Guest Post by Willis Eschenbach
Well, having had such a good time with M. King Hubbert meeting the EIA, I thought I’d toss out another puzzle. This one is inspired by a statement from the King himself that someone quoted in that thread, viz:
“A child born in the middle 30s,” Hubbert told reporters, “will have seen the consumption of 80 percent of all American oil and gas in his lifetime; a child born about 1970 will see most of the world’s [reserves] consumed.”
Since M. King Hubbert was concerned about how most of the world’s reserves were going to be consumed, I thought I’d see how much of the US reserves have been consumed over the last third of a century. It’s an interesting answer …
Figure 1. A comparison of the annual estimates of the US proved oil reserves (red line), and the US cumulative oil production (blue line), for the period 1980-2012. Data from the 2013 BP Statistical Review of World Energy. “Proved reserves” in the dataset are defined as follows: “Proved reserves of oil – Generally taken to be those quantities that geological and engineering information indicates with reasonable certainty can be recovered in the future from known reservoirs under existing economic and operating conditions.”
It appears that since 1980 we’re totally out of luck. First we completely used up every drop of the proved reserves.
Then we used them all up again. Then we used them all up for a third time … and the proved reserves are still about where they started. Go figure.
Since the King was also concerned about using up the US and global natural gas reserves, I thought I should look at that as well.
Figure 2. A comparison of the annual estimates of the US proved gas reserves (red line), and the US cumulative gas production (green line), for the period 1980-2012. Data from the 2013 BP Statistical Review of World Energy.
Well, it’s about the same story. We started in 1980 with 6 trillion cubic metres of proved reserves of gas. Since then we produced almost 18 trillion cubic metres, about three times our original reserves. The main difference between the gas and oil is that the proved reserves of gas are about a third larger than they were in 1980 … go figure indeed.
I bring this up for a simple reason—to show that we don’t know enough to answer any questions about how much oil and gas we’ve used, or to determine if the King was correct in his claims. According to all the data, since 1980 we’ve used three times the proved reserves of oil and gas, and despite that, the proved reserves are the same size or larger than they were back in 1980. So how can we decide if Hubbert was right or not?
Now, please don’t bother patiently explaining to me all of the reasons for this curious phenomenon, because I’ve heard them all. I assure you, I understand the difficulties in estimating proved reserves, and the fact that the numbers come from the oil companies, and that technology improves, and that the companies tend to explore until they’ve got maybe twenty years in the bank, and the fact that the reserves numbers are sometimes radically revised, and that economics plays a huge part, and the rest … I know all the reasons for what I showed above.
I’m just pointing out that it is very, very hard to say what will happen to future reserves, or what their total extent is, or how much recoverable energy the world contains.
The underlying problem is that the proved reserves represent the amount of economically recoverable gas and oil … and that, of course, depends entirely on the current price and the current technology. In other words, the amount of “natural resources” in the world is not really a function of the natural world—it is a function of human ingenuity. For example, in the 1930s, the big concern was “peak magnesium”, because the proved reserves of magnesium were dropping fast. Or they were, until a clever chemist realized that you can extract magnesium from seawater … at which point the proved reserves of magnesium became for all purposes infinite.
Now, did the natural world change when the proved reserves of magnesium went from almost none to almost infinite? Like I said, the amount of natural resources depends on human ingenuity, and not much else.
Best regards to all,
w.
PS—Again, if you disagree with something that I or someone else said, please QUOTE THEIR EXACT WORDS and state your objection. That way we can all understand just what you are objecting to, and the nature of your objection.
stanb999 says:
January 13, 2014 at 8:12 am
Steve from Rockwood says:
January 13, 2014 at 7:42 am
[snip]
Stan. First we had a super economic boom – an over-heated economy. This led to an increase in oil prices. Then we had a banking crisis, based on greed and very poor lending practices. This led to a housing crisis which in turn led to a recession. The recession led to a drop in demand for oil which in turn led to lower oil prices.
I think you confuse a temporary drop in the price of oil (gas etc) from a recession for a new paradigm. Oil consumption peaked in 2007, the economy collapsed at the end of 2008 and it’s taken five years to recover. But recover we have. In Canada gasoline prices (mostly tax) are back to their 5 year highs. US unemployment rate is under 7% and energy consumption is going to increase over the next 3-5 years, just like it has after every previous recession.
Remember the energy crisis of the 1970s? The introduction of fuel efficient autos? Fast forward to 2013 and the best selling vehicles are F150s, Silverados, Sierras and Dodge RAMs – the least fuel efficient vehicles you can buy. Why? Because people are not as heavily affected by higher oil prices as many think.
Record orders for airplanes, record highs for the stock market, record oil production in the US – not exactly a new lower level of energy consumption that I am seeing.
Steve from Rockwood says:
January 13, 2014 at 9:06 am
stanb999 says:
January 13, 2014 at 8:12 am
Steve from Rockwood says:
January 13, 2014 at 7:42 am
[snip]
Oil prices rose first. Then the markets faltered. Not the other way around. As the economy recharges, energy prices will rise to throw cold water on the ember of growth. We are in fact living what a majority of the peak oil promoters were forecasting… A slow slide in the economy till a new lower level of energy consumption is the norm.
Stan. First we had a super economic boom – an over-heated economy. This led to an increase in oil prices. Then we had a banking crisis, based on greed and very poor lending practices. This led to a housing crisis which in turn led to a recession. The recession led to a drop in demand for oil which in turn led to lower oil prices.
I think you confuse a temporary drop in the price of oil (gas etc) from a recession for a new paradigm. Oil consumption peaked in 2007, the economy collapsed at the end of 2008 and it’s taken five years to recover. But recover we have. In Canada gasoline prices (mostly tax) are back to their 5 year highs. US unemployment rate is under 7% and energy consumption is going to increase over the next 3-5 years, just like it has after every previous recession.
Remember the energy crisis of the 1970s? The introduction of fuel efficient autos? Fast forward to 2013 and the best selling vehicles are F150s, Silverados, Sierras and Dodge RAMs – the least fuel efficient vehicles you can buy. Why? Because people are not as heavily affected by higher oil prices as many think.
Record orders for airplanes, record highs for the stock market, record oil production in the US – not exactly a new lower level of energy consumption that I am seeing.
We can agree to disagree as to the cause and effect, but the issue stands. More expensive energy will cost the economy. I think this is something we both agree.
The official unemployment rate in the US is at best fully manipulated, at worst abject lies and stories. Look into the employed participation rate it’s at levels not seen since women entered the work force in the 60’s. Meaning we have a smaller percentage of working age adults actually working.
Those F-150’s are being purchased for fleets… government fleets. Look into it.
Planes are notoriously variable. Stock market is high due to inflation. The natural gas production is what has made the new oil boon as pointed out above.
Joe Born:
Your post at January 13, 2014 at 8:17 am asks me
Firstly, I need to ‘declare an interest’.
I worked on the development of Pressurised Fluidised Bed Combustion (PFBC) and the Air Blown Gasification Combined Cycle (ABGC) processes for power generation. Hence, I could be accused of bias when mentioning other advanced coal fired power generation systems such as Integrated Gasification Combined Cycle (IGCC).
I do not have such a bias but I fail to understand why people favour IGCC. It makes no sense.
IGCC gasifies coal (usually using oxygen – not air – for the gasification. The product gas is cleaned to remove impurities including sulphur, mercury, etc.) then using the cleaned gas as fuel in a conventional combined Cycle Gas Turbine (CCGT) power station. The gas cleaning is difficult and there is no possibility of this being as economic as burning natural gas (methane) in a CCGT.
Other advanced coal-fired power generation systems also have possible uses. For example, Circulating Fluidised Bed Combustion (CFBC) enables old and dirty PF plants to be retrofitted with replacement boilers and flue gas cleaning. This mostly- American technology proved to be successful as the most economic way to upgrade inefficient and dirty power stations in Eastern Europe following demise of the Soviet Union.
However, burning natural gas as fuel in a CCGT is both the most economic and the ‘cleanest’ way to provide new electricity generating capacity at present. The only systems with possibility of being competitive with it are coal-fired ABGC and coal-fired Advanced Supercritical Pulverised Fuel (ASPF). ABGC has not been fully demonstrated, and for ASPF to become competitive with gas-fired CCGT requires materials which do not yet exist.
Oil is not an economically competitive fuel for power generation at present or for the foreseeable future. Despite this, the UK is investing in oil-fired diesel generators as back-up for windfarms (the windfarms are not economic so why not?).
LSE syncrude has similar cost to crude so burning LSE product as fuel oil would be similarly uneconomic. However, it would have similar environmental benefits to burning natural gas (ignoring CO2 emissions). Impurities in the coal are removed as part of the filter cake in the LSE process. Indeed, this removal is one reason why LSE syncrude is economically competitive with crude (the oil refinery does not obtain sulphur-rich bottoms which have disposal costs).
I hope this answer is sufficient and what you wanted.
Richard
HLx says:
January 13, 2014 at 1:31 am
Willis:
So your claim is that there is something called “cumulative assets”? Curious, because I’m an accountant as one of my trades, and my last job was doing the accounting for a $40 million dollar per year company.
If I’d gone to the company directors, and given them a profit and loss statement and a balance sheet (as is customary), plus a “cumulative balance sheet” for the last ten years, they would have fired me on the spot. Why?
Because there is nothing in accounting called a “cumulative balance sheet”. It doesn’t exist.
And in the same way, the proved reserves show up as assets on an oil company’s balance sheet, but there is no such category on the planet as “cumulative assets”.
For example. Suppose I have $100,000 in assets this year. Our company makes no money for ten years, but we don’t lose any either. So every year for ten years I have $100,000 in assets … does that mean that at the end of the ten years, when I go to sell my business, that I can advertise that I have a million bucks in “accumulated assets”?
It is the simple difference between a profit and loss statement (P&L), and a balance sheet. A P&L is a statement of the FLOWS of assets. A balance sheet (or a proved reserve” is a snapshot of the VALUES of assets at a specific time. One of these, the P&L, you can add up to get a cumulative total. The other one, the balance sheet, you can’t.
So if I make a profit of $1,000 today, and I make a profit of $1,000 tomorrow, I can add those and say I have a 2-day profit of $2,000.
But if I have proved reserves of $1,000 today, and I have proved reserves of $1,000 tomorrow, does that mean I have “2-day cumulative reserves” of $2,000? Nonsense. I have a thousand in proved reserves, whether you measure it one day or the next.
It’s like your bank balance. Suppose at the end of the month, you have $10,000 in the bank. Now, during the month, you make $5,000 and you spend $5,000, leaving $10,000 in the bank. Can we add those two $10,000 bank balances together and say I have a “cumulative bank balance” of $20,000? No … but that’s what you are proposing for the proved reserves.
I hope you can see the problem. You can add profits and losses to give cumulative profits and losses over a week, a month, or a decade. But you can’t do that with balance sheets or with assets in general. The fact that you own three cats this month, and you own three cats next month, doesn’t mean that you have 6 cumulative cats …
w.
@scf at 8:41 am
RE: stanb999 1/13 6:10 am
That statement is false, the proof is here, provided by Willis Eschenbach, showing the proce of oil has not risen for 100 years.
That chart you refer to is “Motor Gasoline Retail Price” which is a couple of steps removed from Oil Price. Over the past half century there have been efficiencies in oil transport, oil to gasoline refining, gasoline distribution, and gasoline retail marketing.
Here is a link to a comment of mine discussing two graphs of constant $ Oil prices, including this one from 1869-2011
In short, there is less $2/bbl oil than 20 years ago. There is less $5/bbl oil that 20 years ago. There is probably less $10/bbl oil than 20 years ago, but there are many more $25/bbl and $50/bbl oil in RESERVES than 20 and 40 years ago. I won’t split hairs about running out of cheap oil. I’ll support the claim that the cost mix of the proven reserves is rising over time.
Interesting post and comments on a subject that took me down memory lane and had me thinking of a place I once served. In the mid-1990’s I spent several years in the Sultanate of Oman. I remember at the time that the Sultanate was working very hard on diversification of its economy (too many eggs in the oil basket) out of real concern for when the petrol dollar would wane for them. Proven reserves for this Gulf State are small compared to its neighbors and at the time were calculated at about 15 years at the rate of production for the time (which had expanded each year I was there from over 800K barrels per day to over 900K barrels per day). I was curious how things looked over sixteen years later so did a quick search and found that production is still over 900K barrels per day and that proven reserves are still about 15 years. It would seem improvements in recovery technology of existing oil fields have really paid off.
Carter’s federal “Windfall profits” tax on oil and gas was repealed by Reagan in 1988. Not that other taxes have not been attempted; existing royalties and lease bonuses due for production on government lands has also been raised…. http://en.wikipedia.org/wiki/Windfall_profits_tax
Willis
Re: “Figure 1. A comparison of the annual estimates of the US proved oil reserves (red line), and the US cumulative oil production (blue line), for the period 1980-2012.”
Congratulations!
You just swollowed the most important oil sales pitch: “The future will always be better”, as enforced by rules established by the Securities and Exchange Commission.
In reality, when you “discover” an oil field, a good geologist with a few wells can estimate the size of the overall resource” of that oil field within say +- 20%. However, SEC rules forbid declaring the entire field and only allow you to declare as “Proven resources” a conservative portion of the oil immediately accessible around those few oil wells. If you drill 5 wells in a field that eventually requires 1000 wells, the “proven resource” is only counted as a conservative portion of the resource immediately around those 5 wells. Then every year you drill a few more wells and declare further “proven reserves” for those additional wells.
The oil companies NEVER tell the confidential full size of the oil field that the geologist knows is probably there when the field is first discovered. Thus your graph conflates Delta Xi of a portion of the field with the sum of all Delta Xi of all portions of the field over all time.
(Another issue is the discoveries of massive “political oil” (on paper only) in the Middle East due to competition for OPEC production shares.)
The expert who has best explained these issues is Jean Laherrere of Total (retired.) See the web site of Laherrere’s presentations as complied by Charles Hall, and the ASPO France Documents. e.g., see: Shortened world oil & gas production forecasts 1900-2100 – May 2013 (1.7 Mo) See especially Fig. 7 World remaining oil reserves from political/financial and technical sources (2010). etc.
This confirms Campbell & Laherre Fig. 8 (1998).
Re: . . .”First we completely used up every drop of the proved reserves.”
The second major issue is production in one well or field versus adding more fields by expanding areas. See James Hamilton “Oil Prices, Exhaustible Resources, and Economic Growth,” in Handbook of Energy and Climate Change, pp. 29-57, edited by Roger Fouquet. Cheltenham, United Kingdom: Edward Elgar Publishing, 2013. Working paper version here.
For further details, I recommend studying multi-Hubbert oil analyses.
Keep up your exploring.
Mike Jonas says:
January 13, 2014 at 4:19 am
dis-in-gen-u-ous: synonyms: insincere, dishonest, untruthful, false, deceitful, duplicitous, lying, mendacious
Mike, you’ve called me a duplicitous, dishonest liar, so please give us some examples of where I lied.
I didn’t say I’d “exploded a myth”, that is your fantasy.
And since a) as you point out, the reasons for what I showed are well known, and b) I said the reasons were well known, and c) I said I knew the reasons, I was telling the truth about that …
So just what are you accusing me of lying about without presenting a scrap of evidence, you slimy little man? As my mom used to say, “them’s fightin’ words”. Where I come from, if you accuse a man of lying, you damn well better have incontrovertible proof in your hand that he is a liar, and you’d better show the in-hand proof when you make the accusation … so where did you come from? Is it common practice in your home town to falsely accuse a man of being a liar with no evidence, and with nothing in your hand but your johnson?
w.
Gary Pearse says:
January 13, 2014 at 6:51 am
I didn’t say I didn’t want to hear about it. I said don’t bother patiently explaining it to me, I know about it already. You want to explain it to others, be my guest.
w.
RockyRoad says:
January 13, 2014 at 7:15 am
Thanks, Rocky. I used the term “proved reserves” with its associated definition because that is the exact term, and the exact definition, from the dataset that I used. As a result, what mining engineers might do is not the point. If you use data, you need to say exactly what the data means. Not what the mining engineers or someone else might mean, but what the data means.
w.
Leo Morgan says:
January 13, 2014 at 7:23 am
Actually, Leo, the natural gas liquids are not liquified natural gas at all, I fear Google has misled you. They are the various usually fairly light petroleum liquids that come out of the ground with the natural gas. They are sometimes called “drip gas”, and form a significant part of the energy in what comes out of a gas well. In addition, because they are light, they are easier (read: cheaper) to refine than crude oil, so they are quite valuable.
w.
David L. Hagen says:
January 13, 2014 at 9:44 am
I didn’t “swollow” a damned thing, David, but you apparently can’t read. I said in the head post that I know the reasons for the apparent contradiction in the charts above, and I do, including the reporting rules that the oil companies work under.
Since I knew the reasons already, I requested people not to patiently explain them to me as if I were an idiot … but there’s always someone like yourself that thinks that he knows better, and that such requests don’t apply to him.
w.
If the price of a commodity goes up and/or there is a new technology to extract it, then someone will go exploring for it. Low grade deposits, previously uneconomic, become economic.
And that’s how capitalism works. Bring in government interference, or ownership, into the process and inevitably things get screwed up and you get shortages. Oil in Venezuela, minerals in Bolivia are classic cases in point.
Most mineral deposits are found by junior mining companies, who are usually happy to sell out to big producers. Junior companies, not big ones, are ensuring the supply of commodities for future generations.
The world, including the US, is full of huge, low grade, mineral deposits. For example, the world’s largest zinc deposit is probably located in Idaho. It is not economic today, but it will be one day.
richardscourtney:
Thank you very much for the response.
As I understand it, the decision in favor of Edwardsport was made at a time of elevated natural-gas prices, although I think that favoring local miners may also have entered into the process.
Back in the ’70s I had a client that made utility boilers, and we did some fluidized-bed work, so the current-technology taxonomy is interesting. If I can maintain discipline, though, I’m not going to go off and investigate it further. Maybe if coal ever gets out of the doghouse, though. . . .
When it comes to looking for a resource (like oil), why would a company expend more money looking for it than what they can use? When I look for socks, I grab the first pair that meets my criteria. I don’t keep looking. This is part of the truth behind finding something in the “last place you looked”. Why keep looking? That would be a waste of company resources. We have no idea of how much oil is out there, because there is no incentive to look for all of it. There is only incentive to look for as much as we can use.
Willis has shown that oil costs about the same now as it did in 1919 and 1979. That is just astounding when you consider that there are so many more expensive regulations driving up the cost of looking for and extracting oil (environmental impact studies are just the tip of the iceberg).
Oil availability appears to be a non-issue, except for political (be it governmental or activist) intervention. We’ll know there is a real oil shortage when governments stop putting known oil resources off-limits and fast-track distribution applications. Until then, it seems clear there is an excess of “cheap oil”.
Since M. King Hubbert was concerned about how most of the world’s reserves were going to be consumed, I thought I’d see how much of the US reserves have been consumed over the last third of a century. It’s an interesting answer …
No. You have shown the trend in proved reserves. Proved reserves != reserves.
It is like me looking at the level gauge in my car to see if the gas station has run out of gasoline.
We’ve seen a lot of failed predictions about peak oil come and go. It’s not often that we hear about cornucopian prognostications like Julian Simon’s famed bet with Paul Ehrlich, but there are some. I would just like to point out this extrordinary book written by Peter Huber right before the shale gas revolution:
http://www.amazon.com/The-Bottomless-Well-Twilight-Virtue/dp/046503117X
Andrew says:
January 13, 2014 at 10:48 am
Andrew, do you truly think that I, or anyone else here, thinks that they gave the name “proved reserves” for some reason other than to distinguish them from “reserves”? I suppose it’s possible for others, but if you truly believe that I don’t know that “proved reserves” and “reserves” are very different things, I fear you’re not paying attention.
In any case, I suppose I should thank you for stating the obvious. I suppose there might be one or two people out there unaware that something defined as “those quantities [of oil] that geological and engineering information indicates with reasonable certainty can be recovered in the future from known reservoirs under existing economic and operating conditions” might actually be different from say, all the oil in the ground, or all the oil we know about in the ground. So you few folks that didn’t know that, please pay attention to Andrew. He’s right when he says that “proved reserves” and “reserves” are not the same thing. Yes, I know you guessed that because they have different names, but Andrew actually puts it out there in black and white, the two are different … who knew?
Finally, my point was that the problem with Hubbert’s statement is that in fact, we don’t know what the total of “all American oil and gas” that he refers to might be, or what definition of “the world reserves” he’s using, so there is no way to determine if we’ve used 80% of it or 50% of it.
Regards,
w.
Willis
Re: “I know the reasons for the apparent contradiction in the charts above” . . .“The underlying problem is that the proved reserves represent the amount of economically recoverable gas and oil … and that, of course, depends entirely on the current price and the current technology”
Mae culpa on using “swallowed”.
Please reset. Then may I encourage you to reread my post, and in particular, address the difference between the current “proven resources” as shown in your graph and the cumulative production shown in your graph. Those confuse are the current increment vs the integral amount.
Then compare that with cumulative increment vs dating the total field to the original discovery date as shown by Laherrere.
On total reserves: The Hubbert curves apply to each given geological resource with a given recovery technology. Sum across national and global give similar curves for that resource and that technology. e.g. sandstone or carbonate crude oil resources using standard recovery.
Then add WAG gives another level of recovery.
Tight oil/shale oil is another geological hydrocarbon resource different from the above.
See applying the methodology to “multi-Hubbert oil analysis”
Re: “the amount of natural resources depends on human ingenuity, and not much else.”
Multiple issues here:
1) There is a finite amount of liquid hydrocarbon in a given defined “oil field” in a given strata. You cannot extract more than 100% of that. Typically 20-40% with conventional extraction. Up to 50% to 70% with Enhanced Oil Recovery, using Water Alternating Gas (WAG) with CO2.
2) Hamilton shows the impact of extending the areas.
3) Current “fracking” shows ways for new technology to open up new types of hydrocarbon resources. i.e. “tight” oil (aka shale oil). That is another resource, where each geographic area will again under gain its own rise and fall in production.
4) Human ingenuity can be applied to forming hydrocarbons from nuclear, solar etc.
I think it is a disservice to focus on the quantity of oil vs. relative economic impact of oil prices and supply/demand.
There absolutely is all sorts of oil out there, but the impact on the US economy should prices rise to $200/barrel in the next decade – it would be profound.
Were this to be the case – even the EIA’s historically suspect predictions coming true would not be enough to save the US economy from disaster. The US uses a huge amount of oil per capita – not the most, but I do believe the US does consume the most imported oil per capita (except perhaps Japan).
w – Two countries divided by a common language. In English, disingenuous means ‘not speaking the complete truth’, ie. leaving out something with the result that listeners may draw an incorrect conclusion. Intention is not needed, though knowledge of the missing link is implied.
I said “You tell people to go figure, like you’ve just exploded a myth, so you have gone a bit overboard with your “I didn’t say I’d “exploded a myth”, that is your fantasy“.
You ask “So just what are you accusing me of lying about without presenting a scrap of evidence, […]?”. Obviously, as explained above, I’m not accusing you of lying about anything. What I do think you did was to present the three-times production of proven reserves as if it was more significant than it really is. Given that you knew the reasons, that to my mind was a bit (English meaning) disingenuous. There was an implication for the uninitiated that three times production of proven reserves was surprising and evidence that Certain people were a lot more wrong than they really were. For good measure, I provided evidence that three times production of proven reserves is no big deal.
Typo – italics should end before ‘Obviously, as explained …’
Reserve definitions are covered at http://www.jorc.org
A naive interpretation suggests that more oil/gas is being produced than what initially was calculated from the known deposits. So where is all this excess texas tea coming from 🙂
I see a problem here. We’re not consuming our reserves and that isn’t what the graph shows. We’re consuming oil at an increasing rate and leaving the reserves alone. I do that with my finances – I don’t touch my reserves (savings, investment earnings) – I spend new income.