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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Why is bread $1 a loaf (the cheap stuff; and that just went up to $1.29 a loaf thank you very much) and a can of soup on the order of a buck ?
Can you say “inflation”?
What is the real cost of oil, in say, Gold?
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There are few problems with these sorts of predictions. One is that no one can predict the future with any reliability. Another is that past performance is a predictor of future performance. A lot of people have lost a lot of money with that sort of thinking. A third is that human behavior is often assumed to be unchanging. Humans change and adapt to meet current conditions. Almost any future scenario for oil is possible.
If enough people make a prediction, a few are bound to be right, but those few are likely to be wrong the next time.
Matt Ridley doesn’t agree with David Archibald
http://marcellus.psu.edu/resources/PDFs/shalegas_GWPF.pdf
The video I posted was not complete, sorry for that.
Here is the original presentation.
Matt Ridley ‘s presentation starts at 20.28
R. de Haan says:
January 4, 2012 at 6:27 pm
Nice ‘egg head’ recitation of the advantages of CH4 vs coal, et al, but, there is the matter of convenient transport CNG for passenger vehicle use, the retrofitting of existing vehicles et al.
He doesn’t explain the economics of that process.
Say, Ron, do you ever use the trunk in your present vehicle, for say, grocery transport? Kiss that function goodbye in the case of fueling via CNG …
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Merovign: Constrained oil production caused oil prices to more than quadruple which in turn caused the economic chaos you refer to. See economist James Hamilton‘s paper: Historical Oil Shocks.
mikelorrey – Kindly enlighten us with references as to the alleged debunking. The data clearly shows constrained production while domestic production in oil production countries is increasing. Consequently net exports are declining in many oil exporting countries. Yet China and India are rapidly increasing consumption and oil imports. Consequently the Available Net Exports available to all other oil importing countries is declining. Prepare!
Is it my imagination, or do these graphs look to be almost Mannian in their hiding of stuff? For one, starting Fig. 3 in 1980 hides some important trends in the 1970s similar to 2008+ that didn’t continue. Fig. 1 looks like it’s had the living daylights smoothed out of it to make a point, making it look all pretty and predictable. Show the raw numbers too.
Speaking of trends….
“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.”
Yes, and if my uncle had breasts he’d be my aunt. There was a stinkin’ recession going on that drove down demand, too, not just cost. Anyone remember when gas in the US dropped well below $2/gal at the start of the recession? If it were purely cost-driven, gas would have stayed nearer $4/gal even while demand fell off.
Bah, this post has to be one of the worst ever on this site. Cherry-picking, hiding, and smoothing worthy of a Team effort. Bring some real data (and show your prediction work!) and try again.
Your figure 2 is not clear on whether the US energy intensity is based on US production or US consumption (more likely). However, neither option would give a true picture.
Especially since the 70s, the US has been running huge trade deficits. Yes, a significant part of that trade imbalance is for energy imports, but not all. To the extent that the trade imbalance is due to the foreign manufacture of goods consumed in the US, the energy used in the production of those goods would need to be included in the energy intensity figure.
Including this vicariously (?) imported energy would show a very different graph from figure 2. It is only through the kindness of stangers that we are able to pay for the goods (including the energy spent to produce them) while exporting rapidly depreciating paper.
Once those kind strangers wake up, the US will not “happily” be energy independent.
Here’s Global Oil Production for the last 7 years (during which time the global price of oil has doubled.) It’s from the EIA.
http://www.eia.gov/cfapps/ipdbproject/iedindex3.cfm?tid=50&pid=57&aid=1&cid=ww,&syid=2005&eyid=2011&freq=M&unit=TBPD
As a long-time reader of WUWT, I have been impressed with the quality of the scientific and historical climate discussions that have been posted here. But on this issue of peak oil I am appalled at the many ill informed comments that have been left here. I have spent 32 years as an analyst of oil reserves and resources. In those years, the evidence has been accumulating that a peak in world crude oil production will occur. The only questions are when, and what can we do about it. World conventional crude oil has been pegged at about 74 million barrels per day for six years, during which there have been huge price increases. These have helped to stymie the recovery of the U.S. economy, but they have not led to large new oil supplies. If not for the recently gained production of about 14 million barrels per day of natural gas liquids, there would already be shortages of transportation fuels. There is a pressing need to be developing new oil fields and converting to natural gas as a transportation fuel. A just-in-time inventory system for most businesses will not remain viable without truck fuel. High fuel prices and shortages will be big-time sand in the gears of our economy. Coal and nuclear energy won’t help here. As one writer noted, it’s a damned poor time for magical thinking.
“Many of the authors warning about “peak oil” have no expertise in either the oil or mineral industries10 or in the specialized practice of forecasting. 11 Although there appears to be a large body of publications, the bulk of what is being written consists of nothing more than anecdotes and quotations from the works of others.”
“What is noteworthy about this body of work is that it has been wrong repeatedly; the theories underlying it have been demonstrated false and largely abandoned by their proponents; and much of the research is shown to rely on unproven assertions. Rather than extensive research, simplistic extrapolation of historical curves is used, even though the method is not based on sound theory and clearly does not provide reliable projections.12 Back Off—I’m a Scientist: A favored tactic is to include technical information, implying the writer has a technical background that serves to intimidate many readers, including those in the general press.13 Being trained as a political scientist, I would hardly argue that “lay” experts cannot understand technical issues. However, it is telling that the great bulk of these articles appear in non-refereed journals or solely on the Internet.”
From “CROP CIRCLES IN THE DESERT: THE STRANGE CONTROVERSY OVER SAUDI OIL PRODUCTION,” Michael C. Lynch
http://masterresource.org/wp-content/uploads/2008/12/crop-circles.pdf
Hmmm – and the SHORTAGE 😉 of natural gas has caused the price to go from $8 to $3 and unlikely to break $4 per million BTU any time soon /sarc off – Here are some of the reasons:
http://www.forbes.com/sites/kitconews/2012/01/04/2012-outlook-crude-oil-prices-could-rise-this-year-but-prices-could-be-very-volatile-2/
I have an oil well on my farm that has been producing since 1952, and they are still drilling more and more around me as technology changes. Yes, oil and gas will run out one day, but I do not fret for my grandchildren or theirs.
bones says:
January 4, 2012 at 8:33 pm
As a long-time reader of WUWT, I have been impressed with the quality of the scientific and historical climate discussions that have been posted here. But on this issue of peak oil I am appalled at the many ill informed comments that have …
++++++++++++++++++++++++++++++++++++++++++++
I don’t disagree that resources are limited but as oil prices rise it will again be economic to convert coal to fuel like we did in WWII and previously. There are still lots of energy options provided we are allowed to use them. The extent of the coal beds in North America is extensive and new technologies to exploit them are being developed all the time. There is a lot of carbon based energy available and we will use it until we discover something better.
1979-1981 what happened then? Inflation of the worst kind, leading to job loss and less demand for oil. And after that the use of oil increased again. In 2008-2012 there’s been a sweeping world recession that has limited consumption. Do you think the future will follow the 1979-1981 and demand will increase as the economy recovers? Everything from 2012 forward is just models and guesstimates. It’s the same old every year. Peak Oil, peak CO2, we’re doomed, doomed I say!
BTW it was +17c in Calgary today, should I worry about AGW?
Sorry, but Fig 1 leaves me entirely sceptical that it is based on real data rather than supporting an agenda. Furthermore it looks nothing like the US EIA data world crude production 1995-2011 given in the link by Kum Dollison.
I call b.s. Maybe the Oz report was suppressed for good reason.
bionuclearguy says:
January 4, 2012 at 8:42 pm
Thanks very much for the link to Michael C. Lynch’s most excellent paper, which demolishes most of the alarmist”s hand-waving about declining Saudi production:
CROP CIRCLES IN THE DESERT: THE STRANGE CONTROVERSY OVER SAUDI OIL PRODUCTION kept me up waay past my bedtime, but it is well worth reading in its entirety. Peak Oil falls into the same category as CAGW: BS meant to baffle and frighten the masses.
Yeah; money quote from page 1:
But page 2 goes on about sequestering CO2 into the hydrates to displace the methane. Inanity. Leave the *#$(@ur momisugly CO2 where the plants can continue to benefit from it.
January 4, 2012 at 4:41 pm
”If the US went to German vehicle efficiency, they would halve their oil consumption.”
The US could cut oil consumption even more if all 300 million lived in a country half the size of Texas.
Yes, conventional oil peaked 7 years ago. So what? So now we have even more liquid fuel production than ever before, because we also have tar sands, biofuels, gas-to-liquids, etc. And those poor buggers that pay for oil fired electricity? Some have even found out that SOLAR ENERGY IS CHEAPER THAN OIL! But isn’t the sun finite? Won’t we run out of solar energy a billion years from now? Doomers really just need to put down the Malthus, and pick up some Darwin. Humans are a clever animal. Very clever.
You need to update Fig 4 and add “Eagle Ford Shale Production”. It is coming on strong.
Also, evidently they are getting oil from shale in Eastern Ohio, but I don’t work up there, and don’t know the particulars. You have to throw some shale oil from the Rockies also.
Alan,
There really is no difference in quality between conventional and unconventional. You can basically “dial in” the qualities you want with unconventional.
At the person who asked about light / heavy sweet / sour:
Sweet / sour has to do with sulpher in the oil and acidity. Taking sulpher out takes time, money, equipment, so sour sells cheaper than sweet. Heavy oil is sort of like a mix of motor oil and grease. It can be various ‘thicknesses’. It takes time, money, and equipment to turn that into thin light liquids like gasoline and kerosene (catalytic cracking or ‘cat cracking’ and reforming). So heavy sells for cheaper than light.
Most “unconventional” is very very heavy, and often soaked into something like sand or shale so it will not just pump out but must be heated, cooked, steamed, or retorted to get it out (in some processes it is chemically converted in the ground into liquids). This can consume various mixes of water, natural gas (heat) and chemicals. So costs more. (Tar Sands run about $25-$35 /bbl for the effort, shale oil about $50). So folks don’t put $Billions into getting that oil out if they think Saudi can just push the price down to $30 and put them out of business or PertroBras in Brazil can find another monster field – they are at what, 2 or 3 now in the last dozen years?…)
This all matters.
For a bunch of years Saudi produced from a couple of giant fields. Why even look for more if you have 2 Million bbl/day of reserves you are not selling? They even had a third field somewhat drilled out, but folks didn’t want to buy that oil. It was “heavy sour”. So a few years back we heard two statements that sounded conflicted, but were not. We were told “there is a shortage” and from the Saudis “There is plenty of oil, folks are not buying”. Why? Because the refiners didn’t want to spend money converting to process ‘heavy sour’ if they could just buy ‘light sweet’.
Over time (partly due to a lot of other ‘heavy sour’ from south of the USA) refiners converted. Valero VLO was among the first (so for several years bought heavy sour cheaper than other refiners bought light / sweet and made a bundle… a great trade for about a decade); but other refiners converted too.
Now a lot more refineries can process heavy sour.
And about 2 or 3 years ago a bunch of drill rigs headed off to Saudi to start drilling more holes in some of the other areas. They added a couple Million bbl/day, last I heard, but are still at it.
How much ‘reserves’ does Saudi have? Nobody knows as until recently they didn’t even need to look for more and couldn’t sell all they had drilled. So yeah, the ‘light sweet’ fields are getting watery and harder to produce. Open the taps on the heavy / sour fields and send that to the upgraded refiners… Oh, and maybe actually try looking in a couple of other areas to see if there is more laying about…
At the same time something ‘strange’ happened in deep water. Chevron CVX found oil below the depth where it was said to be impossible to find oil. Under the Gulf of Mexico. LOTS of oil.
Just impossible, everyone said. Heat would break it down and it just can’t exist. But it does.
So now all over the planet, in EVERY FIELD EVER PRODUCED, we have to ask: Is there MORE, below where we stopped drilling because “it couldn’t exist”? There is a whole new shell of depth to explore…
Brazil ran out to deep water and found a couple of giant fields. Petrobras PRR sold 20 years worth of production to China in exchange for $200 B or so of US Treasuries China wanted to dump. Estimates are all over the place but some put it at about a Saudi Arabia (others much less). Nobody will know until it is drilled.
BTW, in old dead “empty” oil fields, about 1/2 the total oil is still in the ground. They are shut in as it is too much trouble to try and produce at that point (as long as new fields can be found). But the oil is still there. So for ALL the oil ever produced (shown on those graphs) there is at least that much oil still in the ground. Waiting for a Bright Idea to get it out. APA Apache Oil makes a great living producing oil from spent fields with new techniques…
Mean time Russia started looking “where oil can’t exist” in hard rocks and found oil. The “abiotic oil” that some folks say can’t exist. So Russia is producing like crazy. We now have huge chunks of land that was never looked at because it was the wrong kinds of rocks; that have to be looked at because Russia finds oil there.
See a pattern here? When oil is cheap, we stop looking. When there are more than 50 years reserves, we stop looking. Then price gets up to $100 /bbl and we look, and find more.
Oh, and in the other oil thread I posted a comment that Devon Energy DVN just signed a deal with China for $2 Billion to start producing shale oil in the USA. Oil that “doesn’t exist” in terms of “reserves” because we don’t produce it. Yeah, a chicken and egg definition problem. (That’s WHY we are always going to run out in 50 years, btw. We stop defining things as reserves at that point…) So there are now about 3 TRILLION bbls of “shale oil” that just became “reserves” (or will, as soon as someone makes the entry in an annual report).
BTW, global tar sands are estimated at about the same. Some folks think there might be about a Trillion bbl in Venezuela alone. Again, folks don’t really know as we don’t need them yet.
The kind of oil in really crummy deposits is asphaltine heavy. It has a lot of polycyclic hydrocarbons in it. (Large sheets of joined benzene rings) and not much linear molecules. So it takes a lot of cat cracking, so why bother. For now…
There’s more (a whole lot more) but this is already a bit long. Just as a wrap up, though, there are LOTS of sources we don’t talk about much. Like using nuclear power to turn coal into gasoline. VW did a study on this in the ’70s and it was competitive at about $2 /gallon. Call it $4/gallon in present dollars.
For all the folks fretting about converting cars to run on natural gas: Don’t forget you can just convert the natural gas to gasoline in a GTL plant. Not really hard to do at all. Chevron has one or two running IIRC. We’ll be up to our eyeballs in nat gas for generations…
But if all that isn’t enough, Rentech RTK has just done a spin out / secondary of it’s nitrogen fertilizer facilities and is also making ‘biofuel’ for LAX airport. From trash. They also make oil from trash. I don’t think we’re going to run out of trash any time soon. (but if we do we can go mine all those old landfills 😉
BTW they just signed a deal with Peabody BTU one of the largest, if not THE largest, coal miners in the world. To make oil from coal:
http://www.marketwatch.com/story/peabody-energy-to-invest-in-rentech-fuel-plant
Yeah, it’s a small one now. And there are other folks with slightly different technology doing very similar coal to oil things (several facilities being built in China, IIRC by Synthesis Oil SYMX and Syntroleum SYNM, but it could be others. SYNM has a deal with Tyson TSN where they turn chicken butchering waste into oil…
So yes, absolutely. We are in PEAK (conventional) OIL! We are GOING TO RUN OUT!!!!
And nobody will even notice.
CTL, GTL, Trash to Oil, Tar Sands, Shale Oil, methane clathrates, et al will be filling our tanks instead. Price about $4 / gallon. (Which is why folks have started making those facilities now).
That is the ‘magic thinking’ that everyone forgets. And it really IS Magical. It is “resource substitution” via “technology”. It has been the history of modern man since we turned our first napped rock into a substitute for claws and teeth via the stone knife.
So take all those pretty graphs and profound projections and learned concern, and just chuck ’em in the trash bin. Just not important as long as we have the technology we have that is already invented and sitting on the shelf. Some of it has been in production for 30 years. (SSL Sasol making gasoline, Diesel and “petro” chemicals from coal since the ’70s). Just need oil prices to hold above $80 /bbl average with only sporadic drops to $50.
“Peak Oil” is no more about the price of gasoline, diesel and Jet-A than “Global Warming” is about temperature change. Both issues are used by those with agendas of worry and change, primarily to destroy our prosperity and our liberty. Our great-great-grandparents didn’t worry about “peak whale”, because the higher price that was caused by dwindling supply was mitigated by adaption, innovation and changes in behavior. Whale oil for illuminating homes gave way to the use of oil made from coal and later from crude oil.
With respect to “peak oil”, nobody buys oil to burn in their car or airplane, they buy a technical product that is made by breaking down and reassembling a feedstock of hydrocarbons that presently is in the form of crude oil. However, should the price of crude climb higher than the hydrocarbons found in other sources such as coal or agricultural wastes, then those sources will be used. The only issue is cost. This does not mean that there cannot be supply disruptions when oil suddenly jumps in cost, as it has recently. However, there is abundant documentation, such as the Barna report (Office of the Secretary of Defense, Clean Fuel Initiative [1]), that show we are awash in convertible hydrocarbons. The only thing stopping their use is cost and government.
The truth is that we are awash in hydrocarbons that can be converted to usable fuels. And the economic truth about crude oil is that the ONLY thing that matters is the price of the finished fuel product at the pump. That price reflects how much people are willing to pay for it. At today’s price, we can afford to convert many sources of hydrocarbons into the fuels we need. It just happens that for the time being, crude oil is the most economically efficient feedstock. The instant that some other source is better, we will start making our fuels from it.
[1] Dr. Theodore K. Barna., OSD Clean Fuel Initiative http://www.westgov.org/wieb/meetings/boardsprg2005/briefing/ppt/congressionalbrief.pdf
Why restrict the analysis to “conventional” oil? My gas tank doesn`t care whether its origin os conventional or unconventional. It would be nice to include all types of reserves to get a more relevant picture of the situation.
E.M.Smith says:
“So yes, absolutely. We are in PEAK (conventional) OIL! We are GOING TO RUN OUT!!!!
And nobody will even notice. ” “Just need oil prices to hold above $80 /bbl average with only sporadic drops to $50”
Nice summary. I totally agree. The near $100 price is here to stay and I hope we don’t get silly spikes to $150 that puts the worlds economy into recession.
No Peak oiler ever said thet oil was going to run out by the way.. they just correctly anticipated peak conventional oil 10 years ago when everyone was poo pooing the concept(the charts say it happened in 2005 to 2008, right on schedule). No, don’t throw the graphs away, as they still help to summarize what we should expect from remaining conventional fields, and when we add what we “manufaacture” on top, we can see the future in terms of supply growth. The biggest limitation to “manufacturing” oil is capital, in the form of $$$ and human talent. It is an exciting time for young people to get into the oil manufacturing business!