2 is in 2010 constant dollars.
Al Gored says:
January 4, 2012 at 10:50 am
It is going to be a slow ramp up of the Canadian oil sands. It is a capital intensive business and it will chew a lot of natural gas. Not much hope should be held for a Venezuelan ramp up.
Brad Peterson says:
January 4, 2012 at 10:54 am
US conventional oil production peaked 40 years ago, as predicted by Hubbert. Why is the oil price now $103/barrel? Or do you have a conspiracy theory to explain that?
James Sexton says:
January 4, 2012 at 11:27 am
What you say is true at one level. In the long term, when the deep oceans have swallowed up all the carbon we have dug up, humanity will run its mobile fleet on liquid ammonia at the equivalent of $4.00 per gallon, assuming nuclear is $0.03 per kWh.
The post above covers the next ten years. A friend of mine keeps telling me,”If the US went to German vehicle efficiency, they would halve their oil consumption.” And halving oil consumption means that the US wouldn’t have to import any. No need for capex on CTL plants, GTL plants or anything else.
old engineer says:
January 4, 2012 at 11:39 am
We have better electronics these days. The CNG capex premium is significant, but natural gas is now ubiquitous and doesn’t need refining.
Philip Bradley says:
January 4, 2012 at 1:01 pm
And the oil that was refined to produce those exports was imported. Oil refineries are expensive. Nobody is going to build more of them if there is not more oil to refine. In effect, the US isn’t going to use the oil that comes down the Keystone pipeline. It will be refined in Texas and then exported.
Kaboom says:
January 4, 2012 at 9:32 am
Thanks for that Kaboom. I would like to see someone like Volkswagon produce a graph similar to my Figure 7 using their data.
The maximum average annual price of oil (inflation adjusted) occurred in 1980. The peak daily price, also adjusted for inflation, occurred in 2008. Are we at or near peak oil? I have no idea but I’m not worried. What I do know is what Dr Milton Friedman said:
“Inflation is always and everywhere a monetary phenomenon.”