C4CC (2): The problem of Peak Oil, part two
This extract shows its age somewhat - the development of fracking rather changed the picture around US production, although not the fundamental reality of oil peaking in my view. I see running those things together as a real mistake that has obscured the reality of oil production over the last fifteen years. The split between the US and Saudi Arabia, for example, might have more to do with a physical incapacity on the part of SA to increase production than a desire to thumb their nose at the US. Although the latter probably helps!
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The problem of peak oil was first outlined by a petroleum geologist working for Shell in 1956, named M King Hubbert. In a presentation to oil industry representatives he described the way in which, for any oil field, only a certain amount of oil could be produced. This production, charted over time, would tend to follow the shape of a bell-curve; that is, the flow of oil from a field would build up over time and then start to decline. As a result of his analysis he predicted that the flow of oil from all the oil fields in the contiguous 48 states of the United States would peak in around 1970 and then decline.
Everyone laughed at him and told him that he was crazy.
Hubbert was proven correct in his analysis. Despite the input from Alaskan oil US oil production is around half of its level in 1970. The United States is not unusual in this – some 54 of the top 65 oil producing nations have also now passed their peak, and some of those are seeing rates of decline even faster than that experienced by the United States.
The problem of peak oil is that the world, taken as a whole, is a single oil field – and this single oil field will also inevitably peak in production rate, and then decline. The only intelligent discussion around this fact refers to the timing of the peak – when will the peak occur? Unfortunately, the answer to that question is 'round about now'. Despite the massive price increases that we have seen over the last few years there has effectively been no increase in the supply of oil since late 2004. It is extremely unlikely that this position will change; indeed, whilst the plateau may remain a few more years yet, it appears highly likely that we have gone past the point of peak production.
One fundamental point bears repetition: the problem of peak oil is not a problem about “running out” of oil – at least, not in a global sense. We are often misled by the analogy with the fuel indicator in our cars, and even within educated peak oil circles, the phrase 'running on empty' is sometimes used to describe peak oil. This analogy is a false one. With our cars, the engine will remain running as normal for as long as there is any petrol in the tank at all – we experience no difference in our driving between a tank that is 95% full and one that is 5% full. The problem of peak oil is not like this. The problems flowing from peak oil really set in at around the 50% mark, or, more precisely, the problems set in when supply can no longer keep up with demand.
Previous localised peaks (e.g. of the United States in 1970) have been counterbalanced by the introduction of new oil fields, such as those from Alaska and the North Sea. Even with that new exploration, those localised peaks had significant geopolitical consequences, e.g. the rise of OPEC once the United States could no longer choose to increase their oil production. In the 1970s, after the United States peaked, there were other areas of the world that were able to start producing in order to maintain an increasing world supply of oil. Our problem today is that almost all the oil has already been found. That is not to say that new oil is not still being found, it is to say that, in the context of world oil supply and demand, the present discoveries are at best locally helpful, at worst they are meaningless distractions. To put some numbers on that assertion, let us consider the Tupi oil field, off the coast of Brazil, which is the sort of find now trumpeted as being 'significant'. Present world consumption of oil peaked in the summer of 2008 at around 87.5 million barrels per day (mbpd); it has lessened since then due to the economic contraction. The Tupi field will supply some 1mbpd at peak production (from a total expected production of 8 billion barrels of oil). So, at peak production, Tupi will be able to meet a little more than 1% of world demand.
Another awkward feature of researching peak oil is that many of the officially published numbers need to be taken with the proverbial pinch of NaCl; this especially applies to the information given by Middle Eastern governments. Through the 1980s there was a progressive upward revision of stated oil reserves amongst OPEC countries. There is a suggestion that this was due to the link between oil reserves and allowable production, which gave members a financial incentive to claim larger reserves than they in fact had, in order to be able to maintain a higher level of production, and therefore cash flow through their economies. There were no actual discoveries made at this time.
As it is impossible to produce oil that has not yet been found and surveyed, it is worth pondering the history of oil discoveries. The amount of oil that can be discovered is limited and therefore, at some point, the amount of oil that can be produced is also limited. Whilst that might seem to be a statement of the obvious, it is remarkable how resistant many people are to accepting it. We can change the way in which this truth can be understood by saying that to maintain oil production at present levels, the equivalent of a new Saudi Arabia would have to be found every two years. We are nowhere near discovering that level of new oil fields and therefore decline is absolutely certain.