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.
Mike Jonas says:
January 13, 2014 at 12:47 pm
Great points ! If a post is made, it shouldn’t be assumed that the readership has the same level of knowledge as the author – if that were the case, why bother even making a post to the blog?
Hopefully, each blog post does something to help all readers understand the subject further and stimulate a productive discussion. Thus, no assumptions on reader knowledge should be made & information should be presented , to the best of the author’s ability, to fully represent the subject matter and not intentionally or unintentionally lead the uninformed reader to an unreasonable conclusion (such as this reserve replacement is somehow unusual or unexpected – as inferred by the “go figure” statement). Furthermore, when someone (such as yourself, Mike) tries to help fill in some gaps for everyone, they should not be scolded by the author for simply trying to help out everyone reading.
This scolding behavior is unbecoming of this blog – it is the type of discussion-styming behavior I would expect to see on pro-AGW blogs. And don’t bother scolding me again Willis – we get your point – if I don’t agree with you on every word you print, I am somehow inferior. Enough said.
Many years ago my first paying job involved pumping gas, checking oil, and washing glass at the local Mobil flying red horse station. My mother always wanted a pack of Raleigh cigarettes with the B&W coupons. The gas was about 30 cents per gallon and the pack of 20 smokes was about the same. Now the gas is $3.50 per gallon and the smokes are about 8 bucks. This indicates that we are running out of tobacco!
Good job Willis and comments from others.
This 2012 article from Forbes helps explain “reserves”:
http://www.forbes.com/sites/timworstall/2012/11/16/what-jeremy-grantham-gets-horribly-horribly-wrong-about-resource-availability/
The author critiques a statement made by Jeremy Grantham about potash availability, but his explanation of “reserve” is useful:
“He’s [Jeremy Grantham] drawing his numbers from “reserves” without understanding what reserves means. It absolutely does not, at all, mean all of whatever it is out there. It is, rather, an economic construct.”
and
“Reserves, the numbers that Grantham is using, are the deposits that we know where they are, have drilled and tested them, we know how to extract and process them using current technology and we also know that we can make a profit doing so.”
When I started working in the oil industry many years ago, an old Hungarian engineer told me what a great industry it was to work in and that proved to be true.But then he added a proviso – that in 10 years time oil will start to run out. Individual fields do run out. And every 10 years someone will make the same prediction – peak oil is only 10 years away. Eventually they will be right, as oil is not a renewable resource.
Over the last 40 years we have seen oil prices rise from $.1.50/barrel to $100/barrel and that in large measure, along with increasing technology capabilities, explains why we have continued to discover more oil. In another 40 years will oil be $200/barrel or $1000/barrel? It depends on how much more oil will be discovered, and how much we consume – the old supply/demand equation.
‘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“.
ya that was pretty funny.
Here is Willis’s game. He demands that you quote his words.
But when issues the beat down on your head he breaks his own rules.
He played the same thing with me so many times, with Roy Spenser, that it just gets
Funny
What you said: ” I don’t think that you have been very smart. Perhaps disingenuous is the right word. You tell people to go figure, like you’ve just exploded a myth”
Then willis writes “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.”
1. You didnt call him a liar. you didnt even call him duplicitous. What you said, what you wrote was that PERHAPS duplicitous is the right word. To me that says your struggling to understand how to catagorize the type of statements Willis makes. Roy Spenser had the same problem.
2. You didnt say ‘he exploded a myth”, you said LIKE he exploded a myth.
Now, we had a similar issue a long Time ago with mr CRAVEN
remember this post
http://wattsupwiththat.com/2010/12/16/craven-attention/
Now, there I provided the best synopsis I could of what the guy said. Then he complains that it wasnt a quote. sound familar?
what is even worse here is you took the effort to not call him a liar. you took the effort to express your uncertainty. PERHAPS disengenous is the right word. Then, rather than quoting YOUR WORDS and Your meaning, willis crowbars in the dictionary ( never trust a man who tries to beat you with a dictionary) and effectively calls you a masterbating scumbag.
Hehe.
That kind of behavior invites drive bys. I just drove by tata.
Reading some of the comments reminds me of the measure twice, cut once rule. In this case it might be more appropriate to alter it a bit… read twice, then comment.
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.
Thanks for clarifying. I was unsure of exactly what point you were trying to make, here. I must admit, I felt that posting a graph purporting to refute a statement, when that graph is on a completely different basis, is the sort of thing that frustrates me intensely. It is the kind of behavior typically used to misinform and mislead. The important point about reserves: you don’t know what they are for certain until they are all gone.
Konrad says:
January 13, 2014 at 12:48 am Re: all you said. I agree completely. So much of life today is fending off the communists and their stalking horses of doom intended to coax (and really, coerce) us into their vision of life.
Willis – Why would you use a cumulative oil production to refute Hubbert who uses annual production to make predictions? When you compare annual US Oil production to a Hubbert curve, it really lines up:
Yes there is a spike at the end as fracking comes online, but that is really just switching from a knife to a spoon to get more peanut butter out of the jar.
Hubbert’s point isn’t that we will run out, it is that production is limited and will decrease over time. Looking at the annual data he looks like a lot better predictor than you.
DirkH says:
January 13, 2014 at 1:15 am: Re: all you say. Kudos. Smith and von Mises are detested and denigrated by that lot.
The highest annual average inflation adjusted price of oil occurred in 1980. To understand why look at the work of the late Milton Friedman. The same thing is playing a significant role now.
Mosher, we gotta luv yu:
Steven Mosher says:
January 13, 2014 at 2:24 pm
Where did you learn to write English? Is it a second language? You continue, post after post, to write drivel. Why shouldn’t Willis shrivel your shorts with fire, and me mock you? The fact that something some consider important – a Best New Analysis of The World’s Temperature – is in your hands, at least in part, makes me think that perhaps the end really is nigh: “…The center cannot hold…” because rude, unlettered beasts are now able, in this fully dumbed-down culture, to hold positions and sway thought not unlike the Monkey King in Kipling’s “The Jungle Book”.
David Middleton says:
“Proved reserves have a very specific definition. In the US, publicly traded companies are required to book and report reserves according to SEC rules.”
half tide rock says:
“If you look at the North American Petroleum Reserves by region, there is a Political blank up the entire East coast.”
Yep, not to mention the north slope of Alaska and the gulf coast of Florida. The planet’s petroleum reserves may well be finite, but until we explore the whole thing, we have no idea what the true reserves really are. In this country alone, three vast regions, (the north slope of Alaska, the east coast of the US, and the gulf coast of Florida have HUGE potential: The same geology that underlies Prudhoe bay extends for miles to the east under the north slope. Massive hydrate / natural gas deposits (the tip of the petroleum ice berg on the east coast) lie 50 miles off the Carolina coast, and the gulf coast of Florida has as much potential as the gulf coast of Texas / Louisiana. The government artificially inflates the price of all petroleum based fuels simply by placing these and other vast areas off limits. If you why, ask yourself “Who benefits?” Then follow the (campaign / lobby) money.
The point I’m trying to make, and I think people are finally picking up on it is that extraction costs are going up, extraction of deep sea is more expensive than on land, extraction in the Arctic is more expensive still, hence soon there will be no such thing as cheap oil (unless of course we have a major extraction breakthrough not just incremental ones).
The price of energy will be capped, the higher it is the more produces there are, including renewable, the fundamental issue with renewable is that once things are up and running fuel costs are zero, hence renewables DON’T have the same huge disadvantage of fossil fuel i.e. ever increasing cost of extraction due to diminishing easy to get at reserves… hence you can extrapolate what that means, i.e there is an energy cost ceiling meaning less and less fossil fuel projects are viable… this means that gradually renewables will displace financially viable fossil fuel projects over the next 50 years.
The Hubbert model is dead on correct however there should be a Hubbert curve at each energy price point, hence at an oil cost of $40/barrel, I think we can all agree we are well and truly on the down slope of that curve, at a price point of $120/barrel we are still climbing up that curve… at a price point (which will never happen due to renewables) of $200/barrel there are tremendous financially viable reserves, but I hazard to say they will never be extracted
Amen
As usual SASOL gets a mention and several people repeat the meme that coal-to-liquids is ‘expensive’. CTL is not expensive. South Africa (look up the documents) created SASOL 1, 2 and 3 with a guaranteed price of $28 per bbl equivalent but a production cost of under $20. One above claims it is now $70. That is a heck of a lot less than $100.
However that is not enough of the story. One SASOL product is polypropylene. Another is creosote. Another is sulfur-free kerosene. Kerosene without sulfur is more valuable than regular kerosene because there are maximum concentrations allowed in fuel. Those regulations have their own genesis, but there they are. SASOL sells the ‘good stuff’ to Europe and buys in higher sulfur containing fuels which are burned locally.
When you have a CTL plant you can sell what you want, instead of having to sell what you have.
There is a rumour of a CTL plant being build right now in Inner Mongolia that uses a ‘direct’ conversion methods, not the ‘indirect’ Fischer-Tropsch method. That will greatly reduce plant and production costs. Mongolia (Outer) has about 1 trillion tons of carbonaceous CTL inputs available. That alone is enough to supply the planet for 175 years without no (forecast) drop in population or increase in efficiency. And there is lots and lots and lots of other sources of coal. Yes the reserve is finite. No, it will not run out for many centuries. Yes, it will put lots of CO2 into the atmosphere. No, it will not double the concentration because there is not enough to do so.
Illuminating and educational thread. Impressed with the obvious depth of those posting. Thanks.
SideShowBob says:
January 13, 2014 at 5:27 pm: “Renewables” do have a cost. Mostly, in that they don’t work when you need them to work. Otherwise, the destruction of bats and eagles and so forth, in the case of windmills; and the fact that you have to go out and clean off the solar panels, which by the way, just turned the Mojave Desert into an entirely new biome that eradicated all the fabulous critters that used to live there. Same for dams: bye bye salmon runs and so forth.
When oil and gas are so rare and expensive as to be near ruinous, we may turn to “renewables” assuming that the technologies have progressed. Otherwise, we’ll do coal/nuclear and hydropower where it exists.
SideShowBob says:
January 13, 2014 at 5:27 pm
there should be a Hubbert curve at each energy price point, hence at an oil cost of $40/barrel, I think we can all agree we are well and truly on the down slope of that curve, at a price point of $120/barrel we are still climbing up that curve…
—————————————————————————————————————
I love all the harping on “easy oil vs expensive oil” Again, it has always been that way—–”all the seeps have been found, now we are only left with the stuff we have to drill for”
Good operators in these plays have cut their costs in half in just three years. Much of it would pay out at $30 oil, and 90% of the wells drilled in 2013 would pay out at $60.
SideShowBob:
At January 13, 2014 at 5:27 pm you repeat your irrational assertions concerning renewables.
In a post in reply to you earlier in this thread I explained how and why your assertions are nonsense and are disproved by reality. That reply was in simple language that I thought even you could understand, but your repetition suggests that either you did not understand it or you missed it.
Assuming you missed my explanation, I write to say it was at January 13, 2014 at 4:15 am and this link jumps to it.
http://wattsupwiththat.com/2014/01/12/more-fun-with-oil-and-gas/#comment-1534318
If you do read it, understand it, and learn from it then threads will not again obtain repeated posts from you which make such silly assertions about renewables as you have provided here.
Richard
@ur momisugly Patricia
@ur momisugly Richardscourtney
@ur momisugly Willis
@ur momisugly SideShowBob
I’m indebted to many persons here.
I especially want to thank Patricia. I’ve been searching for that information about Carter’s fuel taxes for longer than I can recall. With your help I’ve finally discovered it. With your reference, I’ve also discovered I was wrong about almost everything I thought I knew on that topic. It’s chastening, but better than remaining in ignorance. Thank you.
Richard Courtney, I’m grateful for your enthusiastic endorsement of my contribution. Willis has rightly pointed out it was not perfect. I myself have had second thoughts about some other aspects. Nevertheless I gave it considerable thought, and your appreciation was a terrific validation of the effort I put into it. Thank you.
Willis, I should not acquiesce, by silence or otherwise, with your considerate suggestion that Google had let me down. They deserve credit for the fact I had access to more information than when I started; they are not to blame that I was no wiser than when I started.
I was wrong, and now with your assistance I am less wrong. Thank you.
I’d like to share a quote that I’m particularly fond of, with WUWT readers. ”I learn something new every day. Usually, what I learn is that what I learnt the previous day was wrong.” I have to ruefully acknowledge how very apt that quote was today.
SideShowBob, thanks for your post January 13, 2014 at 5:27 pm. You clarify your previous post tremendously. As I mentioned to Richard I’ve had second thoughts about my earlier response. They relate particularly to the fact I felt I had not responded well to the actual point you were making. In your words, your argument is “…there should be a Hubbert curve at each energy price point, hence at an oil cost of $40/barrel, I think we can all agree we are well and truly on the down slope of that curve, at a price point of $120/barrel we are still climbing up that curve… at a price point (which will never happen due to renewables) of $200/barrel there are tremendous financially viable reserves, but I hazard to say they will never be extracted.”
Nevertheless, I remain unpersuaded by the argument. As I understand it, it considers the price point of energy recovery to be a fixed attribute of the particular oil where it is situated. My view differs in that I see the price point as a function of technology. The ‘unconventional oil’ we are extracting today used to be the over $200.00 per barrel oil ‘that would never be extracted’. Now, it has moved to a lower price point as a result of technological advances.
Other factors do the same thing. As I understand it, non-catastrophic climate change has moved the price point of oil in the Arctic from uneconomic to economic, to the great dismay of Greenpeace irrationalists.
I am optimistic about the further advances to be expected as a result of nanotechnology, biotechnology, catalytic chemistry and fusion technology. I admit we don’t know how to reduce the cost of energy production at the moment, using any of those technologies, but those are the known unknowns.
There are also unknown unknowns, some of which will be advantageous.
For these reasons I disagree with the main thrust of your argument.
The second leg of the metaphorical stool that is your renewables argument is that ‘once they are set up there is no fuel cost’. That used to be true of fossil fuels as well. They were so cheap you could pick them up off the ground. We’d pump them out like water and ship them to where we wanted to use them. Now it’s no longer true, and to that extent your argument is compelling. But fuel is only one of the costs associated with energy production. Infrastructure costs, opportunity costs, land costs, transmission costs and environmental costs related to renewables have all proven to be higher than Greens have forecast, and the crucial point is they have all been higher than comparable costs for fossil fuels.
Nor is energy production that simplistic. As other WUWT posts have demonstrated, ‘fuel free wind power’ has a high, ongoing natural gas fuel cost in order to ensure reliable supply.
I’m completely in favour of appropriate technology. But as I write here in Australia, it’s the middle of the night and there’s no wind. Right now, neither solar nor wind is appropriate technology, and it only makes sense to resist those who want to deny this self-evident fact on the basis of ideology. Amusingly to me, I am using renewable hydro-electricity. For their own reasons however, the Greens seem adamantly opposed to the only renewable that makes sense in my environment.
You make some compelling points, and I anticipate that in the very long term future, circumstances will have changed enough that renewables will generally make more sense than fossil fuels. For the reasons Crispin in waterloo gave, the reasons I’ve covered here, plus a few others we can cover if you think it warrants it, I do not anticipate it being in the next fifty years, and probably vastly longer.
We haven’t discussed mining methane clathrates, nor political pressures for cheaper oil by reducing taxes, nor conventional nuclear and or thorium reactors, or space-based solar power satellites, or any other alternatives that might keep the price down. Of course, the economic case for renewables will make a substantial change when or if we ever develop a vastly improved electricity battery.
To those of you mentioned above, and the other WUWT commentators, of whatever views, whether I agree with you or not, thank you for your contributions and insights. I am better informed thanks to your efforts. Perhaps on rare occasions I might even become a little bit wiser.
Resources that are sold below the total cost of production, which covers most shale in non-core areas, are not reserves no matter who claims that they are. And while tar sands are reserves they will not offset the decline in production rates from conventional sources because the cost of production in energy terms is too high. As such, the Peak Oil argument has not changed. While Willis is a very smart person he has a tendency to ignore certain arguments made by skeptics, which are easily checked by looking at the ACTUAL PRODUCTION DATA. For shale companies to claim a profit they MUST use depreciation rates that come from ESTIMATED ULTIMATE RETURNS rather that the ULTIMATE RETURNS that can be determined from the ACTUAL PRODUCTION DATA. It is easy to claim a profit when you write off only 25% of the cost of a well that has already produced more than half the oil it will ever produce. But no matter what games are played by the accountants the balance sheets and cash flow statements will tell us what is going on. And on that front we see supposedly successful and experienced shale companies continue to report funding gaps that must be closed by further borrowing, new issues of equity, or asset sales.
The poster child for accounting gamesmanship was Chesapeake energy. It is my guess that some time in the next year or two the company will run out of cash and get taken out by a larger player or simply go into bankruptcy. And while I am at it, let me point out that the Bakken data does not look very good. All that increase that excites Willis comes from drilling many new expensive wells that have high IPs. Yet, the ND Bakken data shows that in October 2011 there were 2981producing wells that had an average rate of 142 bpd. Two years later there were 6643 producing wells but the average rate fell to 132 bpd.
How does a region that is supposed to be prolific see a decline in daily average production when high Initial Production rate wells that are supposedly going to last 40 years or so after only two years? Willis has shown himself to be a good mathematician who can fly through temperature data and do some serious analysis. Why can’t he use those skills to look at what the real production data is telling us about shale and compare his findings with the story that is being told by the industry and the promoters in state capitals and on Wall Street?
I have 1,500,000,000 barrels sitting in my back yard. It is generically known as oil shale. Estimates go as high as 40 barrels to the ton in the high grade Mahogany zone.
vangelv:
At January 14, 2014 at 9:15 am you asssert
There is no “claim”.
If a material is sold to gain a profit then it is a resource BY DEFINITION.
Indeed, provision of subsidy can convert a resource to become a reserve that is sold below cost of production because the subsidy provides the profit. This is a market distortion which is often applied: e.g. for biofuels, for wind power, etc..
Richard
The old saying energy is not lost ,only converted comes to mind…
Recently, I have been trying to ‘reserve some time’ to read/study , and get up to speed on these topics of discussion. I have found out that, I cannot ‘reserve ‘ time. There is only so much to go around, and every time I reconcile the books ,I find that I have the same amount that I had when I started.I can only ‘produce’ some time by increasing my efficiency ,but can never produce extra time.
Some lightening of my load would be nice—http://en.wikipedia.org/wiki/Nanoflares
Thanks to the author and WUWT for the interesting articles and comments.
vangelv – You make some interesting comments about the games played by accountants re write-downs etc, accounting gamesmanship by CHK, and uninspiring Bakken data. I would be grateful for any links that provide the relevant data.